Competition / Antitrust Law

Antitrust Alert: Lessons from Japan's Fisheries Cooperative Case on Exclusive Dealing and Supply Restrictions

Japanese Attorney at Law - Bengoshi L.L.

• 8 min read
Slide illustrating the fisheries-cooperative antitrust case: 100 % supply obligations, buyer hamagai ban, JFTC commitment timeline and key AMA articles for compliance.

TL;DR

  • A Kyushu fisheries federation imposed 100 %-supply rules on producers/co-ops and banned buyers’ direct purchases, triggering a JFTC commitment procedure.
  • Such exclusive-dealing and restrictive-condition practices can lose the AMA Article 22 cooperative exemption and violate Article 19 unfair-trade provisions.
  • The case shows that industry associations and cooperatives face full antitrust scrutiny; firms must review internal rules and supplier contracts for similar restraints.

Table of Contents

  • Background: The Fisheries Federation Case
  • Alleged Anticompetitive Conduct
  • The Relevant Japanese Antitrust Framework
  • Resolution: The Certified Commitment Plan
  • Broader Context and Implications
  • Conclusion

Cooperatives and industry associations play significant roles in various sectors of the Japanese economy, particularly in agriculture and fisheries. While often formed to enhance the bargaining power and economic standing of their members (typically small or medium-sized producers), their collective activities can sometimes stray into anticompetitive territory. Japan's Antimonopoly Act (AMA) recognizes the unique nature of cooperatives but does not grant them a blanket exemption, especially when their conduct involves unfair trade practices or substantially restrains competition.

A recent case involving a major fisheries cooperative federation in Kyushu highlights the Japan Fair Trade Commission's (JFTC) scrutiny of potentially restrictive practices within such organizations and demonstrates the application of newer enforcement tools like the commitment procedure. This case offers valuable lessons for businesses, including US companies, operating in or dealing with Japanese cooperatives and industry associations.

Background: The Fisheries Federation Case

The case centered on the activities of a prefectural fisheries cooperative federation (連合会 - rengōkai) responsible for marketing dried seaweed (nori - 乾海苔) produced by individual fishers belonging to local member cooperatives (漁業協同組合 - gyogyō kyōdō kumiai, or 漁協 - gyokyō). The typical structure involved:

  1. Individual producers (fishers) consigning their harvested and dried nori to their local gyokyō.
  2. The local gyokyō collecting the nori from its members.
  3. The prefectural federation receiving the nori from the member gyokyō.
  4. The federation selling the nori via auctions to designated trading companies (指定商社 - shitei shōsha).

This centralized system aimed to streamline sales and potentially stabilize prices for producers. However, the JFTC identified several practices implemented by the federation that raised antitrust concerns.

Alleged Anticompetitive Conduct

In June 2023, the JFTC concluded its investigation into the federation through a commitment procedure, outlining the conduct that initially raised concerns under Article 19 of the AMA (Unfair Trade Practices - 不公正な取引方法, fukōsei na torihiki hōhō). The JFTC suspected potential violations related to Clause 11 (Exclusive Dealing - 排他条件付取引, haita jōken-tsuki torihiki) or Clause 12 (Restrictive Conditions - 拘束条件付取引, kōsoku jōken-tsuki torihiki) of the JFTC's General Designations of Unfair Trade Practices.

The specific practices under scrutiny were:

  1. 100% Producer Supply Obligation: The federation, acting through the member gyokyō, allegedly required individual nori producers to sign pledges committing to ship their entire production volume to their respective gyokyō, effectively preventing them from selling through alternative channels.
  2. 100% Cooperative Supply Obligation: The federation allegedly had agreements (memoranda) with its member gyokyō requiring them to ship the entire volume of nori collected from producers exclusively to the federation.
  3. Prohibition on Direct Purchases by Buyers (Hamagai Ban): The federation, as part of a wider Kyushu-region nori marketing council (九州地区漁連乾海苔共販協議会 - Kyūshū Chiku Gyoren Kankai Kyōhan Kyōgikai), allegedly established rules (in writing) prohibiting the designated trading companies from purchasing nori directly from producers (a practice known as 浜買い - hamagai). The federation required these companies to adhere to this condition.
  4. Disposal of Unsold Goods without Producer Consent: Within the regional council framework, the federation allegedly had a practice where nori that failed to meet the minimum bid price at auction (札無し品 - fuda-nashi hin) was disposed of by the federation without confirming the wishes of the producer who originally supplied it.

Collectively, these practices appeared to create a highly restrictive system, locking producers into selling solely through the federation's auction mechanism and preventing buyers from accessing alternative supply sources, thereby potentially harming competition.

The Relevant Japanese Antitrust Framework

Unfair Trade Practices (AMA Article 19)

Article 19 of the AMA prohibits entrepreneurs from employing unfair trade practices. What constitutes an unfair trade practice is defined primarily through the JFTC's General Designations. The JFTC suspected the federation's conduct fell under:

  • General Designation Clause 11 (Exclusive Dealing): This prohibits "unjustly dealing with the other party on condition that the said party shall not deal with a competitor, thereby tending to reduce transaction opportunities for the competitor." Requiring producers and member cooperatives to deal exclusively with the federation could be seen as potentially reducing the transaction opportunities for competing nori buyers or alternative marketing channels.
  • General Designation Clause 12 (Restrictive Conditions): This prohibits "unjustly dealing with the other party under conditions which restrict any transaction between the said party and the other transacting party thereof or any other business activities of the said party," beyond other specific clauses. The prohibition on direct purchases (hamagai) imposed on trading companies directly restricts their business activities and sourcing options. The 100% supply obligations could also be viewed as restricting the business activities of producers and member cooperatives.

The term "unjustly" (不当に - futō ni) implies that these practices are not per se illegal but are evaluated based on their potential to impede fair competition in the relevant market. Factors like the market power of the entity imposing the restriction, the scope and duration of the restriction, and its actual effect on competitors or trading partners are considered.

Cooperative Exemption (AMA Article 22)

The AMA provides a limited exemption for the legitimate activities of certain cooperatives established under specific laws (like the Fisheries Cooperative Act - 水産業協同組合法, Suisangyō Kyōdō Kumiai Hō). Article 22 states the AMA does not apply to acts by a cooperative (meeting certain criteria like voluntary membership and democratic control) that are deemed to be within its proper scope of activities.

However, this exemption has crucial limitations. It does not apply if:

  • The cooperative employs unfair trade practices (as prohibited by Article 19); or
  • The cooperative's actions result in substantially restraining competition in any particular field of trade, thereby unduly raising prices.

Therefore, even if a cooperative meets the structural requirements for the exemption, engaging in conduct like potentially anticompetitive exclusive dealing or imposing restrictive conditions can bring its actions back within the scope of AMA enforcement. Government bodies, including the Fisheries Agency, have issued guidance reminding cooperatives that practices like forcing members to use the cooperative's sales channels or restricting outside sales can constitute unfair trade practices and fall outside the exemption.

The Commitment Procedure (確約手続 - Kakuyaku Tetsuzuki)

This case was resolved using the JFTC's commitment procedure, introduced by amendments to the AMA effective in late 2018. This procedure allows the JFTC, after notifying a party of suspected violations, to close the case without issuing a cease-and-desist order or finding an infringement if:

  1. The party voluntarily applies for the commitment procedure.
  2. The party proposes a plan (確約計画 - kakuyaku keikaku) outlining concrete measures to eliminate the suspected conduct and restore competition.
  3. The JFTC deems the proposed plan sufficient to address the competition concerns and certain to be implemented.

If the JFTC certifies (認定 - nintei) the commitment plan, the investigation is terminated. This offers businesses a way to resolve antitrust concerns potentially more quickly and without an official finding of violation (which can have reputational consequences and facilitate private damage claims). However, failure to comply with a certified plan can lead to its revocation and the reopening of the original investigation, potentially resulting in formal orders and penalties. This was the first time the JFTC applied the commitment procedure to a cooperative association.

Resolution: The Certified Commitment Plan

The fisheries federation applied for the commitment procedure, and the JFTC certified its proposed plan on June 27, 2023. The key remedies included:

  • Ceasing the Suspected Conduct: A general commitment to stop the four types of conduct outlined above.
  • Abolishing Mandatory Obligations: Specifically:
    • Abolishing the pledge forms requiring 100% shipment from producers to their local gyokyō.
    • Abolishing the memoranda requiring 100% shipment from member gyokyō to the federation.
  • Addressing the Hamagai Ban:
    • Formally requesting the Kyushu regional nori council to delete the clause prohibiting direct purchases (hamagai) by designated trading companies from its agreements.
    • Notifying the designated trading companies and, through member gyokyō, the individual producers that the federation does not prohibit hamagai.
  • Reforming Handling of Unsold Goods:
    • Formally requesting the Kyushu regional nori council to amend its rules regarding the disposal of unsold nori (fuda-nashi hin) to ensure the producer's intentions are reflected.
    • Notifying producers, via their gyokyō, that the federation will handle the disposal of unsold nori based on the producer's wishes.
  • Standard Compliance Measures: Implementing internal compliance programs, including:
    • A board resolution confirming the cessation of the conduct and adherence to the plan.
    • Notifying member cooperatives, producers, and designated trading companies of the measures taken.
    • Thorough dissemination of the measures to the federation's and member cooperatives' officers and employees.
    • Developing and disseminating AMA compliance guidelines.
    • Conducting regular compliance training and audits.
    • Reporting implementation progress to the JFTC annually for three years.

The JFTC deemed these measures sufficient to eliminate the potential competition concerns and restore competitive conditions, particularly by giving producers more freedom in their sales choices and allowing trading companies direct access to producers.

Broader Context and Implications

This case is significant not only as the first application of the commitment procedure to a cooperative but also because it reflects a broader trend of increased scrutiny of potentially anticompetitive practices by agricultural and fisheries cooperatives in Japan.

  • Government Focus: For several years, government bodies like the Cabinet Office's Regulatory Reform Promotion Council and relevant ministries (Ministry of Agriculture, Forestry and Fisheries; Fisheries Agency) have highlighted concerns about cooperatives potentially using their collective structure or market position to unduly restrict members' business freedom. This includes practices like mandatory use of cooperative facilities or sales channels ("利用強制" - riyō kyōsei), restricting sales to competitors ("系統外出荷制限" - keitōgai shukka seigen), or imposing unfair fees for outside sales. Guidelines have been issued urging cooperatives to ensure compliance with the AMA.
  • Ongoing Investigations: As noted in the JFTC's materials and related reporting, investigations into similar practices by other fisheries federations in the Kyushu region were reportedly underway concurrently, suggesting this was not an isolated incident but part of a wider examination of the sector's practices.
  • Lessons for Businesses Dealing with Cooperatives/Associations:
    • Awareness of Restrictive Rules: Companies that are members of, or trade with, Japanese cooperatives or powerful industry associations should be aware of internal rules or agreements that might impose exclusive dealing obligations, supply restrictions, or limitations on dealing with competitors. Such rules may be vulnerable to challenge under the AMA's unfair trade practice provisions.
    • Scrutiny of Exclusivity: Arrangements requiring members to source inputs exclusively from the cooperative or sell outputs exclusively through it warrant careful antitrust review, especially if the cooperative holds significant market influence.
    • Member Autonomy: Practices that significantly limit a member's autonomy in making independent business decisions (pricing, choice of trading partners, sales channels) can raise red flags.
    • Buyer Restrictions: Attempts by cooperatives or associations to restrict whom buyers (like the designated trading companies in this case) can purchase from, or the terms of those purchases, are also subject to AMA scrutiny, particularly under restrictive conditions or potentially boycotts.
  • Implications for US Companies: US businesses operating in Japanese sectors where cooperatives are prevalent (agriculture, fisheries, finance, retail buying groups) should be mindful of these dynamics. Whether participating as members or interacting as suppliers or buyers, understanding the potential for AMA rules to override cooperative regulations or internal rules imposing anticompetitive restrictions is vital. Furthermore, the JFTC's use of the commitment procedure signals a pragmatic enforcement approach that allows for resolution without formal violation findings, which might be relevant should a company face similar scrutiny.

Conclusion

The JFTC's resolution of the Fukuoka Ariake Fisheries Cooperative Federation case via the commitment procedure serves as a clear reminder that cooperative associations in Japan, despite potential exemptions, are not immune from antitrust scrutiny under the AMA, particularly when their practices involve potentially unfair trade methods like exclusive dealing or restrictive conditions. The case underscores the importance of ensuring that cooperative rules and activities do not unduly limit the commercial freedom of their members or trading partners. For all businesses interacting within or alongside these structures in Japan, vigilance regarding potentially restrictive agreements and an understanding of the JFTC's enforcement priorities and tools are essential for navigating the competitive landscape.