JFTC proposes revisions to the Environmental Sustainability Guidelines

Background 

On 15 February 2024, the Japan Fair Trade Commission (JFTC) published revised draft “Guidelines Concerning the Activities of Enterprises, etc. Toward the Realization of a Green Society under the Antimonopoly Act” (Guidelines) and invited comments.

The JFTC published the original Guidelines in March 2023 (see our update here).  They sought to encourage businesses to work together to create a carbon-neutral society.  Since then, the JFTC has explained the Guidelines to businesses, consulted with them on specific initiatives and solicited feedback. This engagement has prompted the JFTC to revise the Guidelines to clarify the position of joint equipment disposal, joint procurement and similar initiatives under the Antimonopoly Act.  The consultation closed on 18 March 2024 and the revised Guidelines could be published as soon as April.  This blog post explains the main changes the JFTC has proposed.

Proposed revisions

Clarification of joint equipment disposal, joint procurement and other initiatives

The 2023 Guidelines stated unequivocally that cooperation which restricts important parameters of competition, such as price, infringes the Antimonopoly Act—even if it has a green objective. 

The proposed revisions clarify that a joint initiative is unlikely to infringe the Antimonopoly Act if: (i) it does not aim to restrict competition, (ii) it is necessary for decarbonisation (examples provided are equipment renewal or technology development), (iii) there is no less anticompetitive alternative, (iv) its restrictive effect on competition is limited and (v) it does not result in a “substantial restraint of competition in a particular field of trade.” (i.e., a product or geographic market).  This applies even if the cooperation involves information exchange or restrictions on important parameters of competition, such as output. 

Measuring and evaluating decarbonisation

The original Guidelines acknowledged the uncertainty around the compatibility of green initiatives with competition law.  They committed to continually reviewing the Guidelines as markets, technology and enforcement practice evolves.  They also invited businesses to consult with the JFTC on whether a decarbonisation initiative infringes the Antimonopoly Act.

The revised Guidelines provide more detail on how the JFTC will evaluate these initiatives.  They note, first, that businesses need to continually adapt to new developments, such as changes to green regulation, international standards, market changes and technological progress.  These developments are an important background against which to test an initiative’s green impact and impact on competition.  The Guidelines also explain that the JFTC will consider businesses’ explanations and justifications for an initiative but will place more weight on government ministries’ assessment of its decarbonisation effects. These effects will be calculated according to a range of domestic and international benchmarks, including—but not limited to—the Japanese Energy Saving Act, the Japanese GX League standard and the international Greenhouse Gas Protocol.

Practical examples of ASBP

The revised Guidelines also explain which green initiatives may or may not amount to an abuse of a superior bargaining position (ASBP).  ASBP is tantamount to imposing unfair terms on counterparties and does not require dominance.  The Guidelines explain that imposing costs on a distributor by requiring them to introduce non-fossil-fuel vehicles while refusing to negotiate reflecting the costs in lower rates is likely to amount to ASBP.  Conversely, inviting the distributor to propose a rate that reflects the cost and discussing its reasonableness is unlikely to amount to ASBP because the supplier is not unilaterally setting the rate.  

Market definition

Finally, the revised Guidelines clarify the circumstances in which green products and non-green products constrain one another.  Users with a strong preference for green products—that is, products that contribute to decarbonisation—may not consider a non-green product a substitute.  As demand-side substitutability for these users is limited, green and non-green products will likely form distinct product markets.  Users who are ambivalent about decarbonisation are likely to consider green and non-green products as substitutes and choose between them according to other factors, such as price.  For these users, there may be a single product market encompassing green and non-green products.  The revised Guidelines add that even if distinct markets are defined, green and non-green products are still adjacent markets and still exert a competitive influence on one another as out-of-market constraints.

Takeaway

The JFTC has been very active in voicing its views on how much weight sustainability should be given in antitrust analyses. The JFTC has been reviewing several companies’ sustainability-driven collaborations and proactively publishing individual cases on its website. The revised Guidelines demonstrate the JFTC’s continued interest in being at the forefront of this topic, including through potential enforcement action where necessary.

The detailed criteria provided for sustainability-driven joint projects also provide a useful yardstick for horizontal cooperation outside these objectives, as the JFTC does not currently have any general written guidance on competitor collaboration.