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Are the Keiretsu Anticompetitive - Look to the Law NORTH CAROLINA JOURNAL OF INTERNATIONAL LAW Volume 18 Number 2 Article 3 Winter 1993 Are the Keiretsu Anticompetitive - Look to the Law Ely Razin Follow this and additional works at: https://scholarship.law.unc.edu/ncilj Recommended Citation Ely Razin, Are the Keiretsu Anticompetitive - Look to the Law, 18 N.C. J. INT'L L. 351 (1992). Available at: https://scholarship.law.unc.edu/ncilj/vol18/iss2/3 This Article is brought to you for free and open access by Carolina Law Scholarship Repository. It has been accepted for inclusion in North Carolina Journal of International Law by an authorized editor of Carolina Law Scholarship Repository. For more information, please contact [email protected]. Are the Keiretsu Anticompetitive - Look to the Law Cover Page Footnote International Law; Commercial Law; Law This article is available in North Carolina Journal of International Law: https://scholarship.law.unc.edu/ncilj/vol18/ iss2/3 Are the Keiretsu Anticompetitive? Look to the Law By Ely Razin* Table of Contents I. Introduction .......................................... 352 II. Anticompetitive Behavior .............................. 357 A . Introduction ...................................... 357 B. Keiretsu Practices .................................. 358 1. Structural Elements ............................ 358 a. Financial Links ............................. 359 b. M anagerial Links ........................... 361 2. Operational Elements .......................... 362 a. Operational Links .......................... 362 b. Resource-Pooling Links .................... 364 i. Human Resources ...................... 364 ii. Informational and Technological Resources .............................. 365 ill. Financial Resources .................... 366 C. Types of Keiretsu .................................. 367 1. Introduction ................................. 367 2. Horizontal Keiretsu ............................. 368 a. Introduction ............................... 368 b. Links Between Companies in Horizontal Keiretsu ..................................... 370 c. Effects on the Market ....................... 372 3. Vertical Keiretsu ................................ 373 a. Introduction ............................... 373 b. Links Between Companies in Vertical Keiretsu ........................................... 3 75 c. Effects on the Market ....................... 379 III. Com petition Law ...................................... 379 A . Introduction ...................................... 379 B. Shareholding and Directorate Offenses ............ 382 1. Shareholding Offenses ......................... 383 2. Directorate Offenses ........................... 385 C. Unfair Business Practices .......................... 386 J.D./M.B.A., Osgoode Hall Law School and York University, Toronto, Canada. N.C. J. INT'L L. & COM. REG. [VOL. 18 1. Economic Theory ............................. 386 a. Economic Rationale Prohibiting Unfair Business Practices .......................... 386 b. New Efficiency Analyses .................... 388 2. General Offenses .............................. 390 a. Resale Price Maintenance ................... 392 b. Exclusive Dealing .......................... 394 c. Abuse of Dominant Position ................ 395 d. Refusal to Deal ............................ 396 IV. Analysis: Keiretsu Under the Competition Law ......... 397 A. Shareholdings and Directorates .................... 397 B. Unfair Business Practices .......................... 398 C. Evidentiary Burden ............................... 401 D . Sanctions ......................................... 402 V . Conclusion ............................................ 405 I. Introduction Record imbalance has characterized the trade relationship be- tween Japan and the United States during the late 1980s and early 1990s. While the United States trade deficit has declined from its peak in 1987 of $59.8 billion,' it is still considered insufferably ex- cessive. The recent course of the trade imbalance has not changed the perception of excess; while the imbalance had fallen to $38 bil- lion by 1990,2 it rose to $43.4 billion in 1991.3 The imbalance is projected to reach approximately $50 billion in 1992, 4 a large part of the $120 billion global trade surplus that Japan is expected to 5 amass . The development of this situation is curious because the Japa- nese economy is formally the most open of the major industrialized economies. 6 However, far more troubling to both trade partners has been the continuation of this situation.7 It has persisted despite the I Michael W. Punke, The Structural Impediments to United States-Japanese Trade: The Colli- sion of Culture and Law, 23 CORNELL INT'L L.J. 55, 57 (1990). 2 History Suggests Caution Warranted on Japanese Promises, AP, Apr. 20, 1990, available in LEXIS, Nexis Library, AP File. 3 Joel Kurtzman, Business Diary, N.Y. TIMES, Aug. 2, 1992, § 3, p. 2. 4 Id. 5 Trading Words, L.A. TIMES, July 28, 1992, World Report, at 1. 6 The average level ofJapanese tariffs on a trade-weighted basis is 2.3%. How Open is Japan?, FOCUSJAPAN, Aug. 1, 1991. 7 From 1985 to 1989, Japanese imports of U.S. manufactured goods doubled to $45 billion. USTR Hills Rejects Calls in Congress for U.S. to "Manage" Trade with Japan, 7 INT'L TRADE REP. (BNA) 681 (1990). Nevertheless, the U.S. trade deficit withJapan narrowed to a lesser degree than did the trade deficits with other major trading partners. Between 1987 and 1989, the trade deficit of the United States with the world declined by 29%, while that withJapan diminished by only 13%. Is There a U.S. -Japan Trade Problem? Look at the Statistics, Bus. AM., Apr. 9, 1990, at 6. These recent increases in the trade deficit pre- sage redoubled efforts to resolve trade difficulties. Kurtzman, supra note 3, at 2. 1993] JAPANESE CORPORATE STRUCTURE 353 elimination of most tariffs,8 the sharp fluctuation of exchange rates, and the agreement to numerous trade initiatives and agreements by both countries.9 The continuing imbalance has focused the collec- tive mind of American policy makers in particular on the elimination of the American trade deficit with Japan. Two schools of thought shape American policy-making with respect to the trade deficit with Japan. The first school advocates liberalized trade as the means to eliminate impediments to foreign activity in theJapanese economy.' 0 The second school promotes managed trade as the means to guaran- tee American access to a certain percentage of the Japanese market in any single industry.'1 The influence of each school of thought is evident in the seemingly schizophrenic American policy toward Ja- 8 Other than tariffs protecting agriculture and fisheries, Japanese tariff barriers have been virtually eliminated. Of the twenty-one categories of tariffs which are still applicable, only one applies to the manufacturing sector. The remaining tariffs apply to agriculture and fisheries. The rice market is the most notoriously protected market in Japan. Like all measures insulating inefficient domestic producers, the protection ofJapanese rice produ- cers inflates the costs consumers must bear; in effect, Japanese citizens pay twice to inflate rice prices - once in their capacities as taxpayers, for the payment of subsidies to domes- tic producers, and a second time in their capacities as consumers for the purchase of artifi- cially-expensive domestic rice. The total annual cost for rice market protection is estimated at $800 per household. Isaac Shapiro & Constance C. Hamilton, How to Succeed in Japan: Time for U.S. Firms to Focus on Post Entry Survival, E. ASIAN EXEC. REP., May 15, 1990, at 8, 13. The U.S. trade authorities frequently point to the rice market as a major source of trade friction between the two nations. Id. This is curious, indeed, as the reduc- tion of tariff barriers to rice would benefit low-cost South-East Asian producers to a far greater extent than it would benefit higher-cost American producers. 9 See Glenn Fukushima, United States -Japan Free Trade Area: A Skeptical View, 22 COR- NELL INT'L L.J. 455 (1989). In 1987, Japan imported manufactured goods equivalent to only 2.4% of its Gross National Product. Comparable figures for the United States and West Germany, the other major trading economies, were 7.3% and 10.5%, respectively. Id. at 456. 10 The Reagan-Bush years have seen successive U.S. administrations forcefully pro- moting liberalized trade, though Congress has been less enamored of this policy. While the vehicle for trade liberalization has been the General Agreement on Tariffs and Trade (GATT) since the end of World War II, the early 1990s has witnessed both the faltering of the most recent Uruguay Round of the GATT and the reorientation of American liberal trade policy away from multilateral arrangements, like GATT, and toward bilateral ar- rangements like the Structural Impediments Initiative (SII). This increase in bilateralism is likely a necessary precondition to the emergence of extensively managed bilateral trade relations. II In contrast to the absence of vociferous advocates of liberal trade policy, several prominent authorities heartily advance managed trade and the reformation of U.S. trade policy. See, e.g., CLYDE V. PRESTOwrrZ, TRADING PLACES: How WE ALLOWED JAPAN TO TAKE THE LEAD (1988); KAREL VAN WOLFEREN, THE ENIGMA OF JAPANESE POWER: PEOPLE AND POLITICS IN A STATELESS NATION (1989); Senator Max Baucus, A New Trade Strategy: The Case for BilateralAgreements, 22 CORNELL INT'L L.J. 1 (Winter 1989). While the liberalized trade school's
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