Antitrust lawyers call for greater transparency in JFTC's merger control process
28 August 2017. By Sachiko Sakamaki.
As the Japan Fair Trade Commission comes off its 70th anniversary celebrations last month, it is facing calls from some antitrust experts to update some of its practices and guidelines to keep pace with a changing economic and regulatory landscape. In particular, there are calls for its merger-control process — which is generally praised as reliable and consistent with regulators in other jurisdictions, especially its advanced use of economic analysis — to become more transparent and efficient.
Under its current rules, the JFTC publicly discloses when a case goes into a Phase 2 review and discloses the results of these cases in a timely manner. The problem is that only three merger proposals went into a Phase 2 review in the last fiscal year ending March 2017, leaving the clearance process for the other 316 cases under review by the JFTC in the dark.
Months after these types of reviews are concluded, the JFTC unveils a list of notified cases in its annual report and a compilation of sample cases, which antitrust experts carefully examine to figure out the JFTC's latest thinking.
A JFTC official defended its disclosure rules by saying that companies prefer to keep their regulatory processes secret.
Antitrust experts say official numbers belie the rigorous examinations the watchdog conducts in some cases even in Phase 1 reviews, prompting them to lament the difficulty of predicting when a review will conclude.
Under Japanese rules, a Phase 1 review ends within 30 days after the submission of an official notification, and within 90 days after the submission of all requested data in a Phase 2 review.
Akionri Uesugi, a senior consultant for Freshfields Bruckhaus Deringer in Tokyo and a former JFTC secretary general, said that Japan's limited disclosure — compared to the EU, the US and even some Asian regulators — deprives interested third-parties of an opportunity to bring their complaints to the Japanese regulator, even though he praised the JFTC's improvements in its use of logical arguments and economic analysis over the years.
Uesugi said it's about time to revise the JFTC's merger-control guidelines, which were last updated in 2011, to incorporate more transparency in order to reveal its views on rapidly developing economic analysis; to articulate its stance on public concerns; and to ask more detailed questions in merger application forms to speed up the process after a Phase 1 review is officially opened. The current small number of questions on the application form is a legacy of practices adopted decades ago, when companies had a relatively stronger position versus the JFTC, he said.
One lawyer said transparency is "definitely necessary," because some merger plans in Phase 1 reviews affect a wide range of sectors, adding that there's no clear standard on what kind of merger plan will go into a Phase 2 review.
For example, when Swiss miner and trader Glencore proposed in June to buy Rio Tinto's Australian subsidiary, Coal & Allied, and its joint-venture partner's interest in a coal mine project from Mitsubishi Development, Glencore said in a statement that it had already received approval from Japanese antitrust authorities.
It's problematic that a deal that could have invited opposition from Japanese importers and needed clearances from various jurisdictions was secretly cleared by the Japanese regulator before the company even announced the acquisition plan, the lawyer said.
On the other hand, the regulator conducts intense questioning during Phase 1 reviews and even during preliminary consultations before a Phase 1 review officially starts. In fact, some merger plans encounter such rigorous JFTC scrutiny that they are nicknamed by antitrust lawyers as "Phase 1.5 cases."
Yusuke Nakano, a partner at Anderson Mori & Tomotsune, said JFTC officials have sometimes emphasized the added burden that would be imposed during a Phase 2 review on both the companies and the regulator, in an apparent suggestion that it would be better to help conclude a review before it actually goes into Phase 2, because that would involve much more complex procedures and public scrutiny.
"The gap between Phase 1 and 2 is too big for the JFTC," said Nakano, adding that the lack of clarity on the timetable from the viewpoint of the parties may be substantially the same for Phase 1 and Phase 2.
In the "Phase 1.5 cases," the JFTC sometimes repeatedly encourages companies to "pull-and-refile" — to withdraw a merger application and file it again — which results in restarting the 30-day clock. Nakano suggests that the JFTC should consider employing an EU-style mechanism to stop the clock during the 30-day period in Phase 1 reviews under certain conditions.
Kozo Kawai, an antitrust lawyer at Nishimura & Asahi, said the regulator's demand for more information during a preliminary consultation before the Phase 1 officially kicks off can be challenging, because companies often need to win regulatory clearance within a certain time frame.
He also said that there's a gap between the regulator's short-term assessment of the economic impact of a proposed merger and the long-term approach taken by some manufacturers that look five to 10 years ahead in making investment decisions.
Antitrust economists said that assessment of economic impact for two years is common globally and that they are honing their economic analysis techniques with this in mind.
Uesugi also said it would be helpful to describe some good examples of economic arguments on shrinking market demand in new merger-control guidelines, because many Japanese companies seek mergers and acquisitions to survive a contraction in Japan's domestic market. He added that it would be helpful if the regulator provided more detailed descriptions involving economic analysis, since both the regulator and companies are rapidly resorting to more sophisticated analytical techniques.