894.602/9–2048
The Acting Political Adviser in Japan (Sebald) to the Secretary of State
No. 619
[Received October 6.]
Sir: I have the honor to enclose1 a copy of a press release by the Public Information Office of this Headquarters entitled “SCAP’s Deconcentration Review Board and Holding Company Liquidation Commission Hold Meeting”,2 and to report on the possible effect of that release on future deconcentration policy.
The Deconcentration Review Board, it will be noted, has submitted four basic principles to be followed by the HCLC in administering Law No. 207 of 1947, “Elimination of Excessive Concentration of Economic Power”, which principles, according to Mr. R. S. Campbell, Chairman of the Board, constitute no change in the policy of this Headquarters.
We find it difficult, however, to agree that there has been no change in policy. The Japanese press and the Anti-Trust and Cartels Section are of the same opinion, pointing out that the new statement has definitely relaxed the application of the Deconcentration Law. The first principle in particular seems to have had that effect; it requires that a prima facie case must be made to show that a company “restricts competition or impairs the opportunity for others to engage in business independently in any important segment of business”, and thus apparently discards the standards on the basis of which designation for reorganization has hitherto been made.
Article 3 of the Deconcentration Law provides as follows:
The HCLC shall designate excessive concentrations of power which exist on the effective date of this law or which shall have been in existence at any time between August 1, 1945 and the effective date of this law, and shall eliminate such excessive concentrations of economic power in the interest of public welfare.
For this purpose, an excessive concentration of economic power shall be defined as any private enterprise conducted for profit, or combination of such enterprises, which by reason of its relative size in any line or the cumulative power of its position in many lines, restricts competition or impairs the opportunity for others to engage in business independently, in any important segment of business.
[Page 1018]The HCLC shall designate excessive concentrations of economic power in accordance with the foregoing definition and in accordance with standards to be adopted under the provisions of Article 6.
The last clause, according to Mr. E. C. Welsh, Chief of the Anti-Trust and Cartels Division of this Headquarters, was inserted because of the impossibility under a controlled economy of showing that any company “restricts competition”. It was therefore concluded that certain standards, based on such factors as the control by any one company of a large proportion of the productive power in any industry, would be needed to determine excessive concentrations. The HCLC subsequently prepared such standards with the approval of this Headquarters (this Mission’s despatch No. 126 of February 27, 1948),3 which standards became the basis on which designations for deconcentration were made. It is Mr. Welsh’s belief that the Deconcentration Review Board has chosen to ignore this critical provision of the law. Although the Board has not offered any clarification of its statement, he feels that this action will make the drafting of any final order for reorganization extremely difficult. It is impossible, Mr. Welsh believes, to show that any company is currently restraining competition, since competition can not exist under a system of price control and allocation of funds and materials; and it may therefore be concluded that large numbers of companies, if not all companies, must be released from designation.
The Japanese press and businessmen in Tokyo agree in substance with Mr. Welsh’s views. Mr. J. P. Boyer, special representative of Westinghouse International Company, for instance, has expressed great satisfaction at what he considers a major change in policy, and one that will probably release Mitsubishi Electric, a pre-war Westinghouse affiliate, from designation. The Nippon Times, in discussing the recent announcement (clipping enclosed), reports that the principles “are expected to effect considerable changes in the plan for reorganizing holding companies.” The same paper, in the enclosed editorial, notes that the announcement “should serve to allay the disquiet which has been manifest in certain quarters concerning the possible effects of the Deconcentration Law”. Asahi, in an editorial, a translation of which is enclosed, concludes that “these principles will have far reaching effects upon the treatment of the 100 companies which are now subject to division”.
At the meeting of the Deconcentration Review Board and the HCLC mentioned in the SCAP release, the HCLC was ordered to review in the light of the new standards the 180 orders it has thus far prepared. The Nippon Soda reorganization, which was discussed as a crucial [Page 1019] test of policy in this Mission’s despatch No. 596 of September 10, 1948,4 has accordingly been suspended pending further consideration. The Deconcentration Review Board has found the order in conflict with the new principles, and has ordered the HCLC to show conclusively that the company has operated in restraint of trade. The Board has further noted that, contrary to the second of the four principles, the Nippon Soda reorganization was based on a voluntary plan submitted by the company, and that operation in non-related lines of business was evidently considered evidence of excessive concentration. The Board has admittedly not limited itself to a finding of the effect of the reorganization on the Japanese economy, which finding was specified as the Board’s main concern in its terms of reference.
Hope is expressed in the Japanese press (see the enclosed translation of editorial from the Tokyo Shimbun) and by businessmen in Tokyo that the way has been opened for further revisions in SCAP policy. In particular, it is expected that the Anti-Monopoly Law (Law No. 54 of 1947) will be revised to encourage foreign investments by repealing restrictions on intercorporate holdings and international contracts. Such a revision would of course invalidate many of the orders for stock disposal handed down by the HCLC under the Deconcentration Law.
Respectfully yours,