METI and FTC tussle over Nippon Steel and Sumitomo Metal merger

Tuesday, 08 Feb 2011
It is reported that the mega merger between Nippon Steel Corporation and Sumitomo Metal Industries Limited has become the subject of a tug of war between the trade ministry and an antitrust watchdog.
As per report, the Ministry of Economy, Trade and Industry is pushing for a realignment of Japanese businesses that would bolster companies' global competitiveness. The ministry is seeking to influence the Fair Trade Commission, which will scrutinize the planned merger for violations of the Anti Monopoly Law, by revising the Industrial Revitalization Law.

The FTC revised the criteria for examining mergers in 2007 to take into consideration the combined share of companies planning to merge in overseas markets, not just their share of the Japanese market.
The revision followed criticism that the existing criteria, which involve scrutiny of the combined share only in the domestic market, would thwart large scale mergers and realignments comparable to those taking place overseas.
With the revised criteria, the FTC was expected to look into the combined share of each product in the global market. If the share totals roughly 40% in one operation, the FTC would instruct the would be merged company to cede the operation to other companies.
Businesses had expected the Japanese watchdog to be on par with its US or European counterparts in handing down less stringent decisions. But they argue that the FTC is still too conservative about mergers between leading players. Among the limited number of sectors for which the FTC has studied such combined shares in overseas markets are hard disk drives, semiconductors and paraxylene, a chemical material used to make medicine.
One business observer said that "It is hard to determine if a merger plan would cause problems or not because details of only a few precedents were made available by the FTC."

While the EU's antitrust watchdog is legally obliged to disclose results of all cases it studies, it is up to the FTC to decide which cases will be made public.
The industry ministry became convinced that the 2007 criteria revision alone would not facilitate realignment of Japanese industries at the same level of other major economies and would erode Japanese companies' global competitiveness.
The ministry intends to submit a bill during the current Diet session to overhaul the Industrial Revitalization Law that would require the FTC to have a consultation with a minister who oversees the industry in which a merger is planned. But easing the criteria could also backfire, ending up depriving the market of free competition.
Taking precautions against the proposed legislation by the ministry, an FTC senior official says that it will be up to the watchdog how the outcome of the consultation will be incorporated into its antitrust scrutiny.

In fiscal 2009, the production volume of cold rolled steel, which is used to make vehicles and electric appliances, and of hot rolled steel for railway cars and roof materials by Nippon Steel and Sumitomo Metal accounted for about 50%, respectively, of overall production, including exports, by Japanese steelmakers.
The proportion of hot dip galvanized steel plates used for automotive bodies and planks for shipbuilding and bridges came to about 40% each. The two companies hold an overwhelming market share for railway tracks and wheels, while their sheet steel used at construction sites represented about 70%.(sourced:www.asahi.com)