Introduction

Mr. Chairman and Members of the Subcommittee:

    My name is John C. Reichenbach. I am the Director of Government Affairs for PPG Industries, Inc. (“PPG”). This Subcommittee asked PPG to provided testimony regarding the Company’s experiences with anti-competitive practices in the Japanese market and the Government of Japan’s responses to such practices. It is the hope of PPG that today’s hearing will shed light on the manner in which the anti-monopoly law is – or perhaps, more accurately, is not – enforced in Japan.

    Because my career at PPG has caused me to deal with this problem extensively, I have been asked to appear here today in order to share my Company’s views. I joined PPG in 1958 and have served in a variety of positions in the glass business of the Company, including Director of Industry and Business Analysis, Director of Market Planning, and Director of Marketing. I became the corporate Director of Government Affairs for PPG Industries, Inc. in 1994. In these capacities, I have dealt often with the long-standing problems PPG has encountered in Japan’s flat glass market.

About PPG

    PPG was the first commercially successful plate glass manufacturer in the United States and has been a glass technology leader since 1883. PPG’s glass operations had global sales exceeding $2.5 billion last year. PPG Industries has 18 glass manufacturing facilities in 14 states employing nearly 10,000 highly skilled American workers. The Company is the largest manufacturer of glass for commercial and residential construction in North America. PPG’s glass business units supply automotive, aircraft and other transportation original equipment and replacement glass parts, glass for commercial and residential construction and remodeling, and products for industrial, mirror and furniture applications. PPG is also a global producer of fiber glass, coatings and chemicals.

    Most glass today is produced by the float process. Molten glass is poured continuously from the melting furnace into a second furnace containing a bed of molten tin. The molten glass floats on the tin and gradually cools until it forms a continuous ribbon. The solid state form is conveyed into another furnace known as an annealing lehr, where the controlled cooling process is completed. The continuous glass ribbon is then cut into the customers’ sizes and packaged for shipment.

PPG in Japan

 PPG’s interest in the Japanese market is long standing. Indeed, PPG entered the Japanese flat glass market in 1967 and has had a continuous presence ever since. Japan has the second largest glass market in the world. It is, therefore, an important one from both economic and strategic points of view.

     Despite the Company’s world class technologies and global success in manufacturing and selling a wide range of glass and other products, we have encountered severe market entry barriers in the Japanese flat-glass market which for many years have frustrated the attempts of PPG and other non-Japanese producers to enter the Japanese market. During the more than thirty years PPG has operated in Japan we have attempted every plausible method to gain greater access to the flat glass market. Our efforts, however, have yielded very little success due to fundamental distortions in Japan’s flat glass market.

    Broadly speaking, the Japanese producers of flat glass and down-stream products of flat glass have engaged in a wide range of patently anti-competitive activities. Moreover, the evidence available to us strongly suggests that the Japanese producers originally established a collusive market allocation arrangement with the knowledge and acceptance of their government. For as long as I can remember, the market shares in Japan of the three Japanese glass producers have remained essentially the same.

    These practices have been and are pervasive and of a nature that, if undertaken in the U.S. market, would be subject to intense antitrust enforcement activity by authorities at the federal and state level. By contrast, the Japanese Government has not pursued even the most egregious instances of anti-competitive behavior, thereby attracting widespread criticism for inadequate enforcement of its anti-monopoly laws.

Anti-Competitive Trade Practices

    During its more than three decades of operation in Japan, PPG has observed a litany of anti-competitive practices occurring in the Japanese flat glass market. Attached to my testimony you will find a longer listing of some of these practices, but I would like to highlight several areas for you.

Restrictive Distribution Practices

    Japanese flat glass producers have imposed informal sales quotas on their suppliers. These quotas operate by prohibiting Japanese distributors from buying any non-Japanese affiliated foreign manufactured glass until a minimum quota amount of Japanese produced glass is first purchased. If a Japanese distributor does not meet the quota for purchases of glass from his Japanese suppliers before buying glass from independent foreign producers, the distributor faces any of a number of pressures ranging from unfavorable credit reports, to forfeiture of cash deposits made in advance of purchases, to social ostracism.

2) Oversight of Distributors by Producers

    Japanese producers exercise control over the distributors in many ways. Some are direct, such as the acquisition of partial ownership or forced consolidation of distributors. In some cases, Japanese producers require distributors to open their accounting and purchasing records to the producers, so that the source of purchases is known to the Japanese producers. In other cases, Japanese producers have been known to place their personnel on the management staff of their distributors. In effect, this means that Japanese producers can monitor and then later pressure distributors to limit the amount of glass that is purchased from other suppliers, such as PPG.

Evidence of Collusion

    One of the strongest proofs of the collusive nature of the Japanese market came from a Japanese employee of a U.S. glass producer who has stated that he personally collected and aggregated the production numbers of the Japanese producers so that each could regulate their production according to the agreed market share.

    Additional strong evidence of collusion is contained in recent comments reported in the Japanese press which suggest that Japanese producers and distributors are engaged in price signaling if not outright price fixing. In the April 15, 1999 issue of the Nippon Keizai Shimbun, an executive of one of the large exclusive glass distributors signaled that he was going to accept a manufacturer’s proposal for a new pricing structure for the entire industry and encouraged the rest of the industry to do so as well stating, “It is a good time (for the glass industry) to reconsider the current glass pricing structure when the whole industry is suffering from excessive competition among themselves.” This clear call for price coordination was designed to allow an increase in prices. (A copy of the article and translation is attached.)

    Japanese glass manufacturers also employ a less than arms-length relationship in their business dealings. These relationships extend to credit suppliers and advertisers as well as their distributors. In one instance, PPG called a Japanese trade publication to arrange to buy advertising space for the sale of PPG glass products. Despite having been told that space was available, in a subsequent meeting with the newspaper to finalize arrangements for the advertisements, PPG representatives were told that the newspaper could not offer space to a foreign flat glass producer. The reason given was that the newspaper would suffer the loss of all advertising revenues from Japanese producers if it sold space to a U.S. glass producer.

4) Tie-in Sales

    Distributors have in the past explained to our sales personnel that if they made large flat glass purchases from PPG they could expect higher prices, or even a total cut-off from supply, on special glass products which are not made by independent foreign suppliers, and thus must be bought from Japanese makers. These threatened reprisals intimidate distributors from buying large quantities of foreign glass.

    These producer practices are designed to monitor, discipline, and ultimately control the distribution channels in the Japanese flat glass market. These practices run counter to both US antitrust law and the letter of the Japanese anti-monopoly law. Yet, in each of these cases no effective remedial action has been taken.

     In a 1993 JFTC study, the government of Japan noted a number of anti-competitive practices in the flat glass industry, confirming the first-hand experiences of PPG. This remarkably frank examination of the Japanese flat glass market provided many insights into the state of the industry. The survey found that “each [domestic] manufacturer does not engage in trying to sell to the distributors of another manufacturer, nor does it try to induce the distributor of another manufacturer to become its distributor.” The survey acknowledged that there is a vertically integrated structure to the flat glass market, in which “essentially all primary wholesalers are in actuality the exclusive agents of one of the manufacturers.”

    Further, the JFTC found that there were instances in which makers or exclusive distributors had “either lodged complaints to or harassed agencies who had sold imports” and it confirmed that “there were instances of [retailers] being pressured by manufacturers or contract agencies…if they expanded purchases of imported products or initiated new purchases.” The surveys finally found that “Japan’s flat glass market [is] virtually monopolized by the three glass makers, [and that] the system of sales through exclusive distributors ha[d] barred access by other suppliers.”

     The JFTC market survey confirmed the anti-competitive experiences that PPG had witnessed. During its time in Japan PPG has tried every plausible way to increase its market presence. PPG has hired Japanese nationals for its sales staff, both as inside and outside staff. PPG has participated in trade shows, and even formed a Japanese glass marketing joint venture with the Japanese trading company, Itochu. Over the years we have established sales offices, fabrication facilities and cutting centers in Japan. A 1997 survey by Japan’s Ministry of International Trade and Industry (“MITI”) and Ministry of Construction (“MOC”) found that Japanese buyers viewed PPG’s products as equal or superior to the quality of Japanese products. Moreover, PPG consistently was able to price its glass at 20% – 30 % below comparable Japanese products until last year but now is encountering selective predatory pricing by Japanese producers.

    Thus, all of these efforts have been thwarted by a coordinated scheme to protect market share and preserve a closed market structure in Japan.

Effect of the 1995 US-Japanese Flat Glass Agreement

    The U.S.-Japan Flat Glass Agreement held out the hope for change, but after nearly five years of its operation, it has not lived up to its initial promise. Today, the Japanese flat glass market remains largely unchanged. The practices which I have cited have not gone away. Indeed, PPG continues to experience overt and covert anti-competitive behavior.

    Initially, because of producer pressure, Japanese distributors demanded that PPG repackage it’s glass into Japanese containers so that distributors’ purchases of non-Japanese affiliated glass could be more easily disguised. For the same reason, PPG also was told to deliver its products only on Sundays. Additionally, deposits collected by the Japanese producers from distributors to reserve future glass purchases have been threatened with confiscation if distributors continued buying U.S. glass products. These practices, and a laundry list of others, continue unabated despite the U.S.-Japanese agreement.

    In addition, we now see aggressive new predatory pressures in Japan. Perhaps in desperation over the economic recession in Japan, during 1998 and 1999 to date the Japanese producers have resorted to unprecedented, deep, selective price cuts. This practice by the Japanese producers is a narrowly focused attempt to retain distributors who had begun to purchase quantities of PPG glass by offsetting PPG’s cost/price advantages.

    The Government of Japan has claimed that the flat glass agreement has resulted in a larger market presence for foreign manufacturers. This claim, however, runs counter to the facts.

    For example, the Government of Japan’s simple assertion that 14.7 % of the Japanese flat glass market in 1997 was supplied by imports does not tell the whole story. Of that 14.7%, approximately 4 share points were accounted for by PPG sales of automotive privacy glass to the Japanese flat glass producers. Clearly, this glass did not go through the traditional distribution channels. Another 8 share points were attributable to imports from affiliates of the Japanese flat glass producers in the U.S. and elsewhere. In addition, much of this glass consisted of fabricated automotive glass parts which, once again, did not travel through normal flat glass distribution channels. Thus, the remaining 2 or 3 share points were the only flat glass imports relevant to a discussion the anti-competitive structure of the flat glass market.

    This highlights the stark imbalances in the flat glass markets of Japan versus the United States. Japanese glass producers and their wholly owned affiliates in the U.S. enjoy unfettered access to the U.S. market, holding approximately a 25% market share, while U.S. producers are blocked from the intensely anticompetitive Japanese market. In addition, the Japanese affiliates based in the U.S. and other countries also enjoy unrestricted access to the Japanese market. For example, 91% of the automotive glass shipped to Japan from the U.S. in 1998 came from wholly owned subsidiaries of Japanese flat glass producers. It is particularly frustrating that these imbalances are founded on business practices which would be vigorously prosecuted by the competition authorities in the U.S., Europe, Canada, and elsewhere.

    Thus, the independent foreign producer share of 2-3% has remained relatively unchanged in the Japanese flat glass market. Of equal concern to PPG is the continuing lack of enforcement of Japan’s anti-monopoly laws. It is these laws and the practices they are designed to prevent that hold out the hope of significant change in the Japanese flat glass market.

Conclusion

    With these facts in mind we hope that the United States Congress and the Administration will act to ensure that the Japanese enforce the anti-trust laws which they currently have on the books. We have asked the JFTC to investigate these practices and take action. We believe that a thorough, unbiased investigation of the Japanese flat glass market will reveal a number of anti-competitive practices. Elimination of these market distortions would substantially open the Japanese flat glass market to independent foreign manufacturers.

   We also recommend that the measure of success, in this undertaking be the accomplishment of defined objectives within the near term. In order to pursue this type of success we also urge that the U.S. - Japan Flat Glass Agreement be strengthened and renewed before the end of this year.

   This concludes my prepared testimony. I am prepared to answer questions or assist the Committee in any way.