EDITORIAL | Nissan Case a Warning to Firms with Unfair Trade Practices

The Fair Trade Commission (FTC) has found that Nissan Motor Co violated the Subcontract Act by unilaterally reducing its payments to subcontractors. 

Aiming to reduce costs and boost profits, the company allegedly cut payments owed to 36 subcontractors. The subcontractors were shortchanged by more than ¥3 billion JPY ($20.4 million USD) over roughly two years. The FTC recommended that the company establish a legal compliance management system. It would be centered on Nissan's president to prevent a recurrence of the problem. 

Nissan is a major global corporation. It is forecast to enjoy sales of around ¥13 trillion ($88.5 billion) and a net profit of ¥390 billion ($2.65 billion) during FY2024. The company has engaged in appalling behavior by forcing subcontractors to accept reduced payments to pad its own profits. 

Nissan's Impact on Overcoming Deflation

Nissan's underhanded behavior also dampens momentum to escape the deflation quagmire. Its actions prevent appropriately passing on rising costs for inputs such as raw materials and fuel in final product prices. 

Now, Nissan has returned the full amount by which it shortchanged its subcontractors. However, we still want to see the responsible ministries crack down on such sleazy practices. 

The Subcontract Act specifically prohibits unilateral reductions in payment amounts that have been mutually agreed upon. Exceptions under the rules are only for cases where the subcontractor is at fault. Meanwhile, the FTC has stated that similar violations of the Subcontract Act have occurred repeatedly in the auto industry. Moreover, it has indicated that it will urge the Japan Automobile Manufacturers Association to prevent such abuses from happening again. 

Protecting SMEs and Their Employees

To bring about a situation in which small- and medium-sized businesses boost their wages, the government is increasing its oversight of large corporations with which these smaller companies do business. 

In December 2022, the FTC publicly released the names of firms that had not engaged in negotiations to reflect the rising costs of raw materials and other inputs for smaller companies in their transaction prices. Also, in November 2023, it issued guidelines to facilitate smaller companies passing on their personnel costs in their transaction prices. 

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Similarly, in February 2023 for the first time, the Ministry of Economy, Trade and Industry (METI) made public the names of large companies that have been reluctant to negotiate price increases. The list includes companies reluctant to accept dealing with the rising costs squeezing smaller companies.  

Furthermore, METI has increased to about 300 the ranks of specialized investigators whose job is to investigate the actual situation. These "subcontractor G-men" look at transactions between subcontractors and large companies and work to protect the interests of subcontractors.

Achieving Higher Wages

Wage increases have failed to keep up with historic price increases. Moreover, real wages, which reflect price fluctuations, continue to trend below prior-year levels. Attaining a situation in which wage increases in society as a whole outpace price increases depends on their adoption by smaller companies. It matters especially because these companies account for around 70% of total employment in Japan. 

The FTC's stiff recommendation to Nissan should serve as food for thought for other large corporations that order from subcontractors. If cost increases are not appropriately passed on in transaction prices and wage increases do not spread throughout society, Japan's prospects for escaping the deflation trap will remain murky. 

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(Read the editorial in Japanese.)

Author: Editorial Board, The Sankei Shimbun