A New Consumer Agency for Japan? Consumer Redress, Contracts and Product Safety

[Originally posted, with full hyperlinks, at http://eastasiaforum.org/author/lukenottage/]
The Kyoto Shimbun reported last Wednesday the first de facto victory by a consumer representative group in injunction proceedings regarding unfair contract terms. The same page mentioned the Education Ministry’s response to the recent death of a sixth-year elementary student, who choked on some bread provided in school lunches – basically, ‘chew well’! By contrast, Japan’s largest manufacturer of konnyaku (konjac) jelly snacks, MannanLife, halted all production after a one-year-old boy choked to death on 29 July.
But that situation is rather different. It also more directly highlights when and how a new Consumer Agency (shohisha-cho) might emerge in Japan. Ex-PM Fukuda’s Cabinet approved a Bill, but it then resigned without putting it through. It is unclear when and how PM Aso will submit a new Bill, and what line the opposition DPJ will now take, especially given the uncertainty about a possible early general election.

Japan enacted a Consumer Contracts Law in 2000, addressing both unfair terms (partly influenced by a 1993 EU Directive) and unfair tactics by suppliers in contract negotiations with consumers (now addressed more comprehensively by a 2005 Directive). The Act was amended with effect from June last year to allow injunction proceedings by consumer representative groups, again following a lead from EU law. Six groups have been accredited by the Japanese government, including the “Kyoto Consumer Contracts Network” NPO (or NGO). In August the Network filed for an injunction preventing a lessor from enforcing a clause stating that lessees would be unable to obtain any refund of a deposit (shiki-kin), usually given only to cover any expenses required to restore the vacated premises to a reasonable state. The lessor provided an undertaking in the Kyoto District Court that it would not enforce this clause against the 12 existent lessees, declaring that it ‘didn’t intend to go against the trend of respecting consumers’ (‘Shohisha dantai, hatsu no ‘shoso’’, Kyoto Shimbun, 22 October 2008, p 26).
Meanwhile, since last year I have been involved in two comparative research projects for Japan’s Cabinet Office (with primary responsibility for consumer policy, since absorbing the Economic Planning Agency in the 2001 reorganisation of central government bodies). The Office is investigating the possibility of allowing new representative actions for damages under consumer legislation. Again, this parallels intense interest in the EU for better ‘collective redress’ mechanisms for consumers, even if not necessarily the model of (opt-out) ‘class actions’ pioneered in the US, and more recently adopted in Canada and Australia. Australia has allowed such class actions since 1992 for federal legislation and since 2000 for claims under state law in Victoria. Although comparatively few suits have proceeded to final judgment, and have dropped off since Australia’s ‘tort reforms’ in 2002, they have helped give rise to several major plaintiffs’ law firms (including one listed company).
But what of the other consumer law development mentioned more briefly on the same page of the Kyoto Shimbun? In October a 12-year-old elementary student choked to death after biting into a 10-cm round bun provided with the lunch at his public elementary school, and then breaking the rest in half to stuff into his mouth. The Education Ministry later told prefectural boards to instruct students to chew their food properly. But staff at one elementary school in Kyoto also apparently told students that the accident happened because the boy had got into an eating race with his classmates. Even if that’s not true, this seems quite a freak accident that does not require much more government action, except perhaps for further investigation in the pervasiveness of such accidents.
We are too often ‘Fooled by Randomness’, as Professor Nassim Taleb explained his tour-de-force first published in 2004 (a prescient critique also of most other Wall Street traders, which investors and regulators in the US and worldwide should have taken more seriously). It turns out that 4407 died by choking in Japan in 2006, but only one was aged 10-14 while 85% were over 65. And o-mochi (sticky rice cakes) remained the top culprit, followed by rice, bread and o-kayu rice porridge. Bans or recalls therefore seem unnecessary, despite the tragedy of another boy’s death this month, and despite the strong public and media attention these days on food safety in Japan (indeed, perhaps because of that very attention – social psychologists often point to a general propensity to over-estimate remote risks).
It might be different, for example, if bread suppliers have changed their recipes or the shape of buns to make them significantly more likely to cause accidents. Even then, actual or potential private law claims may generate a more fine-grained framework for weighing such increased risks against overall social welfare gains, although this indirect incentive to establish optimal safety levels depends crucially on the ability to file such claims and may seem harsh on those (initially) injured. Such claims would be increasingly based on the 1994 Product Liability Law, similar to the 1985 EC Directive and Part VA added in 1992 to Australia’s federal Trade Practices Act. Negligence can also be alleged against intermediaries under the Civil Code, or the government under the State Compensation Act. Local and central government is often sued especially in mass-claim situations, perhaps even more than in other civil law tradition countries like Germany, as with the judgment against Sakai City on 10 September 1999 due to 0-157 bacteria in its school lunches.
Applying this framework, konnyaku jelly snacks seem rather different. The case for regulation is stronger, due to higher probability of fatal harm. Manufacturers have designed out some major defects, but seem to be having trouble updating and communicating adequate warnings. However, even in this case an argument remains that consumers overall deserve to be able to keep buying such snacks, at least in Japan where they are eaten in large quantities and most people are still conscious of the major risks – like they are for o-mochi. Maybe private lawsuits are still enough. Yet the arguments are more finely balanced.
In 2000, I published an analysis of how these snacks started to become popular from around 1995, only to lead to several fatal choking accidents among infants and the elderly. Various efforts were made to improve safety features over the late 1990s, especially by the government’s Consumer Lifestyle Centres (CLCs, shohi seikatsu senta), other regulators in consultation with the relevant industry association, and the manufacturers themselves. Mostly, manufacturers were encouraged to add quite prominent warnings about risks (further heightened if the snacks are frozen). But they were also encouraged to change shapes or sizes (to make them harder to swallow in one mouthful), as well as the texture (especially by reducing the konnyaku root powder proportion, to make the snacks softer and easier to swallow).
Eight deaths had been reported over 1995-6, and at least two cases were filed regarding accidents that in 1996. One based on the PL Law was filed in 1998 against MannanLife, which settled in 2001 (case 15). The other settled in 1997, against an unknown manufacturer and based on the Civil Code (perhaps because the lawyer wasn’t confident of proving that the jelly snack was supplied after 1 July 1995, when the strict-liability PL Law came into effect).
Despite these developments, more deaths have occurred especially in recent years: two in 1999, one each in 2002 and 2005 (including a second caused by MannanLife snacks), two each in 2007, and this year’s third death from a MannanLife product – bringing the total to at least 17 fatalities. Ace Bakery products caused one of the 2007 fatalities, as well as another in 1996, and was sued last June (along with Mie Prefecture, which operated the child-care centre that provided the snack to the 7-year-old).
Again, social psychologists might explain this in terms of the ‘availability’ heuristic, which makes people remember recent or prominent matters. Perhaps the memory of the deaths and safety issues, highlighted in the mid-1990s, had faded. Parents or carers providing the snacks may have stopped reading or ‘registering’ the warnings, which moreover now are spread liberally over all sorts of products in Japan – arguably, sometimes, counter-productively. Few are likely to have noticed the new warnings about risks to infants or the elderly that the industry association required its members to add to the front of the snack packaging. The MannanLife product involved in this year’s fatality, at least, seems to have involved the newer shape and “soft” jelly. But perhaps that company and the association should have launched a broader publicity campaign regarding the new warning labels. Now MannanLife may find itself subject to a PL Law suit, and the whole industry may even be re-regulated.
Manufacturers may have become too complacent in other ways as well. Indeed, the boy’s father apparently informed MannanLife about his son’s fatal accident in August. But it did not report this to its industry association, as required, or propose new safety measures. The government and ex-PM Fukuda learned of the accident on 9 September at the ‘National Conference to Realise a New Consumer-Led Administrative Body’. The company’s delays, and initial lack of apology (still very important when resolving disputes in Japan), incensed the family and made them engage a lawyer.
The case has also highlighted differences in regulatory responses world-wide. Bans and/or recalls were mandated for certain types of konnyaku jelly snacks in the US and Australia from 2001, then the EU, and South Korea in 2007. (In Australia, to be more precise: there was a nationwide recall in November 2001; bans in NSW, Victoria and Western Australia; then nationwide temporary (2002) and permanent (2004) bans restricted to jellies up to 45mm in height or width. There have also been complicated developments in the US and the EU.)
Hitotsubashi University Professor Tsuneo Matsumoto argues that Japan needs to expand the scope of Japan’s Food Sanitation Law to regulate risk factors like size and hardness, rather than just food hygiene. He also points out that ‘if a Consumer Safety Law is passed, it would be possible to ban sales of konjac jelly for posing the risk of similar accidents’. The existing Consumer Product Safety Law was revised in 2006 to impose obligations on suppliers to report actual serious accidents, and anyway doesn’t apply for products covered by other specific laws like the Food Sanitation Law. Similarly, the Daily Yomiuri earlier reported that ‘the government said it has not come up with any radical measures to address the problem because there is no governmental agency with clear responsibility for the matter’ (‘Boy’s death shows choking risk from jelly’, 1 October 2008, p 2).
One of the last actions of the cabinet of ex-PM Fukuda had been to approve bills including a broader Consumer Safety Law, to be enforced by a new Consumer Affairs Agency. The Bill envisaged allowing the Agency, set up independently under the Cabinet Office, to obtain information about all sorts of risks from other government bodies and then take measures to prevent the occurrence or expansion of harm to consumers. It would also consolidate and expand the functions of CLCs, including allowing them to be involved in more formal dispute resolution methods, instead of their traditional functions of ‘shuttle diplomacy’ mediation between firms and consumers (mostly not face-to-face).
However, since April the DPJ had sought instead a ‘Consumer Affairs Ombudsman’ appointed by and responsible directly to parliament, who would have clear power also over the Cabinet Office itself. There had also been controversy over what should happen to Japan’s new Food Safety Commission, which had mainly focused on the dispute over (potentially ‘mad cow’) beef especially from the US. The Fukuda government had indicated that it would remain a separate Cabinet Office organ. But main issue was whether the LDP itself was prepared to undermine the vested political and bureaucratic interests associated with segments of the government demonstrating more or less commitment to consumer protection.
The expansion of the Cabinet Office was a notable development under the Koizumi government (2001-6). For example, it had a major impact in coordinating judicial system reform legislation (over 2001-4), despite differing concerns of the Ministry of Justice (which runs the public prosecutors), the Supreme Court (which administers the court system), the Bar Associations (traditionally not overly keen to expand the numbers of bengoshi lawyers), and the Education Ministry (instead quite keen to expand numbers, so it could get more budgets to support the establishment of additional postgraduate ‘Law School’ programs).
Although the new Aso government claims it still wants to establish a Consumer Affairs Agency, it is very much an open question whether it will be prepared to resolve Japan’s traditional bureaucratic turf wars in this field, especially as a general election approaches. Ongoing food safety problems recently should have set the stage for action, so the immediate prognosis is not promising.
But consumer law and policy development has also slowed lately in other countries. In Australia, in 2006 the Productivity Commission recommended changes to product safety regulations less extensive than those enacted by Japan in 2006. The Commission has had to repeat these proposals in a more comprehensive set of reforms to law, policy and institutions in Australia proposed this April, including belated nationwide legislation on unfair contract terms. Yet, ironically, it has just been reported that the federal and state governments finally ‘are keen to see these reforms introduced swiftly [!], with efforts being made to see the changes implemented by the end of 2011’!

Author: Luke Nottage

Prof Luke Nottage (BCA, LLB, PhD VUW, LLM LLD Kyoto) is founding co-director of the Australian Network for Japanese Law (ANJeL), Associate Director (Japan) of the Centre for Asian and Pacific Law at the University of Sydney (CAPLUS), and Professor of Comparative and Transnational Business Law at Sydney Law School. He specialises in international dispute resolution, foreign investment law, contract and consumer (product safety) law. View all posts by Luke Nottage