Japan's antitrust legislation needs upgrading. The Fair Trade Commission is preparing a revision bill to bring the Antimonopoly Law more into line with international standards by tightening the penalties for business-restricting practices. Nippon Keidanren, the Japan Business Federation, has already worked out its own plan. The administration of Prime Minister Junichiro Koizumi defines antitrust reform as an integral part of its "structural reform" agenda.

The FTC reportedly hopes that the bill will be enacted during an extraordinary Diet session this autumn. The going may be tough, however, because of the wide disagreement that exists between the commission and Keidanren, the nation's most powerful business lobby. Both plans need to be discussed broadly, preferably with the participation of consumers as well.

The debate needs to be conducted with the primary focus on bid-rigging, an entrenched corporate practice that refuses to go away despite strong criticism at home and abroad. Cases of bid collusion among public-works contractors, for example, are not uncommon. Tighter regulations against these and other illicit moves to win contracts will go a long way toward reviving the Japanese economy and boosting its international competitiveness.

The commission's plan calls for a "stick-and-carrot" approach: doubling punitive surcharges for offenders and raising them further, by 50 percent or more, for repeat offenders, but reducing the rates for those that duly report their irregularities ex post facto. Currently, surcharges are set at 6 percent of sales for large manufacturers and 3 percent for small and medium-size companies.

Keidanren proposes a similar two-way formula, but at much lower rates. In principle, surcharges would be pegged at 6 percent, but would be raised to a maximum of 12 percent for those who violate the law repeatedly, obstruct investigations or make undue profits. However, for those who cooperate with investigations or make bona-fide efforts at compliance, rates would be reduced to a minimum of 1.8 percent

Thus, the biggest issue is how much surcharges should be increased. Obviously, these fines are aimed at preventing illegal practices such as forming cartels and rigging bids. If rates are set too low, they will not be effective. An FTC study of past violations shows that undue gains from cartels and other unfair practices averaged 16.5 percent of sales, and that in at least 90 percent of these cases, such profits exceeded 8 percent.

Given that these and other restrictive business practices still continue in various sectors, the FTC proposal to double the surcharge makes sense. By comparison, a standard 6 percent surcharge proposed by Keidanren seems too low. The proposal does not sit well with the general principle of a surcharge: that its amount should exceed a profit made by an undue method.

Even the FTC plan seems modest by international standards. In fact, a recent report from the Organization for Economic Cooperation and Development, the Paris-based club of industrially developed countries, says the rates proposed by the commission are still so low, compared with those in the United States and Europe, that they would be less than effective in preventing violations.

Discounting the surcharge as a reward for cooperation or compliance is also an internationally accepted rule; a similar system already exists in many countries. If introduced in Japan, it would facilitate cooperation between Japanese and overseas antitrust authorities, considering that economic globalization may encourage the spread of international cartels. On this score, the FTC and Keidanren are of the same mind, although they disagree on details such as conditions for rate reduction.

It goes without saying that compliance with laws and regulations is a sine qua non for clean corporate activity. This is particularly important in the increasingly competitive business environment that exists both at home and abroad. As Keidanren points out, fair and free competition will "internationalize and invigorate the economy, and thereby promote the interests of the people."

The Antimonopoly Law -- the nation's economic charter -- sets basic rules for competition. The central question is how to eliminate a climate of collusion that appears to be deeply embedded in our economic society. It is a question that should be discussed from a long-term perspective and in ways that respond positively to international criticism as well.