Yamato Transport Co., Japan’s leading parcel-delivery service, and Japan Post, the provider of “Yu-pack” service, are locked in a legal battle. Yamato claims that JP is setting prices at an unfairly low level while enjoying tax-exempt status and other privileges. It is ironic that some of the basic problems, or dilemmas, involved in postal-service privatization are coming to a head at the very time that the government is beginning to draft postal-reform legislation.

The dispute started when Japan Post, the government-controlled agency, signed a contract with Lawson, a major convenience store chain, which had an exclusive contract with Yamato. JP’s aim is to expand its share in the profitable parcel-delivery market so that it can bolster its business foundations before April 2007, when mail service is scheduled for privatization.

Yamato, however, calls JP’s deal with Lawson unfair not only because the prices are considered unreasonably low but also because JP is exempt from income and other taxes. In other words, the company does not think that JP should be able to use its various privileges to establish a strong foothold in the market before going private. Yamato seems especially displeased that JP is planning to deliver even sporting goods such as golf bags and ski boards — an area in which Yamato has held a distinct advantage.

On the other hand, JP says its contract with Lawson will not have much impact on private competitors because Yu-pack service has a market share of less than 10 percent, adding that its prices are competitive. Moreover, JP says its efforts to raise efficiency are subject to legal restrictions, such as an obligation to provide universal service throughout the country. In its view, Yamato’s exclusive contract with Lawson constituted a violation of the Antimonopoly Law.

Yamato, in its suit filed earlier this month with the Tokyo District Court, claims that the way JP sets prices amounts to “dumping,” or selling goods or services below fair market value. However, proving that claim may be difficult. From the customer’s point of view, Yamato’s case seems weak, for it is saying, in effect, that JP should raise its prices.

Nevertheless, Yamato’s complaint about unfair competition seems to have much public sympathy. In fact, many believe that JP should restrain itself until a level playing field is created through privatization. Indeed, common sense tells us that the best approach possible would be for it to expand its business freedom gradually to avoid market disruptions.

In this sense, it may be said that JP is “going over the top” — exceeding the bounds of discretion — by expanding aggressively into the parcel-delivery business. The same could be said about its earlier introduction of a new life insurance policy that directly competed with products from private life insurers.

The biggest problem, however, is that dilemmas inherent in mail-service privatization remain unresolved. The obligation to provide universal service means, among other things, that a sufficient number of post offices must be maintained throughout the country even if costs exceed benefits. Privatization, however, will make it impossible to cover deficits by taxes as at present. JP may set out to monopolize the delivery of nonregular mail (excluding cards and letters) as well, but parcel delivery is considered the only profitable area.

That there is public interest in mail delivery, which implies universal service, goes without saying. In the United States, it is provided by the federal government. In many European countries, it is managed by special corporations in which governments hold large stakes. Only in a few countries is it placed completely in private hands. In Germany, the number of post offices has dropped since mail delivery was privatized, giving rise to criticism that public service has been undermined.

These examples show that complete privatization is not necessarily the right answer. The Japanese government could have opted for a formula different from the current privatization plan — one that would have created a system of “coexistence” between public and private enterprises. At the very least, before giving the green light to privatization, the government should have mapped out an operational schedule for JP, since the dilemmas faced by a privatized mail service had already become apparent.

Referring to the Yamato suit, Prime Minister Junichiro Koizumi said, “It is good that points of argument have been sorted out.” Comments like this are long overdue, but the basic problems of privatization should have been thrashed out before, not after, the privatization decision was made.

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