METI to Request Main Subcontracting Companies to Further Take Appropriate Care in Trading with their Subcontractors Affected by Novel Coronavirus Disease

1. Overview

As the novel coronavirus disease is spreading across the world, impacts caused by the disease on supply chains and other business activities have already been seen in Japan as well as in other countries.

METI has received inquiries from some subcontractors stating that their main subcontracting companies, without providing satisfactory consultation, have unilaterally suspended trading due to the subcontractors’ delay in delivery behind schedule or have demanded quick delivery of orders without paying appropriate costs involving the delivery.

Considering the fact that many businesses are facing the end of the fiscal year, and aiming to minimize the negative impacts on SME subcontractors, whose business bases are particularly vulnerable to such adverse conditions, METI, under the name of the METI Minister, will request, through 800 related industrial associations, that main subcontracting companies should further take appropriate care in trading with their SME subcontractors that have been affected by the disease, e.g., not only providing satisfactory consultation occasions with their subcontractors but also taking flexible actions for delivery deadlines and payment (see the Appendix).

From March 10, 2020, METI will also start, in sequence, requesting the same of representatives of 342 industrial associations under the jurisdiction of other ministries and agencies in joint name with other relevant ministers.

2. Details of the request

• Taking actions for subcontractors’ delay in delivery behind schedule

  Main subcontracting companies should take into consideration that their subcontractors may be affected by the novel coronavirus disease and that this may cause delay in delivery due to shortage of goods or human resources. Based on this consideration, main subcontracting companies should: provide satisfactory consultation occasions with their subcontractors; based on these consultations, gain understanding of stakeholders, including their customers; take flexible actions for delivery deadlines, without demanding such subcontractors to pay compensation for loss; and strive to trade with the subcontractors in a continuous manner.

• Bearing cost burden appropriately
  Main subcontracting companies should take into consideration that their subcontractors may be affected by the disease and that because of this, they may bear the burden of increased costs derived from sharp price rises in raw materials as well as staff’s overtime work or holiday work to meet demands for quick delivery. Based on this consideration, main subcontracting companies should bear an additional cost burden in paying subcontract proceeds.

• Completing quick and flexible payment to subcontractors
  Main subcontracting companies should take into consideration that their subcontractors may be facing difficulties in funding due to a decrease in orders and other factors caused by impacts of the disease. Based on this consideration, main subcontracting companies should: provide consultation occasions anew with their subcontractors on payment dates and payment methods, regardless of the existing payment terms and conditions; and endeavor to complete quick payment and flexible payment to their subcontractors, e.g., advance payment.

• Taking appropriate actions for cancellation and change of orders
  If main subcontracting companies cancel orders or change the scheduled number of products, specifications and other conditions in trading with their subcontractors as a result of the occurrence of the novel coronavirus disease, they should provide satisfactory consultation occasions with their subcontractors and take appropriate care to the maximum extent possible with such subcontractors, e.g., paying costs for products in progress, in order to not cause losses to such subcontractors.

Division in Charge

Fair Trade Division, Business Environment Department, Small and Medium Enterprise Agency