Government Procurement
(1) Introductory remarks on government procurement in general
The NTE asserts that "structural problems" and an entrenched legacy of "Buy Japanese" purchasing practices hamper foreign firms seeking market access, and "barriers" also affect purchases subject to formerly GATT and now WTO Government Procurement Agreement requirements. On the contrary, Japan has consistently conducted its government procurement in a non-discriminatory manner.
As part of its efforts to voluntarily improve access to government procurement markets, the Government of Japan has implemented the requirements of the Agreement on Government Procurement prior to schedule and has also implemented supplementary measures to ensure non-discrimination and greater transparency in particular sectors which include goods in general and public works projects. (These supplementary measures include the following: early access to information on major procurements and on procurements extending over several fiscal years, by providing procurement information in a uniform manner through Kanpo announcements at the beginning of each fiscal year, government procurement seminars, and contact points established to offer advice; request for comments; and adoption of the overall-greatest-value evaluation method.)
Since the Agreement on Government Procurement took effect in January 1996, the Government of Japan has extended coverage for procurements to services and local governments, and has voluntarily taken measures to expand application of the above-mentioned supplementary measures to include the services now covered by the Agreement. Therefore, there is no room left for so-called "Buy Japanese" purchasing practices and it is not clear how the NTE asserts that "structural problems" and "barriers" hamper government procurement market access.
Second, the NTE asserts that there is lack of transparency in procurement procedures because of lack of long-term relationships between foreign suppliers and Japanese government procurement officials and difference in details of relevant regulations of the entities from one another. However, current procurement procedures of entities, including local authorities, are practically the same . Furthermore, in addition to the fact that procurement procedures and relevant regulations governing all entities covered by the new WTO Government Procurement Code are publicly announced in the Kanpo and other publications, standards for awarding contracts (which in principle use the lowest-price automatic award method), and the release of information on bidding results (which in the case of single tendering contracts includes the reason for using such contracts) are conducted in as fair and objective a manner as possible, and which prevent, to the maximum extent possible, any arbitrary decisions made by government procurement officials. From these facts, one can only arrive at the conclusion that the NTE's assertions lack basis and are inappropriate.
The NTE also states that no monitoring is done of Japan's voluntary government procurement measures. Yet the Government of Japan has conducted follow-ups on its Action Program on Government Procurement, one of the voluntary measures, and has published the results of these follow-ups. Furthermore, starting in 1995, the Government publishes a White Paper entitled "Japan's Government Procurement: Policy and Achievements," which presents information on individual contracts awarded and uses this data to analyze overall trends. The Government also voluntarily holds Review Meetings to examine how voluntary measures have been implemented. The Review Meetings provide an opportunity to learn the opinions of suppliers from Japan and abroad, including the United States. Meeting results are also published.
Lastly, the NTE asserts that quasi-governmental entities are not covered by Japan's WTO Procurement Code commitments or voluntary measures. This assertion is incorrect -- entities other than those of Japan's Central Government and local governments, and which are covered by the new Agreement (special status corporations), have increased in number from 21, which were covered under the old Agreement, to 84, covered under the new.
(2) Computers
Continuing the progress made last year, steady implementation of the Measures in tandem with the efforts of foreign firms to enter the market have resulted in a steady increase in government procurement of foreign computer products. The Japanese public sector's procurement of foreign computer products increased from 27.9% of the total in FY1993 to 29.3% in FY1994. When procurement of services is added, results show a rise from 23.3% in FY1993 to 24.2% in FY1994. The NTE does not refer to any data provided by the Government of Japan, instead pursuing a one-sided argument using only data provided by the U.S. computer industry. These U.S. statistics do not reflect reality for several reasons, including the fact that they are based on surveys covering only a limited number of suppliers, and they do not take into account final user demand. It is hardly appropriate for an official report to quote such statistics.
At the annual meeting held in February 1996, the United States raised the issue of deep price discounting by Japanese computer companies when selling to Japanese public sector entities. The Government of Japan is presently looking into this issue.
(3) Medical Technology
It is incorrect to state that the Framework goal is "a 'substantial' increase in access and sales of foreign competitive products and services." The Framework goal, as described in the statement issued by the Japanese Prime Minister and the U.S. President in July 1993, and in the exchange of letters on government procurement in the medical technology sector, is "to deal with structural and sectoral issues in order substantially to increase access and sales of competitive foreign goods and services." In point of fact, the purpose of the Measures Related to Japanese Public Sector Procurement of Medical Technology Products and Services is to "ensure non-discriminatory, transparent, fair, competitive, and open public sector procurement procedures." The purpose is not to increase sales of foreign products.
The NTE refers to quantitative and qualitative criteria used to assess the implementation of the agreement, but this is not quite correct. It would be more accurate to say that "the assessment of the implementation of the Measures and Guidelines, as well as the evaluation of progress achieved, will be based on the overall consideration of the qualitative and quantitative criteria."
The NTE is also mistaken when it states, "the agreement also provides for the head of each entity to encourage its procuring officials to consider positively the procurement of foreign medical technology products and services." In fact, a notice from the head of each entity is to encourage all procurement officials to give fair, non-discriminatory and positive consideration to all procurements of competitive foreign medical technology products and services.
The NTE states that, in the exchange of letters, the U.S. Government "has received assurances from the Government of Japan that it will provide adequate budgets... for the purchase of foreign medical technology products and services." The NTE's interpretation can lead to a misunderstanding. In fact, the exchange of letters states that the Government of Japan "will... make maximum efforts in the future... to obtain sufficient funds to enable public procurement of medical technology products and services based on prices for similar products and services in similar working environments in the private sector."
The NTE cites a 21% market share for U.S.-made products in Japan, but the method of calculation is unclear. During the last review meeting, Japan explained that the reimported products in the Japanese market (products which were manufactured by overseas Japanese production facilities and then imported into Japan) which could be covered by the Measures, are actually so limited that they can be ignored, and the United States has clearly expressed consent to this view. During the review meeting, the United States cited an 18% market share for foreign products and services in this sector, but this percentage only takes into account the Kanpo's announcement of procurements in which the successful bidder was a foreign supplier. Cases such as a Japanese company which offers foreign products and services and wins a bid are not included in U.S. calculations of foreign products and services; such a calculation method is not in line with data collection methods found in Appendix C of Ambassador Kuriyama's letter to Secretary Brown.
(4) Satellites
Here the Government of Japan would like to clearly state that non-R&D satellite procurement procedures concluded in 1990 were not determined as a result of negotiations under the Super 301 provisions of U.S. Trade Law.
Furthermore, if the NTE has named as a "potential issue of concern" the procurement of Data Relay Test Satellites (DRTS) for Japan's National Space Development Agency, it is worth pointing out here that the DRTS are designed to validate new in-space data relay technologies. These satellites are being developed for R&D purposes that will have no commercial use, and so are not covered by the above-mentioned satellite procurement procedures.
The NTE states that the U.S. Government requested, in its November 1995 deregulation submission, that the Government of Japan bring restrictions regarding earth stations into accordance with international standards. The Government of Japan is not aware of any such submission made at that time. Even if perhaps the year for the submission was mistakenly typed in the sentence as "1995" instead of 1994, the Government of Japan is not aware of the details of the supposed request, and has asked the U.S. Government for clarification. The Government of Japan has still not received a definitive response from the United States. If the intent of the NTE was to refer to a deregulation submission made in 1994, the Government of Japan would appreciate receiving a clear and specific request.
(5) Supercomputers
As in the previous year, transparent, open and non-discriminatory procedures have been implemented in accordance with the "Procedures to Introduce Supercomputers," which were established in 1990. All procurements in FY1995 were made under open and competitive tender. The NTE refers to an improvement in 1993 and 1994 procurement results since the time the U.S. Government began a special review under Section 306 of the 1974 Trade Act, thereby implying a direct relationship between improvements in the procurement of U.S. products and the review being conducted. Procurement result changes were unrelated to the review.
As for concerns which, during the annual meeting held in February 1996, the United States raised with respect to two specific procurements, the Government of Japan has confirmed that the winning supercomputers conforming to the specifications were delivered as scheduled. The Government of Japan is prepared to further explain the matter to the U.S. Government if necessary, but it should be pointed out here that no complaint has been filed with regard to any procurement for FY1995.
Incidentally, with regard to the U.S. Government's procurement of supercomputers, there is a lack of transparency in the application of national security provisions, which leaves the procurement procedure not fully open and transparent. In fact, no Japanese supercomputer has been procured to date.
(6) Telecommunications
(a) Arrangements on Procurement by NTT
It should be noted that the arrangements on procurement by NTT do not include "objective criteria." Regarding the allegation that the foreign share of NTT's telecommunications product procurement has increased by only one percent from last year, and thus the figure proves the existence of barriers in NTT's procurement procedures, we would like to remind the U.S. side that the market share which a supplier obtains is determined by a wide range of factors beginning with the amount of effort made by that supplier. As such, it is simplistic and inaccurate to advance the argument that a low growth rate in share holdings is evidence of barriers within NTT's procurement procedures. Furthermore, this NTE includes reference to the share of foreign products in NTT's procurement as recorded in data compiled by NTT. However, unless specifically specified otherwise by NTT, this data is to be treated as strictly confidential. Japan takes this opportunity to strongly urge the U.S. side to be more attentive in the use of this data.
The National Trade Estimate alleges that NTT provides information to major Japanese corporations only, uses standards which are preferential to Japanese corporations, and imposes unclear criteria for evaluating bids. The Government of Japan is convinced that these allegations are not supported by any factual basis. Based on the Improvement Measures taken in 1994, NTT makes Requests for Information (RFI) and Requests for Comments (RFC) to all suppliers (Attachment 1, III and IV), principally uses specifications based on performance rather than design or descriptive characteristics, and applies international standards, where such exist. In cases where international standards do not exist, NTT gives full consideration to using de facto international standards (Attachment 1, V). For the evaluation of bids, NTT uses clear criteria which are explicitly stated in the procurement documentations provided to potential bidders (Attachment 1, VII).
(b) Telecommunications Products and Services
The purpose of the Measures on Japanese Public Sector Procurement of Telecommunications Products and Services is to ensure non-discriminatory, transparent, fair, competitive and open public sector procurement procedures. These Measures do not have a specific objective nor goal of increasing sales of foreign products. Furthermore, the NTE expresses a concern as to whether or not tenders are being offered based on international standards and performance specifications. However, with a view to ensuring the use of performance as the decisive factor in technical standards, as consistent with the Measures, technical specifications are described in a concrete manner based on performance and international standards are, in principle, used in actual procurement. Furthermore, with budgetary reservations, procuring entities make the utmost effort to provide explanations to potential bidders on the long-term projects which are to be across more than a single fiscal year.
The NTE states that at the review meeting in 1995 foreign products and services held only 3% of the share of central government procurement in 1994. That figure is based only on a superficial investigation of Kanpo, does not include data from cases in which Japanese suppliers deliver foreign products, and thus is inappropriately low. As was indicated by Japan at the time of the review meeting, based on Ambassador Kuriyama's letter to Ambassador Kantor, the share of foreign products and services in 1994 was actually 7% when calculated based on an analysis of related documents and other materials, in addition to public notifications in Kanpo, used to determine whether or not products supplied were really foreign. It is this 7% figure which accurately reflects the situation for 1994.
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