Top > Regional Affairs > North America > The United States > Economy > The Government of Japan's Comments on the 1997 National Trade Estimates (NTE) Report > Government Procurement

Government Procurement

In the second paragraph of the section on Government Procurement, the NTE makes statements to the effect that the majority of the government contracting procedures under the Government Procurement Agreement (GPA) are determined by ministry and agency regulations including administrative guidance. These statements seem to be premised on the notion that Japan's compliance with the GPA in legal terms is not clear. However, Japan underpins its compliance with the GPA with its implementation of a comprehensive review of the relevant ordinances issued by central government organizations and the establishment of new systems for relevant ordinances pertaining to local government entities. Public notification of these domestic laws and ordinances, including the relevant regulations of each ministry and agency, is made through issuance in Kanpo, and therefore transparency in the compliance with the GPA is guaranteed.

In the third paragraph of the section on Government Procurement, it is alleged that a local governments have long posed challenges to foreign suppliers, in part because their own procurement procedures often limit access to information on planned projects and hinder foreign firms' participation in early development of systems. As an example, the text refers to procurement practices for helicopters in 1996. However, this kind of example does not at all reflect the fact that in making procurement decisions in that case, the Government of Japan explained to the United States that the specifications in question were all determined based on technical requirements in line with the necessary performance needs of the relevant procuring entities, and therefore, ensured fair treatment of all potential suppliers, and that in actuality the U.S. side expressed satisfaction with that explanation.

As for the fourth paragraph of the section on Government Procurement, the Government of Japan believes that in order to include within the purview of the GPA and measures taken by Japan those quasi-governmental entities and third-sector projects which are not covered by the WTO Government Procurement Agreement, as a minimum, the government must oblige such entities to fulfill their responsibility to comply with the GPA. The remarks in this paragraph do not mention this fact and describe the state of these entities being excluded from the agreement and various measures as problematic, but it is not clear exactly what the problem is with such exclusions.

(1) Computers

   Continuing the progress made last year, steady implementation of the Measures related to Japanese Public Sector Procurement of Computer Products and Services, drawn up in 1992, in tandem with the efforts of foreign firms to enter the market and other factors, has resulted in a steady increase in the government procurement of foreign computer products. Procurement by Japan's public sector of foreign computer products increased from 27.9% 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 report does not refer to any of the data provided by the Government of Japan, instead pursuing a one-sided argument using only data provided by the U.S. computer industry. The U.S. statistics do not reflect reality - as they are based on only a limited number of suppliers surveyed, final users also cannot be determined - it is hardly appropriate for an official report to quote such statistics.

   In addition, at the annual review 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. When the Government of Japan looked into this matter, it was found that while prices were cheap, no cases could be specified in which this had led directly to any illegality. Needless to say, Japan will continue to engage in fair and transparent procurement which does not discriminate between foreign and domestic companies.

(2) 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 fact, the purpose of the "Measures Related to Japanese Public Sector Procurement of Medical Technology Products and Services(the Measures)" is to "ensure non- discriminatory, 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 correct 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 cites a 21% market share for U.S.-made products in Japan, but the method of calculation is unclear, and as cases where Japanese companies offering foreign products have won bids are not included in these calculations, such a calculation method is not in line with data collection methods found in Appendix C of Ambassador Kuriyama's letter to Secretary Brown.

All the above points had already been made in Japan's comments on last year's NTE.

Furthermore, the NTE describes that the Government of Japan is required to encourage prefectural and local municipal governments to utilize measures similar to those adopted by central government entities. The Measure, however, stipulates that the Government of Japan is to encourage "taking into account of local circumstances and the provisions of relevant laws and regulations." The reference in the NTE could lead to misunderstanding.

(3) Satellites

If the satellite procurement by the National Space Development Agency (NASDA) over which the NTE expresses concern means the development of the Data Relay Test Satellites (DRTS), Japan feels that this concern is unfounded for the following reasons.

  1. The DRTS themselves have been designed to develop and validate new in-space technologies, and they will be used only for this purpose even after they are launched.
  2. Needless to say, the DRTS have no commercial purpose, and will not be used at all for the provision of services on a regular basis.
  3. The DRTS are therefore R&D satellites, and are not covered by the non-R&D satellite procurement measures which were formulated in 1990.

Moreover, it should be noted that any complaint relating to categorization of the satellites by the procurement entity can be dealt with under Japan's complaint review procedures. If a specific supplier has a problem with DRTS development, therefore, it would be reasonable to first make use of these procedures.

(4) Supercomputers

As in the previous year, transparent, open and non-discriminatory procedures have been implemented in accordance with the "Procedures to Introduce Supercomputers," which was revised in 1990. All procurements in FY1996 were made under open and tendering procedures. Reference is made in the NTE report to U.S. concern that some of the new computers procured have not met with the forecasted performance standards. As for concerns which, during the annual review 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. In fact, no complaint under the complaint mechanism of the "Procedures" has been filed by the U.S. side with regard to either of these procurements.

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. An antidumping investigation by the U.S. authorities is currently underway with regard to the National Center for Atmospheric Research (NCAR) supercomputer procurement, but Japan is concerned that the Department of Commerce intervened inappropriately in this procurement before the investigation was initiated. As there is some fear that this could be contrary to international rules, the Government of Japan seeks a clear explanation from the United States and also seeks fair and transparent investigations in the future.

(5) Telecommunications

A. NTT procurement

(i) NTT is a private firm, and to discuss it within a "government procurement" section in a form which includes procurement of telecommunications facilities, something not covered under the WTO Government Procurement Agreement, could invite inappropriate misinterpretation. In addition to this, Japan also finds the following defects in the NTE's allegations.

(ii) Firstly, the NTE suggests that while NTT procurement of foreign parts is increasing, the increase in market share has been minimal, and that this, given the competitiveness of U.S. firms, meant that NTT was still captive to its monopolistic legacy and not fully responsive to market principles. For suppliers to succeed in specific procurement cases, however, a number of supplier-related factors are of critical importance. These include (a) whether the supplier can provide products which meet the entity's needs; (b) whether appropriate sales efforts have been made; and (c) whether the product supplied is competitive or not. In arguing about market share and total value, which is no more than the result of the accumulation of individual procurement contracts, the NTE includes no analysis of the relevant supplier-related factors, and is thus one- sided, simplistic and inaccurate.

(iii) Secondly, the NTE notes as barriers to the market entry of U.S. firms NTT's favoring of its "family companies," NTT's tendency to depend on Japan-specific or NTT-specific standard, and its allocation of supplier market share for products based on non-transparent criteria. Although the U.S. Government already made general allegations on these issues, nothing has yet put forward in a sufficiently specific form for Japan to be able to respond. The Government of Japan does not believe that NTT is in fact arbitrarily favoring certain Japanese companies, because NTT is, in line with the NTT procurement arrangements, (a) fairly seeking opinions from all suppliers through Requests for Information (RFI) and Requests for Comments (RFC); (b) applying international standards where such exist, and where international standards do not exist, giving full consideration to using de facto international standards, with the principle of using performance-based specifications; and (c) conducting bid evaluations on the basis of clear criteria, which are explicitly stated in the procurement documentation. Japan's impression is that the issues noted by the United States have arisen from U.S.-industry misunderstandings. Before making this into a government-to-government issue, therefore, it will be extremely useful for U.S. industry and NTT to engage in adequate dialogue.

(iv) Thirdly, the NTE stresses that telecommunication service companies competing against NTT are required to use comparatively expensive NTT family-developed equipment to make connections to NTT's public switched network, that this is also a barrier to entry in the area of services and thus this point can also be taken up in the next review meeting. Japan has great difficulty in understanding the co-relations between "improvement of implementation of the NTT procurement arrangements" and the "introduction of competition into the services market." As the annual review meeting is for the purpose of "reviewing" the operation of the NTT arrangements, Japan does not believe that these points made by the United States in the NTE are subject to the review. In any case, telecommunications companies other than NTT choose and procure the equipment necessary for their service provision based on their own business judgment, and it is inappropriate to make such an assertion without offering any concrete evidence.

(v) Moreover, with regard to the U.S. Federal Communications Commission's decision to suspend certification for NTT and KDD subsidiaries, the Government of the United States stresses that in order for this suspension to be lifted, the NTT procurement arrangements have to be extended and foreign investment restrictions in NTT and KDD abolished. This kind of linking of totally unrelated issues is not a constructive approach, and is unacceptable to Japan. Japan requests that the applications by both companies be certified as soon as possible.

B. Telecommunications Products and Services

As was noted also in regard to last year's NTE, the purpose of the "Measures on Japanese Public Sector Procurement of Telecommunications Products and Services(the Measures)" is to "ensure non-discriminatory, transparent, fair, competitive and open public sector procurement procedures." The Measures do not have a specific objective nor goal of increasing sales of foreign products.

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