8/85 TELECOMMUNICATIONS TRADE - NTT Privatization

NTT is literally trying to have its cake and eat it too. NTT,

since it became a private firm in April 1985 had been trying to say

that it was no longer subject to the US-Japan government procurement

agreement for telecommunications equipment. That agreement

in theory applied only to government institutions. Now NTT has

become a private firm and thus free from the agreement. The US

government was very upset with this as NTT is the largest market

for telecommunications equipment in Japan and in addition long

years of work to cultivate the NTT market under the agreement

were suddenly coming to naught. Under strong pressure from the

US, with its massive trade deficit with Japan in the field, the

Japanese government finally said it would see to it that NTT

utilized the agreement . Discontented with the massive size of

the trade deficit with Japan in telecommunications equipment and

that it was rapidly growing larger, the Americans asked for

specific figures, or targets for increases in procurements of

foreign equipment by NTT. The Japanese government refused to set

any targets, again asserting, that NTT, the largest market in

Japan in this important field, was now a private corporation free

to make its own decisions on a business-like basis.

So in foreign procurements NTT was now a private corporation. At

that point the Americans asked NTT to buy foreign telecommunications

satellites. Las year, again only after strong pressure

from the US government, Japan agreed to open up the Japanese

satellite market, but only for private firms. Government

purchases were still, to be exclusive preserve of the

governments space development effort. Moreover, it is well known

that foreign telecommunications satellites are far more advanced

over Japanese makes technologically and much cheaper in price.

Thus, in the favorite Japanese parlance, the foreign makes were

by far more cost competitive. Several private firms which are

newly entering the recently deregulated telecommunications field

in Japan have all decided to buy American telecommunications

satellites due to their superior price performance. NTT, however,

in a declaration by its president itself, has declared that it

still maintains enough of quasi-governmental nature to have the

responsibility of buying only Japanese satellites. As the largest

market in Japan, if it were to do otherwise the Japanese space

development effort would be gravely damaged. Nevertheless, in

this multi-billion dollar field it does not constitute a good

business judgement to buy products that are many times more

expensive and technologically less advanced. The Americans also

note that in this multi-billion dollar field, such decision

making processes are closing it out of a massive market where

its products would win if truly private firms made decisions on a

business-like basis. Moreover, when the US is suffering a massive

trade deficit with Japan alone in telecommunications, purchases

of satellites would do a great deal to improve the trade balance.

The US is threatening that if the issue is not clarified it may

cancel the telecommunications equipment procurement agreement in

September 1985.

Furthermore, at the same time that NTT is stating that its having

become a private firm has limited its obligations to procure

foreign equipment it has nevertheless announced that it will be

maintaining the policy previously mandated by law that as a

public corporation it must give a certain level of its business to

small and medium sized firms. (The Law Concerning the Securing of

Orders for Small and Medium Sized Enterprises, in Relation to

Government Demand). Its reasoning was that it still had enough of

a public corporation character for it to undertake to assist

smaller Japanese corporations. Thus it has announced that it will

place orders this year for 50 billion yen in equipment and 350

billion yen for construction with small and medium sized

enterprises. Yet it can find only 40 billion yen to

buy advanced telecommunications equipment from foreign multinationals

at a time of heated trade-frictions in telecommunications trade.

NTT did agree, however, in May 1985 to open up its bidding for telephone

digital exchanges to foreign firms in addition to its four

"family" Japanese corporations.

In addition to NTT, in April 1985 the US government began demanding

that other governmental agencies open their purchases of telecom-

munications equipment to bidding, bidding which would be open to

foreign firms as well. According to figures provided by MITI,

government affiliated institutions bought only 7% of their

telecommunications equipment from foreign firms.

The US noted that five government ministries and agencies,

including the Ministry of Posts, the National Police Agency and

Japan National Railways buy about 23 billion yen each year in

telecommunications equipment but none of it is purchased from

foreign firms. None of these procurements were announced in the

Official Gazette (kanpo) and most of the purchases were made from

designated biding firms, not open bidding. The

US also demanded 16 government affiliated institutions such as

KDD (international telecommunications) NHK (national broadcasting

company) the New Tokyo International Airport Authority, and the

National Aeronautics and Space Development Authority (NASDA) open

their procurements to foreign bidding. The US

and Japan have also been negotiating whether Japan will drop all

tariffs on telecommunications equipment. The US has made such a

request and the Foreign Ministry and the Ministry of Post and

Telecommunications are leaning towards agreement as it would

indeed help NTT increase its foreign procurements and as the

Japanese are not really afraid of American competition anyway.

It is MITI that is opposing the idea. MITI is currently negotiating

with the Americans over its proposal that both nations mutually

drop their tariffs on high-tech items. MITI

seemed to have forgotten that it is Japan which has the trade

surplus and the US the massive trade deficit. It is also not

remembering that when it was the US that had the surplus and

the technological edge, the US did not protest too much over

Japan's very high tariffs and non-tariff barriers.

The Japanese government, on the other hand, has set out the terms

for the low interest loans that it will be making available to

import foreign satellites. The loans, to be provided by the

Export-Import Bank of Japan will have among the lowest interest

rates from government financial institutions at 6.8%. The loans

will have 10 years terms.

Unfortunately the Ministry of Posts and Telecommunications has

stated that an application to start satellite telecommunications

in Japan which will use American made satellite, will have to be

studied for some time. it has already approved two other firms

for such business and it is concerned that there may be an over-

supply.

In Japan telecommunications trade negotiations in June 1985 the US

side demanded that standards and certifications required under

Japan's Radio law such as for automobile telephones and other

wireless equipment be simplified.

The Ministry of Posts and Telecommunications has also decided

that it will leave standard setting for electric telecommunications

equipment to a soon-to-be established institution to be

made up of private sector telecommunications equipment makers.

Foreign makers will be permitted to participate if their representatives

are Japanese nationals.

Nevertheless, on July 31, 1985 members of the US House of

Representatives filed a bill calling for reciprocity in telecommunications

trade. The bill is substantially the same as one pending in the

US Senate as filed by Senator Dansforth. This has put the US

Congress in a position to rapidly enact such legislation. The

congressman noted that the US had a deficit of $700,000,000 in

telecommunications equipment in 1984 and this is expected to

double in 1985. At the same time, the US has a trade surplus with

the EC in the field which is expanding. The deficit is deteriorating

with Japan.

THE JAPAN LAWLETTER, August, 1985. By Roderick Seeman