U.S., Japan Face Philosophical Gap on Phones

“When you are paying for a long-distance phone call, we think you, as a consumer, have the right to expect the telephone of the person you are calling to provide enough volume so you can hold a conversation,” says Norimasu Hasegawa of Japan’s Postal and Telecommunications Ministry.

However, he says, the United States believes that problems like the quality of telephones ought to be entrusted to the marketplace to solve.

Hasegawa says that’s an example of the philosophical difference in approach to technical standards that has grown into a major trade controversy between the United States and Japan. The outcome could have a major impact in a great number of areas other than the telecommunications field, which is the focus of the current dispute.

Although Japan’s Postal and Telecommunications Ministry insists that the detailed quality specifications have not been implemented to keep foreign goods out of Japan’s telecommunications market, the world’s second largest, the rules, in fact, have that result--as the ministry itself acknowledged indirectly last Monday.

30 Standards Remain

In an attempt to deal with American complaints, the ministry on that day implemented a set of new ordinances that contained 23 fewer standards than before. Monday also was the day that Japan deregulated its telecommunications industry, turning Nippon Telegraph & Telephone Co., a government monopoly, into a private company.

Remaining, however, are 30 standards--which, to Under Secretary of Commerce Lionel H. Olmer--is 29 too many. Olmer, the chief U.S. telecommunications negotiator, has been insisting that Japan limit technical requirements to those needed to prevent damage to the nationwide telephone network.

So important is the issue of access to the Japanese market for U.S. telecommunications firms that President Reagan sent Olmer and Gaston Sigur, a National Security Council staff member, to discuss it with Prime Minister Yasuhiro Nakasone last Sunday.

To Japanese bureaucrats, a bad phone connection, poor-quality transmission and third parties overhearing conversations on another phone line also constitute “harm to the network--to its desirable functions,” Hasegawa said.

The United States, Hasegawa said, has non-governmental, and therefore non-mandatory, quality standards fixed by the Electronic Industries Assn. in Washington. He added that these standards “are not very different from ours.”

Modification Costs Hurt

The trouble is that “not very different” is not the same, American electronics executives say. For years, they have been complaining about the detailed quality standards that Japan enforces--not only in the telecommunications field but in virtually every product area--and calling them “non-tariff barriers.”

John W. Cusick, managing director of AT&T; International (Japan), recently told a public symposium that literally “everything AT&T; makes must be modified” to be sold in the Japanese market. Whatever the piece of equipment, “it could be close to working here--but it must be modified,” he said.

That is the problem that American firms here face, he said. But he acknowledged that American firms--his own included--face a problem on their part “because of the very real differences in the way we do business between East and West.” Modification costs eat into profits so severely, he said, that American firms, whose executives are judged by the profits they produce from quarter to quarter, are not willing to make them.

Japanese firms are in the market for the long haul and do not object to meeting the specifications, Cusick said, “but U.S. companies are just not run that way.”

AT&T; could sell more here to Nippon Telegraph & Telephone Corp. if it were willing to modify its equipment, but it is not willing to do so, he said.

“It really hurts me to turn down NTT tenders because my own company won’t spend the money to make the modifications,” Cusick said. He went on to say that both the United States and Japan bear “responsibility” for “the way the market here is closed.”

Cusick said AT&T; International is looking forward to its best opportunities in the newly deregulated telecommunications field in software sales. He did not mention it, but the new regulations set only a bare minimum of standards for software and have drawn no American complaints in this area.

No American businessman or government official has yet commented publicly on the specific difficulties that U.S. firms may encounter under Japan’s remaining 30 technical standards, five of which, the Postal Ministry said, were “substantially eased.” No new standards were added, the ministry said.

Under the old standards, not only quality levels were specified but also the methods to be used to achieve them and step-by-step descriptions of machinery installation procedures.

In hearings held before the new ordinances were issued, both Japanese and foreign manufacturers requested that design specifications be omitted from the new standards.

Among the 30 remaining standards are measures to prevent “cross-talk” (third parties overhearing a telephone conversation), specifications for voice volume and measures to prevent static and “howling.” Also, there are specifications for the signals created by dialing a telephone, for intervals between calls placed automatically, for permissible levels of reduction in sound during transmission and a requirement for identical sending and receiving sounds for PBXs (telephone exchange machinery).

There also are provisions requiring manufacturers to take steps to prevent third parties from stealing data stored in computers.

The ministry, in an outline of the 30 standards, explained that they were chosen for three reasons: to prevent damage to the telecommunications network, to avoid inefficiency in use of the network and to give quality assurance to customers.

American demands for a voice in setting such standards in the future have produced what appears to be a major breakthrough, with implications that go beyond the telecommunications field.

Prime Minister Nakasone has promised that a Japanese employee or employees of American firms operating in Japan will be named to both the Postal Ministry’s Telecommunications Advisory Council, which sets standards and policy for the industry, and to its expert subcommittees.

Never before have representatives of foreign firms been named to any such council. The precedent is considered likely to lend weight to demands for similar representation on advisory councils of other key ministries.

To date, policy-making has been so secretive that American firms have often complained that they learned about new standards only on the day that they were published in the government gazette--and sometimes not until after that.

Olmer’s insistence on a reduction in the number of technical standards produced an eleventh-hour compromise proposal March 28 by Moriya Koyama, vice minister of the Postal and Telecommunications Ministry. Koyama agreed to a new round of talks aimed at reducing both the number of standards and the rigidity of their requirements by June 1.

After the Nakasone meeting last Sunday with Reagan’s two special envoys, Koyama also moved a step closer to accepting the American insistence that the customer be allowed to make decisions involving quality.

Nakasone also ordered the new negotiating period to be speeded up.

But Hasegawa observed that even the original 60-day deadline “gives us only two days to discuss each standard.”

And, in fact, the negotiations will not begin until next week, leaving only 54 days for the talks.