U.S. Won’t Impose Sanctions on Japan for Trade Barriers in Construction
Japan still limits its construction market by imposing “unreasonable” obstacles, but the Bush Administration is cautiously satisfied with improvements and will not impose retaliatory sanctions, the U.S. trade representative announced Wednesday.
The announcement, which was welcomed by American construction executives, marked a new but still inconclusive stage in the protracted dispute with Japan over what barely a year ago was a market utterly closed to foreigners. U.S. Trade Representative Carla A. Hills said that intensive negotiations with the Japanese, mandated by the 1988 Omnibus Trade Act, had “produced results, and we welcome Japan’s commitment to improved access to its construction market.”
She added, however, that U.S. representatives will closely monitor actual Japanese practices in conducting bidding procedures for government construction projects.
The tough trade law also empowers Hills to reverse the decision and impose sanctions whenever it appears that Japan shows any backsliding from its promise to open construction projects to all bidders.
In the formal ruling, Hills noted that during the course of negotiations so far, “the value of U.S. architectural, engineering and construction contracts in the Japanese market has reached about $65 million and has been growing.”
She added that her office would “seek even greater openings for U.S. firms.”
Hills disclosed that the Japanese gave written commitments during negotiations in Japan earlier this month to take actions “immediately to improve access for U.S. firms to its market.” Japan, she wrote, further strengthened that undertaking in a formal letter last Friday, agreeing to “consultations on all unresolved matters regarding access to the construction market.” Further negotiations are set for next spring.
The remaining docket of “unreasonable” practices is not, however, trivial. It includes:
- A claim that Japan’s bidding regulations provide no deterrent to collusive, or rigged, bidding--a practice that effectively guarantees that Japanese firms win every time. According to Wednesday’s ruling, Japan has formally undertaken to toughen regulations and require all bidders to comply with the rules.
- A claim that Japan still effectively limits competition on a contract bid by implementing a “designated bidder system” that gives outsiders only “vague and subjective criteria” for the proposed project. Japan now has undertaken to publish more detail about projects, thus giving outside bidders a fairer shot at making an acceptable bid.
- Complaints that foreign firms are excluded from most public projects on the grounds that they have no “in Japan” experience--an effective Catch 22 that prevents outsiders from ever breaking into the charmed circle. Japan has agreed to negotiate further the “no prior experience in Japan” issue and has undertaken to provide more information about projects to possible foreign subcontractors.
In particular, the government has promised to open future additions to the Kansai International Airport to “non-discriminatory” design competition; so theoretically, any bidder would face an even chance of winning.
The Kansai airport project near Osaka, from which U.S. construction companies were effectively barred, brought this issue to the boiling point two years ago. After the trade bill became law, Japan agreed to take steps to negotiate the issue and gradually began to let some U.S. architectural, engineering and construction firms participate in projects.
U.S. construction executives generally welcomed the news that no immediate trade sanctions would be imposed. The announcement at least shows that the negotiating environment over this sensitive issue has turned from negative to positive, in part because American firms have landed some building business in Japan in recent months, these officials said Wednesday.
“American business has made gains in Japan,” said a spokesman for Morrison Knudsen Corp. in Boise, Ida. “The momentum is right. The process is headed in the right direction and we look forward to a freer marketplace in Japan in the future.”
“We’re in agreement with this,” said a spokesman for Fluor Corp. in Irvine. “We think there has been progress made in understanding the different ways that business is conducted in the two countries.”
American construction companies have traditionally been shut out of the Japanese market by a tight-knit bidding system, but some American firms have been successful recently by seeking joint ventures.
One recent contract landed by Morrison Knudsen was a joint venture with a Japanese civil engineering firm to build a $50-million office and residential tower in Tokyo. Another was a joint venture by Tishman Realty & Construction in Los Angeles with Aoki Corp. to build a $200-million hotel in Osaka.
Still, American officials believe that much more must be done, particularly in the area of the lucrative contracts awarded by the Japanese government, according to Leonard J. Pieroni, executive vice president of Parsons Corp. in Pasadena. “We’ve got to remain skeptical until real business develops,” Pieroni said.
Oswald Johnston reported from Washington and Tom Furlong reported from Los Angeles.
