Japan Vows to Open Up Job Bidding : Trade: U.S. puts off threatened sanctions in response to Tokyo’s promise to let foreign firms compete on public construction. Skeptics note absence of specific targets.
TOKYO — In an eleventh-hour move that caught the Clinton Administration by surprise, Japan promised Tuesday to open up its public construction market, one of the most lucrative in the world, to foreign bidders, leading the White House to retreat from a threat to impose sanctions.
Hours after the announcement was made in Tokyo, U.S. Trade Representative Mickey Kantor said of the decision, “It is important, it is significant and it’s historic.â€
He said in Washington that sanctions that would have limited the right of Japanese companies to seek construction work in the United States as of next Monday will be delayed until Jan. 20, 1994. By then, he said, Japan is expected to announce “a detailed plan of reforms.â€
The Japanese government issued only the outline of a plan that U.S. officials hope will, when fleshed out, overcome some of the major objections raised by the U.S. government and U.S. construction companies seeking business here. But until the details are made clear, it will be difficult to determine whether it will benefit U.S. companies, including California-based giants Fluor Daniel Inc. and Bechtel Group Inc., which rank first and third in the world.
Still, in the view of the Clinton Administration, Tokyo’s promise represents more than a first step into a potentially large market that had once been closed to U.S. construction companies; rather, it could signal a new readiness to open up the entire range of Japan’s economic relations with other major trading partners.
Kantor said the announcement “gives us tremendous hope†that other key obstacles in the fractious U.S.-Japanese trade relationship can be overcome. Sen. Max Baucus (D-Mont.), chairman of the Senate international trade subcommittee, said it “represents a small but positive forward step.â€
But within the U.S. international engineering and construction fraternity, burned by years of unsuccessful attempts to profit from the Japanese building boom, there was skepticism about Tokyo’s intentions and disappointment that specific targets for U.S. contracts had not been set.
And Clyde Prestowitz, a former Commerce Department official and frequent critic of Japanese trade practices, said: “I’ve heard all that stuff before. I’ll believe it when some American companies get the sales.â€
The plan that was outlined Tuesday was prepared by a special review committee created by the new prime minister, Morihiro Hosokawa. Hosokawa was elected on a tide of public dissatisfaction with, among other things, the sort of corruption that U.S. companies have complained was rampant in Japanese politics and business.
Currently, U.S. companies are losing ground in Japan’s $640-billion market, which is expected to yield another $1 trillion in public projects over the next decade. Although Americans hold a 45% share in the global construction and design market, they have just O.1% in Japan.
American executives say they are kept out by an extensive bid-rigging system known as dango, by murky and arbitrary bidding standards and by collusion among industry, politicians and bureaucrats to protect the powerful construction industry from competition and help it pocket tens of billions in excess profits.
As evidence of an unequal situation, Kantor said Japanese companies won $13 billion worth of public and private contracts in the United States in 1991. Officials in Japan said U.S. companies there won only $299 million in building contracts, and the U.S. share dropped 37% in 1992.
Against that backdrop, U.S. officials were optimistic Tuesday.
“Early in this Administration, we made it clear to the government of Japan that ongoing discrimination in the construction sector was unacceptable,†Kantor said. “Today’s announcement indicates for the first time that the government of Japan is determined to bring about important reforms in its public sector construction market, including improved access for all foreign companies.
“There has been blatant discrimination in that market and, obviously, there has been corruption as well, which the Japanese government is reacting to,†Kantor said.
Clinton and Hosokawa, who met in New York in September, will meet again in Seattle in November, at a U.S.-Asian economic conference, and then are scheduled to hold a bilateral conference in January.
Although skeptics noted that Japan’s compromises over eight years of construction talks have produced few real breakthroughs, Hosokawa’s plan is the first to embrace an open bidding system. Under the current Japanese system, the government chooses no more than 10 companies to bid, based on ranking criteria criticized as arbitrary, unfair and secretive.
Under those criteria, for instance, Bechtel was disqualified from bidding on tunnel work in Tokyo Bay because it had never dug 14-meter-wide tunnels before--only 6.5-meter facilities.
And, because only domestic experience in Japan is counted, neither Bechtel, Fluor nor any other foreign company qualifies for the top ranking despite their vast overseas experience.
Thus, in what U.S. trade officials call a Catch-22, Japan’s closed markets prohibit foreign companies from gaining the required domestic experience.
Although Hosokawa’s outline pledged to evaluate foreign companies more accurately, and Construction Ministry officials are expected to begin counting overseas experience, it is not clear how it will be weighted.
The prime minister also pledged that criteria used to rank the companies will be made “objective, transparent and public,†that antitrust enforcement will be stepped up and that penalties will be strengthened against bid-rigging. At present, most companies convicted of bid-rigging get off with a relatively light fine and a suspension from bidding for a few months.
In recent days, the Japanese press has reported further details of the plan under discussion.
But many U.S. business executives, who have seen Japanese pledges come and go, are skeptical.
Fredric Berger, chairman of the international engineering committee of the American Consulting Engineers Council and vice president of Louis Berger International, an engineering and consulting company, said in Washington that the Japanese had escaped specific targets that could measure adherence to any agreement.
Kantor acknowledged that the Japanese announcement contained no specific dollar targets. But he said the United States was assured that foreign participation “will be at a level that will be reasonable and rational.â€
His announcement marks the second postponement of sanctions this year and the third time the issue has come to a head since 1988. The Ronald Reagan Administration briefly imposed sanctions in 1988, and the George Bush Administration narrowly avoided them in 1991.
Watanabe reported from Tokyo and Gerstenzang from Washington.
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