Japan Reluctantly Allows Contracts For American Trading Companies

IN its efforts to challenge how the Japanese conduct business, the United States has won agreement to further open public works in Japan to foreign competition. The agreement reached June 1 strikes directly at the large pork barrel of construction contracts controlled by the ruling Liberal Democratic Party.

Stiff resistance to allowing foreign firms into the secretive Japanese construction market was so strong that an agreement was reached only hours before a US deadline that would have triggered sanctions against Japanese firms bidding on US public works projects.

Unlike most other trade disputes with Japan, the public works negotiations were seen by the US as a test of the Japanese government rather than Japanese business in accepting standards of market openness and ``fairness.''

``If you can't come to an agreement and have an open market when it is the government itself defining the market, then how are you going to come to an agreement in other sectors?'' asks US chief negotiator J. Michael Farren.

The US fell short of gaining the 26 projects it requested, but did accept 17 new projects offered by Japan at the last minute, which will be in addition to 14 projects already granted under a 1988 pact.

The 17 new projects are worth an estimated $7.3 billion. They include a new airport in Sapporo, a second National Theater, and new rail stations in Kyoto and Tokyo. Another potential six projects, if they are approved by Japanese agencies as expected, were also offered to the US.

Japan will take countermeasures if foreign firms harm the ``smooth procedures'' of public works projects, said Teruzo Yoshino, chairman of the Japan Federation of Construction Contractors, in the Nihon Keizai business newspaper.

Japan had initially resisted even renewing the 1988 pact, which was designed to give US firms a leg up in the difficult-to-crack Japanese construction market. Only about one-third of the previously pledged projects have been ordered to date. Until the closing hours of the talks, Japan had only offered 10 projects, and even refused a US request for a list of all available projects.

The US argued that past exclusion of foreign firms justified a long-term program to correct the process of bidding and allow foreigners to learn about the Japanese market. Foreign firms were caught in a Catch-22 in which they could not get licenses without experience, and could not get experience without a license.

Japanese construction firms would been prevented from bidding on an estimated $2.5 billion in federally funded contracts in the US, if sanctions had been invoked. US officials also warned that sanctions would have discouraged US firms from forming joint ventures with Japanese firms in private construction.

Japanese companies won $68 million in US public sector projects in 1988, Japanese officials say, compared with $116 million of official contracts won by US firms for the initial 14 projects. In the US private sector, Japanese companies also won $430 million with US firms and another $1.78 billion with Japanese firms in the US.

In addition to adding new projects, Japan agreed to many new provisions that further ease access for foreign firms, such as controlling a common bid-rigging practice among Japanese firms known as dango. It also agreed to provide for a yearly review of the pact.