Agreement on Government Procurement -Experience in Japan- March 2, 2015 Madoka Shimada Nishimura & Asahi 1

Table of Contents What is the WTO Agreement on Government Procurement? How GPA is operated in Japan? Case of JR companies Looking Forward 2

What is the WTO Agreement on Government Procurement (GPA) ?  Plurilateral agreement within the framework of the WTO  Comprising 43 WTO members. Another 28 WTO members participate in the GPA Committee as observers.  The fundamental aim of the GPA is to mutually open government procurement markets among its parties.  Fair and equal opportunity  National treatment and non-discrimination  Transparency  Member countries: Armenia, Canada, the EU, 27 EU Member States, Hong Kong, Iceland, Israel, Japan, Republic of Korea, Lichtenstein, Netherlands Antilles, Norway, Singapore, Switzerland, Taiwan and the US. 3

History of GPA Tokyo Round Code on Government Procurement (1979) Tokyo Round Code on Government Procurement (1979) Apr. 1979:1979 Code signed Jan. 1981: 1979 Code enters into force Revised Tokyo Round Code on Government Procurement (1987) Revised Tokyo Round Code on Government Procurement (1987) Nov. 1983: Negotiations to amend 1979 Code commence Feb. 1987: Protocol of amendments to 1979 Code Feb. 1988: Amended 1979 Code enters into force Agreement on Government Procurement (1994) Agreement on Government Procurement (1994) Apr. 1994: GPA 1994 signed in Marrakesh Jan. 1996: GPA 1994 enters into force Revised Agreement on Government Procurement (2012) Revised Agreement on Government Procurement (2012) Feb. 1997: Preparatory work for negotiations to revise GPA 1994 Mar. 2012: Protocol amending the GPA 1994 Apr. 2014: Revised GPA enters into force 4

Coverage  Procuring entities covered by GPA  Central government and local governmental entities  Government related entities  Targets covered by GPA  Goods: the values above certain thresholds (SDR) ex. 100,000 SDR (=13 million yen) for central government  Services: the values above certain thresholds (SDR)  The thresholds are regularly modified (every 2 years)  Reduced obligations for local governmental and government-related entities 5

Procuring Entities: examples 6

Rules  3 types of tendering  Open tender  Selective tender  Limited tender (Zui-I Keiyaku) Only allowed in the cases of no tender, exclusivity, urgency, additional deliveries, no interchangeability, etc.  Not discriminatory tendering procedures  Documentation and schedules (time limits)  Qualification of suppliers  Technical specifications  Transparency: disclosing information and review  Dispute settlement procedures 7

Dispute settlement  Subject to WTO DSU (Dispute Settlement Understanding) with special rules  Shorten panel review period  Cross retaliation not allowed  Precedents of Dispute Settlement  DS73: Japan — Procurement of a Navigation Satellite DS73  DS88 — DS95: United States — Measures Affecting Government Procurement (Massachusetts State Law prohibiting contracts with firms doing business with or in Myanmar) DS88DS95  DS163: Korea — Measures affecting Government Procurement (procurement practices of the Korean Airport Construction Authority) DS163  Challenge procedures to be established locally 8

Revised GPA in 2014  Achieved by the Revised GPA  Expanded coverage  Utilization of IT tools  Accession of developing countries  Process for modification of coverage  Specific dispute settlement procedures  To be discussed by the Committee on Government Procurement:  Adoption of indicative criteria for removing a privatized organization from the coverage  Small and medium enterprises  Statistical data  Sustainable procurement  Safety criteria of international procurement 9

How GPA is operated in Japan?  Japan is the member of GPA since 1979  Adopting voluntary measures (exceeding GPA standards) ex. Bidding period 40 days, shorter than 50 days under the GPA  Specific areas for voluntary measures  Super Computers/Computer products and services  Non-R&D type Satellite  Telecommunication equipment and services  Medical products and services  Adopting articles on government procurement in EPAs : all the EPAs executed in the past, except for Malaysia and ASEAN (even with the countries which are non-member of GPA) 10

Regulations in Japan  Regulations in Japan (Central government)  Public Accounting Act  Cabinet Order concerning the Budget, Auditing and Accounting, and the Special Ad Hoc Cabinet Order concerning the Budget, Auditing and Accounting.  Ensured by domestic regulations  Cabinet Order Providing for the Special Cases of Procurement Procedure of Domestic Products or Specified Services  Ministerial Ordinance Specifying the Special Cases of Procurement Procedure of Domestic Products or Specified Services.  Regional government organizations  Ordinances based on the Local Autonomy Act and bylaws 11

How GPA is operated in Japan? 12 Source:

Track Record of Japan’s government procurement  Ratio of foreign suppliers: only 3% (value basis) in 2012  Bid ratio for open tender (bid of foreign suppliers/bid of all suppliers): only 0.9% in 2012  Goods often supplied by foreign suppliers: aircrafts and pharmaceuticals  Services often supplied by foreign suppliers: airfreight services, telecommunication services 13 Source:

Challenge procedures in Japan  Government Procurement Challenge System by the Government Procurement Review Board (GPRB)  : 14 cases  After 2008, 4 cases in which a complaint was (partially) accepted  Complaints submitted by foreign suppliers in the past: Motorola, IBM, LOTTE, and Bechtel  Recently, the cases filed by domestic suppliers are increasing 14

Case of JR Companies  Japan Railway (JR) companies- formerly government- owned railway companies (Kokutetsu)  Privatized in 1987, split into 6 regional companies and 1 cargo company  JR East / JR West / JR Tokai fully privatized in 2001  After privatization, the three JR companies were still subject to GPA, complying with the rules under GPA (goods procurement and construction services) until October 2014  US and EU issued objection against withdrawal of these companies from the GPA; EU did not retracted its objection until October 2014  After unlisted, the three JR companies agreed to establish pro-competitive procurement system 15

Looking Forward  Suppliers perspective: How to increase participation of foreign suppliers in government procurement? Low rate for participation (bid ratio: 0.9%), which means low interest of foreign suppliers Implied obstacles? limited information, difference in specification/standards, language barrier, unclear local trade practices…? 16

Looking Forward  Procurement entities perspective: How to improve the procurement system? Open tender: determined only by prices, less flexible How to draft technical specifications for better procurement? Use of competitive negotiation? 17

Looking Forward  Government perspective: Removal of privatized entities from the GPA coverage Capacity building of local governmental entities Promoting open markets in other countries: existing GPA members (ex. US and EU) as well as potential GPA members (ex. China) 18

19 Thank you very much! Madoka Shimada Partner, Nishimura & Asahi (direct)