US, Japan in trade hangup on phone gear

By , Business correspondent of The Christian Science Monitor

Telecommunications is emerging as a major flashpoint in US-Japanese trade relations. The United States sees exports of telecommunications equipment - everything from telephone sets to switching equipment to fiber-optic cables - as one way to balance this country's chronic trade deficit with Japan, the result of all those stereos and automobiles coming in from across the Pacific.

And Japanese companies, eager to ensure their access to the world's largest and most attractive telecommunications market - the US - have an interest in forestalling the protectionist legislation likely to be enacted if US companies convince Congress they aren't getting a share of the Japanese pie.

The controversy has focused on whether Japan's government-owned telephone company has really opened its doors to foreign suppliers.

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US telecommunications manufacturers are eager for the day when they can answer that question with a wholehearted ''yes.'' Nippon Telegraph & Telephone (NTT) is a major market in itself; its procurement last year ran to some $3 billion. And beyond that, NTT is, as one US observer puts it, ''the engine pulling the whole high-tech train in Japan.''

The 1980 agreement officially opening the Japanese telecommunications market to US suppliers has become the ''lightning rod for US-Japanese trade issues,'' says Edmund Fitzgerald, president of Northern Telecom Inc.

''I certainly credit NTT for the significant progress it has made in process changes to open its markets to US suppliers in these past two years,'' Mr. Fitzgerald told a congressional seminar meeting here this week. ''But I do not believe it unjust to suggest that we have not achieved the level of market access originally intended by the procurement agreement.''

The agreement got off to a slow start; NTT had been oriented toward support of its ''family'' of domestic manufacturing companies, and it takes time to reorient a bureaucratic organization. Finally, ''the inertia changed,'' one official said. Only over the past year, as NTT has modified its procurement procedures, have there been any sales to speak of by US companies. Now there is concern that the three-year accord will expire before it has had much effect.

Last year US telecommunications producers sold $41 million worth of equipment to Nippon Telegraph & Telephone, only 1 percent of NTT's purchasing for 1982. Notable successes were Motorola Inc., with its pocket pagers, and Rolm, with its computerized private branch exchanges. Meanwhile, Japanese companies sold $752 million worth of telecommunications equipment in the United States last year.

Officials in the US trade representative's office and on the House telecommunications subcommittee stress that $41 million is a vast increase over zero, the amount of sales US companies made to NTT in 1980. If the accord cannot be made to work, the alternative is likely to be protectionist steps by both sides.

And so the congressional seminars have been held to build support for the NTT accord, and to make US companies aware of NTT's announced eagerness to buy American. Haruo Yamaguchi, chief engineer and senior managing director of NTT, told the assembled businessmen, ''We are waiting for your active participation in our market.''

''I'd rather see several concrete orders than a series of seminars,'' counters John Sodolski, vice-president of the telecommunications group of the Electronics Industry Association.

He questions whether Japan's leadership has the ''active political will'' to risk the displeasure of its domestic telecommunications manufacturers by fully opening its markets to the US. Citing the rapid restructuring of the Bell System , he also argues that NTT has had plenty of time to adapt.

''It's a trade issue, but it's also an issue of symbolism,'' he says. ''There has been nothing in Japan more the symbol of 'Japan Inc.' than NTT.''

Japanese Prime Minister Yasuhiro Nakasone, however, is reported to have ordered Dr. Hisashi Shinto, NTT president, to step up its purchases from US suppliers. And Ichio Kata, director of NTT's international procurement department, told the Newton seminar that NTT teams would be visiting the US later this month to buy telephones and next month to buy software.

Aside from distance, language, and cultural difference, US companies point to specific challenges of selling to Japan:

* NTT has traditionally favored design specifications rather than performance specs, although this is changing.

* The Japanese tradition of having several companies work together to design a product leaves US producers concerned that NTT would share their proprietary research with Japanese competitors. This issue is being negotiated, but has not been resolved.

* Japanese product liability requirements seem ''onerous,'' particularly for American manufacturers that subcontract components.

* However sincere NTT top management is in its desire to buy American, the word has yet to reach middle and lower echelons.

Some observers compare NTT today to AT&T during the 1970s, when companies outside the Bell System were allowed to bid on contracts. ''The purchasing agents would be all gung-ho to buy from (outside firms) but the engineers would want to protect their friends over at Western Electric,'' one conference participant remarked.

NTT officials counter that they have taken steps to open the gate a little wider, by making specifications available in English as well as Japanese, and by accepting bids in New York as well as Tokyo.

* US companies now have more time to bid on projects.

Stephen L. Levy, senior vice-president for Japan operations at Motorola, said , ''NTT gave us a very fair share (of its market for pagers). But all of this did not come easily.''

Even critics of the accord still desperately want the agreement to work. Mr. Sodolski says, ''What are we going to do if it doesn't work? Call them names? There's got to be another shoe to drop.''

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