Construction Dispute Sparks US-Japan Trade Clash

THE United States and Japan appear locked on a collision course over access to Japan's construction market. Chances of a clash were raised by a Dec. 7 decision by Kansai International Airport Corporation (KIAC) to sign a contract for an airport people-mover system with two Japanese firms. This action will intensify pressure on the Bush administration to renew its 1988 ruling that Japan's construction market is closed to American firms, and to impose sanctions against Japanese construction companies operating in the US.

The conflict comes at a delicate time in international trade relations, following last week's collapse of the Uruguay Round of the General Agreement on Tariffs and Trade talks.

The Bush administration has set a Jan. 15 deadline for settling the people-mover quarrel, which erupted last July when KIAC awarded the contract to Niigata Engineering Company and Sumitomo Corporation.

The US insists an American-German joint venture firm, AEG-Westinghouse Transportation Systems Inc., is more qualified for the job. However, the Japanese bid of $33 million, though providing a less complex product, was $22 million under that of its competition. The US had requested the signing be postponed until after the dispute could be aired at previously scheduled talks in Tokyo today. But Tokyo spurned that request, in what a Japanese embassy official acknowledged was ``a slap in the face'' to the Bush administration, but added: ``We think the contract is fair.''

The talks are part of a second-year review of the bilateral Major Projects Agreement (MPA) that opened 14 Japanese public works projects to American firms. As part of the review, US officials also want Japan to clarify procedures used for awarding public works contracts and to broaden the MPA to include all public works projects. Japanese authorities say it is ``premature'' to expand the MPA.

The Bush administration has not said publicly what action will be taken if the Jan. 15 deadline is not met. But privately, US officials say US Trade Representative Carla Hills would reconsider her 1989 decision to suspend retaliatory action against Japanese construction firms.

CONGRESS is watching the issue closely. An amendment sponsored by Sen. Frank Murkowski (R) of Alaska was attached to two recent appropriation bills that would bar Japanese construction firms from participating in certain US public works projects, should Mrs. Hills' office (USTR) deem the Japanese market closed.

Japanese construction companies have an estimated $2 billion of public and private work in the US. Japan says it will cancel the MPA if USTR again classifies Japan's construction market as closed.

Mr. Murkowski says the Bush administration should not hesitate to impose sanctions if the concessions from Japan are insufficient: ``American firms have not gained much business from the 14 projects, so we would not be losing much even if Japan scraps the MPA.''

US construction firms have won about $230 million of contracts on the 124 projects covered under the MPA, according to Japan's Construction Ministry. The Ministry says only 20 percent, or $3.3 billion, of the expected contracts have been awarded.

The National Constructors Association (NCA), which represents large construction and engineering firms, is divided over the administration's hardball tactics. ``Some companies are frustrated by continuing difficulties of doing business in Japan,'' says NCA spokeswoman Jane Dudley. But, she says, others have won contracts in Japan and fear their business would be disrupted if the administration were to take ``precipitous action.''

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