US and Japan build a deal on construction trade

Before he retired last year, Raymond Hodge spent 10 years trying to win contracts in Japan for his consulting engineering company, which is a leader in airport design. ``They often picked our brains and asked us how we would approach a problem, but we never got any contracts. We became very discouraged,'' recalls Mr. Hodge, who was a senior partner with Tippetts-Abbett-McCarthy-Stratton in Washington, D.C.

Yesterday, the next generation of consulting engineers received some help that Hodge was lacking.

The United States and Japan announced they had reached an agreement that would allow US companies to bid on at least 15 major Japanese construction projects. The deal includes construction of the $8 billion Kansai Airport project in Osaka, Japan, and several other airport expansions.

The agreement by high-level negotiators capped almost three years of talks and prevented the dispute from becoming another thorn in relations between the two countries.

Only a month ago, Commerce Secretary C. William Verity said the dispute had become important because of its high visibility. One senior government official called it the first battle of the giants over services.

Resolution of the dispute also comes at a time when Japanese construction companies are making serious inroads into the US markets.

Japanese companies won about $2.5 billion in construction contracts in the US last year, according to preliminary numbers compiled by Engineering News Record, a trade publication. A significant portion of these contracts were from Japanese automakers setting up operations in the US.

As the Japanese explain it, their successful incursion into the US is the result of their ability to mesh with US subcontractors and engineers.

``The Japanese companies are becoming the bridge between American engineering companies and the Japanese [manufacturing] companies,'' says Tetsuzo Nomura, a vice-president with Mitsubishi International Corporation in Chicago.

Mitsubishi, the prime contractor for the new US-Japanese Diamond-Star Motors venture in Bloomington, Ill., says Japanese construction firms are more flexible than their American counterparts.

He says they are willing to make last-minute changes without tacking on extra charges and are more committed to getting a project done on time.

In the long run, this emphasis on service and quality may threaten US construction companies, according to a British study conducted last year by the University of Reading's Center for Strategic Studies in Construction.

``We believe that developments in Japan will change the construction world over the next decade as dramatically as the automotive industry changed when Henry Ford launched the Model T,'' the researchers said.

Because of these changes, the US this year picked up the tempo to get US companies into Japan.

The US had set a deadline of today to resolve the dispute. Japanese Prime Minister Noboru Takeshita dispatched several high-level trade ministers to the US, including Ichiro Ozawa, deputy chief cabinet secretary.

US construction companies are cautiously optimistic about the agreement. ``We will wait to see how things work in actual practice,'' says Terry Chamberlain, director of the international construction division of the Associated General Contractors of America.

Rod Rahe, director of international services for the American Consulting Engineers Council, says the group will be unhappy if US companies are limited in the number of projects they can bid on in Japan. ``We want a fair opportunity in their market, the same as they have in ours,'' Mr. Rahe says.

Getting a fair shake in Japan is not easy, says Clyde Prestowitz, a former Commerce Department official who negotiated with the Japanese for several years over this issue. Mr. Prestowitz says US companies cannot win contracts in Japan without some form of guarantee from the Japanese government.

``The construction industry in Japan is organized and the deals and bids are divided up long before the bidding takes place,'' Prestowitz says.

Hodge confirms from his own experience of trying to do business there that Japanese companies decide beforehand who will win key contracts.

``We had relations with Japanese firms that were outside the establishment and they were just as frustrated as we were,'' he says.

Another reason that US construction companies are cautious is because of a Japanese agreement last year to buy more US semiconductor chips. US share of the semiconductor market in Japan, however, has gone down, not up.

The origins of the dispute go back to 1984 when a US official in Osaka tried to find out how US companies could bid on the Kansai Airport project.

``He was basically told to forget it,'' Prestowitz says. After moving through the US bureaucracy, the dispute landed in Congress, the concern of Sen. Frank Murkowski (R) of Alaska and Rep. Jack Brooks (D) of Texas.

Representative Brooks and Senator Murkowski last year sponsored a spending measure amendment that prevented foreign companies from participating in public works projects in the US until the Japanese opened up projects there to American companies.

Congressional sources indicated that despite the agreement, the public works ban would continue through fiscal year 1988, which ends in September.

As a result of the Brooks-Murkowski amendment, a Japanese company lost a contract with the Washington Metropolitan Area Transit Authority regarding an extension of the city's Metro rapid transit system.