Construction Is Next Big Trade Issue With Tokyo

US taps Japanese outrage over rigged bids

AFTER months of internal debate on trade policy, the Clinton administration has delivered a surprising first blow to Tokyo, threatening economic retaliation if Japan fails to open its public works further to foreign firms by July.

A similar threat made by the Bush administration in 1991 was never carried out. This time, however, the United States has a valuable new ally: Japanese citizens who are angry at recent revelations of massive payoffs by construction firms to top politicians.

Reports of secret collusion between officials and construction firms have so outraged many Japanese against the ruling Liberal Democratic Party (LDP) that the government has moved quickly to clean up the bidding process for public works.

"The system is a hotbed of bid rigging and cozy relations among politicians, bureaucrats, and members of the construction industry," stated a May 2 editorial in Japan's leading newspaper, Yomiuri. "The system is a strong barrier to foreign companies."

Still, the US announcement on April 30 sets a whole new tone to Japanese-US trade disputes. Tokyo fears that President Clinton, unlike his Republican predecessors, will use economic retaliation as a common tool to open up Japan's market for US products and services.

Officials say they will counter the "unilateral" US action by taking it for judgment under the General Agreement on Tariffs and Trade (GATT). They resent the US demand to negotiate a solution within a 60-day deadline.

Japan also threatens retaliation, such as cutting off current contracts of US construction firms. Officials claim US firms have won $330 million in contracts each year since 1988.

Foreign Ministry spokesman Masamichi Hanabusa, reacting to the US ultimatum, claims that Japan's construction market "is institutionally nondiscriminatory and open, and is not discriminatory in its dealings with any American firms."

Japanese officials speculate that US Trade Representative Mickey Kantor decided to get tough on the construction-access issue in order to tap into Japan's political momentum for reform.

Japan's construction ministry, under severe criticism for colluding with politicians, plans to issue new bidding standards for public contracts by mid-May. In particular, the ministry plans to prevent prearranged bid rigging, known as "dango," which until a few years ago officials would not even acknowledge as a regular practice.

THE ministry has also been reluctant to accept reform because of the common practice of top-level bureaucrats retiring to take jobs in the private construction companies they once regulated.

Public outrage was primarily directed at Japan's former political kingpin, Shin Kanemaru, who was charged last month for evading taxes on $15.8 million in income, much of which allegedly came from construction payoffs. But many other politicians have reportedly received "donations."

The US announcement against Japan was also well timed to help US firms try to get a piece of a $117 billion economic stimulus package unveiled last month. The main element of the package is spending on public construction.

Talks between Japan and the US on the construction issue broke down in March. Administration officials have tried to expand on a 1988 "arrangement" that gave foreign firms special treatment in bidding on 17 major construction projects in Japan.

That arrangement was designed to give US firms experience in Japan. Some big US firms that gained contracts have warned against imposing sanctions.

Under US pressure, Japan's Fair Trade Commission has looked at bid rigging in the construction industry. The FTC fined one group of 43 builders more than $8 million for manipulating bidding prices on $650 million worth of projects in Saitama prefecture north of Tokyo. But allegedly because of LDP pressure, the FTC did not file criminal charges.

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