Agreement on Government Procurement-Experience in Japan-

March 2, 2015Madoka Shimada

Nishimura & Asahi

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Table of Contents

What is the WTO Agreement on Government Procurement?

How GPA is operated in Japan? Case of JR companiesLooking Forward

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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.

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History of GPA

Tokyo Round Code on Government Procurement (1979) Apr. 1979:1979 Code signedJan. 1981: 1979 Code enters  into force

Revised Tokyo Round Code on Government Procurement (1987)

Nov. 1983: Negotiations to amend 1979 Code commenceFeb. 1987: Protocol of amendments to 1979 Code Feb. 1988: Amended 1979 Code enters into force

Agreement on Government Procurement (1994)Apr. 1994: GPA 1994 signed in MarrakeshJan. 1996: GPA 1994 enters into force

Revised Agreement on Government Procurement (2012)Feb. 1997: Preparatory work for negotiations to revise GPA 1994Mar. 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

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Procuring Entities: examples

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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

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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 DS88 — DS95: United States — Measures Affecting Government

Procurement (Massachusetts State Law prohibiting contracts with firms doing business with or in Myanmar)

DS163: Korea — Measures affecting Government Procurement (procurement practices of the Korean Airport Construction Authority) 

Challenge procedures to be established locally

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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

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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)

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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

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How GPA is operated in Japan?

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2010 2011 2012

Volume Volume Volume

ratio(%) ratio(%) ratio(%)

484 494 673

21.1 19.4 22.6

729 834 1,048

31.8 32.7 35.2

51 299 187

2.2 11.7 6.3

1,008 897 1,024

43.9 35.2 34.4

7 2 1

0.3 0.1 0.0

15 21 42

0.7 0.8 1.4

Total 2,294 2,547 2,975

Reasons for limited tendering

Others

reason

Absence of tender, etc.

Can be supplied byparticular supplier

Urgency

No interchangeability

Subsequentprocurement of original

development

Source: http://www.kantei.go.jp/jp/kanbou/25tyoutatu/index.html

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

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Ratio of foreign products/ services in J apan's government procurement (%)

2010 2011 2012

Amount 8.2 (11.2) 7.9 (13.7) 6.0 (10.3)

Volume 14.5 (20.8) 14.4 (20.2) 10.5 (14.5)

Note: Figure in bracket is the figure for products only.

Source: http://www.kantei.go.jp/jp/kanbou/25tyoutatu/index.html

Challenge procedures in Japan

Government Procurement Challenge System by the Government Procurement Review Board (GPRB)

1996-2014: 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

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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

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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…?

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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?

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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)

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Thank you very much!

Madoka Shimada

Partner, Nishimura & Asahi

81-3-5562-8941 (direct)

m_shimada@jurists.co.jp