RESTRICTED  
  
GPA/MOD/JPN/88  
 
28 July 2016  
(16-4034)  Page: 1/3  
Committee on Government Procurement  Original: English  
 
 PROPOSED MODIFICATIONS TO APPEND IX I OF JAPAN UNDER THE REVISED 
AGREEMENT ON GOVERNMENT PROCUREMENT 
COMMUNICATION FROM THE EUROPEAN UNION 
Objection pursuant to Article XIX:21 of the revised GPA  and questions from  
the European Union to the proposed modifications to Appendix I 
of Japan under the revised GPA (GPA/MOD/JPN/82) 
The following communication, dated 28 July 2016, is being circulated at the request of the 
Delegation of the European Union.  
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QUESTIONS AND OBJECTION FROM THE EUROPEAN UNION TO THE PROPOSED 
MODIFICATION TO APPENDIX I OF  JAPAN UNDER THE REVISED GPA 
(GPA/MOD/JPN/82) 
On 29 June 2016, Japan notified a modification pu rsuant to Article XIX, paragraph 1(a) of the 
Agreement on Government Procurement as amende d by the Protocol Amending the Agreement on 
Government Procurement (hereinafter referred to as  the "revised Agreement"),which relates to its 
Annex 3, Appendix I to the revised Agreement. This modification (GPA/MOD/JPN/82) pertains to 
the withdrawal of Kyushu Railway Company from Group A of the List of Entities under Japan's Annex 3.  
As a reason for the withdrawal of the above-mentioned Company Japan indicates the fact that the 
Amendment to the Law concerning Passenger Railway Companies and Japan Freight Railway Company (hereinafter referred to as the "Amendment Law") was promulgated on 10 June 2015 
and entered into force on 1 April 2016. The Government of Japan had maintained effective control 
over the Kyushu Railway Company (hereinafter referred to as the "Company") under the Law concerning Passenger Railway Companies and Japan Freight Railway Company (hereinafter 
referred to as the "Former Law"). From the date of  the entry into force of the Amendment Law, the 
Former Law no longer applies to the Company.  The European Union has conducted a preliminary analysis of the implications of the amendment of 
the above-referred law, the Company's structure and activities, the market structure in view of 
determining whether the Government of Japan has control or influence over the Company's covered procurement. 
 
                                               
1 Article XIX:2 reads as follows: Objection to Notification - Any Party whose rights under this Agreement 
may be affected by a proposed modification notified  under paragraph 1 may notify the Committee of any 
objection to the proposed modification.  Such objectio ns shall be made within 45 days from the date of the 
circulation to the Parties of the notification , and shall set out reasons for the objection. GPA/MOD/JPN/88 
 
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  It appears that four types of subsidies have been provided by the Ministry of Land, Infrastructure 
and Transport of Japan (MLIT) and Japan Railway Construction, Transport and Technology Agency (JRTT) to JR Kyushu
2: 
 
 Management Stabilization Fund; 
 Interest payment from JRTT (for loan s made to JRTT and JRTT bonds); 
 Interest-free loans; 
 Special tax measures. 
A ¥1,300 billion "management stabilization fund" (MSF) was established by the government during 
the 1987 privatization of Japan National Railways, and ¥387.7 billion were allocated to JR Kyushu. This fund was basically a lump-sum subsidy scheme meant to compensate expected losses from 
rail operations by JR companies, including JR Kyushu. It also appears that JR Kyushu was allowed 
by MLIT to use these ¥387.7 billion to cover other outlays: ¥220 billion to JRTT in 30 years' worth of advanced leasing fees for the Shinkansen rout es (built by JRTT), ¥140 billion to repay loans and 
¥872 billion for investment in infrastructure. No evidence was found that JR Kyushu will pay back 
this amount to the government.  
Regarding supporting measures for capital investment, it appears that JPY358 billion is foreseen 
between 1998 and 2020 for JR Kyushu next to JR Hokkaido and JR Shikoku.  JR Kyushu is currently 100% owned by Japan Railway Construction, Transport and Technology 
Agency (JRTT). JRTT itself is 100% owned by MLIT and was founded on 1 October 2003, as an 
Independent Administrative Agency by integr ating the Japan Railway Construction Public 
Corporation (JRCC) and the Corporation for Advanced Transport and Technology (CATT). It builds 
railway infrastructure for railway companies, who pays JRTT a "rent" back, normally over 30 years. 
Its president and top executives are ex MLIT officials.  
This provides indications that JRTT (a fully government-owned corporation) is de facto  in a position 
to control the appointment or dismissal of direct ors and important business decisions on the basis 
of company law, which would give it control or at least considerable influence over JR Kyushu. 
 
In view of the above, it appears that the control or influence over JR Kyushu's procurement could 
be still exercised by the Government of Japan.  
On the basis of the above-mentioned reasons and to preserve all its rights, the European Union 
therefore objects, pursuant to Article XIX:2 of the Agreement on Government Procurement, to the 
proposed modifications as notified by Japan on 29 June 2016. The European Union will proceed as 
expeditiously as possible with the examination and clarification of Japan's notifications, and will 
keep the Committee informed.  In addition to the questions submitted by th e United States (GPA/MOD/JPN/83) and Canada 
(GPA/MOD/JPN/84), the European Union would like to raise the following questions to Japan: 
 
1. JR Kyushu has been receiving various forms of subsidies (special tax measures, 
interest free loans, interest payment), in addition to being allowed to use the 
¥387.7 billion Management Stabilization Fund for other purposes than repaying this amount to the government. What type and amount of subsidies, including supporting 
measures for capital investment, will JR Kyushu continue to receive from the Japanese 
government or from JRTT?  
2. On what criteria are these subsidies awarded and how are they allocated to the 
companies? 
3. When will these forms of subsidies, including preferential tax treatment, for JR Kyushu 
be ended? 
                                               
2 P l e a s e  s e e  r e p o r t  o f  t h e  B o a r d  o f  A u d i t  o f  J a p a n ,  i s s u e d  i n  F e b r u a r y  t h i s  y e a r  
(http://www.jbaudit.go.jp/pr/kensa/result/28/h280217_2.html ). GPA/MOD/JPN/88 
 
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  4. From Japan's notification we understand that the whole shares of JR Kyushu are to be 
sold by the end of the fiscal year (March 2017). How is this going to be carried out? What percentage of JR Kyushu (which business segment) will be subject to the IPO? 
5. Who will receive the revenues of the IPO - JRTT or the Japanese Government? 
6. Will this IPO be carried out gradually, and if  so, what is the timing of the steps?  
7. Will JRTT or any other public entity keep some degree of ownership (e.g. 
shareholding) of JR Kyushu initially, and for how long? 
8. Is there any board member or executive at JR Kyushu who has been a former official 
of MLIT or other part of the Japanese government, or JRTT? 
The European Union reserves its right to ask further questions on the matter. 
 
 
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