JAPAN - MEASURES AFFECTING THE PURCHASE OF TELECOMMUNICATIONS EQUIPMENT
Document: Original: English JAPAN - MEASURES AFFECTING THE PURCHASE OF TELECOMMUNICATIONS EQUIPMENT Request for Consultations by the European Communities
Date: 24 August 1995
Document codes: WT/DS15/1; G/L/23
Complainant: EU
Respondent: Japan
Dispute stage: Consultation
Agreements cited: Art. I, III:4, XVII:1(c)  GATT 1994

JAPAN - MEASURES AFFECTING THE PURCHASE OF
TELECOMMUNICATIONS EQUIPMENT
Request for Consultations by the European Communities
The following communication, dated 18 August 1995, from the Permanent Delegation of the
European Commission to the Permanent Mission of Japan is circulated in accordance with Article 4.4
of the DSU.
On behalf of the European Community, I hereby request consultations with Japan under Article
XXII:1 GATT 1994 and Article 4 of the "Understanding on Rules and Procedures Governing the
Settlement of Disputes" (hereinafter also referred to as the "Understanding") with respect to the
agreement, reached between the Governments of the United States of America and Japan on 12 March
1994, regarding telecommunications (hereinafter "the IDO-Monitoring Agreement"). The agreement,
which takes the form of an exchange of letters, concerns in particular the monitoring and overseeing
by the Government of Japan of the completion of a letter of intent (LOI) from the Nippon Idou Tsushin
Corporation (hereinafter "IDO") to Nippon Motorola Ltd. and Motorola Inc. (hereinafter "Motorola"),
as well as deployment schedules attached thereto. It also includes a commitment by the Government
of Japan to approve a request by IDO to reallocate certain radio frequencies, and to grant all necessary
permits and licenses to IDO in order to enable it to fulfil its obligations under the letter of intent.
In 1988 the US Government complained that the North American TACS system was not available
throughout the entire territory of Japan and, as a result, Motorola equipment could only be sold to
one operator (DDI). After having published a set of retaliatory measures, on 28 July 1989 an agreement
was reached between the US Government and the Government of Japan according to which the
Government of Japan designated IDO to install a second analogue network based onthe North American
standard used by Motorola. The 1989 agreement also established the operator-supplier relationship
between the two companies.
In the following years the US increased pressure on IDO to accelerate investment into this
network leading finally to the 1994 LOI which commits IDO to speed up its investment into the Motorola-
based analogue network, to buy a specified amount of network equipment from Motorola and devote
at least two-thirds of its total advertising spending to the promotion of this infrastructure. In a letter
to United States Trade Representative Kantor, the Japanese Ambassador Kuriyama declares that the
Government of Japan will take "all available measures" to ensure that IDO complies with its
commitments. In his response, United States Trade Representative Kantor declares that the US will
not take sanctions under the 1988 Trade Act. The consultations and discussions between the EC and
Japan, to date, have confirmed this understanding of the facts.

The agreement excludes European suppliers of an important part of the Japanese mobile analogue
equipment market. The Community is concerned that it may become an example for future US-Japan
agreements whether in the telecommunications sector or in any other sector where the Japanese
Government may be required to influence companies' purchasing behaviour. From the Community's
point of view, this would cause an economic damage which would further increase the damage caused
by the existing mobile telephone agreement. It could eventually discourage European companies to
make business in Japan.
The European Community considers that the IDO-Monitoring Agreement may constitute a breach
of Japan's obligations under the WTO, particularly those under Articles I and III and Article XVII
GATT 1994, or that it would constitute a measure applied by Japan which, even if it would not conflict
with the provisions of the WTO, might nullify or impair benefits accruing to the European Community
thereunder.
By signing two international agreements with the US and by committing itself to take all available
measures toensure thatIDO fulfilsitscommitments underthe LOI, the Japanese Government apparently
has made a requirement to the mobile operator to buy equipment from Motorola. Given that IDO
operates in a regulated market, the Government of Japan has a wide range of "available measures"
which could be used to ensure compliance. These measures can include delaying approval of proposed
tariff changes, withholding support for financial subsidies and withdrawing the licence to operate a
mobile telecom network. By making the threat of using these measures the Japanese Government would
have prevented IDO from changing the LOI if it had later wished to do so as a result of unforeseen
market developments. In addition, the Japanese Government offered certain advantages to IDO in
return for the company's willingness to install the TACS-based system, as the allocation of additional
frequency and financial support (as has been pointed out in the Japanese Government's position paper
handed over to the Commission on 23 February 1994).
In the Community's view these measures would accord more favourable treatment to US products
than to Community goods and therefore would be contrary to Article I (1) GATT 1994 in conjunction
with Article III (4) GATT 1994. In addition, they would be in contradiction to Article XVII (1c) GATT
1994 which requires contracting parties not to prevent any enterprise under its jurisdiction to make
purchases solely in accordance with commercial considerations.
Therefore, the European Community requests a meeting with the appropriate Japanese authorities
to discuss the matter with a view to finding a mutually satisfactory solution in accordance with Article
4 of the Understanding.