Source: EURLEX
Language: en
Format: md

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 29.03.1995
COM(95) 78 final

REPORT FROM THE COMMISSION

0N

**Pages**

**EXISTING** **SOURCES** **6**

**FOREWORD** **8**

**I.** **ANTI-COMPETITIVE** **PRACTICES** **9**

**1.** **Concerted Practices** **(Japan)** **9**

**1.1.** **Dealer** **Networks** **9**

**1.2.** **Price levels** **9**

**2.** **Lack** **of Effective** **Competition** **(Japan)** **11**

**2.1.** **Dominant position of NTT** **11**

**3.** **Lack of Effective Competition (United States)** **13**

**3.1.** **AT&T dominant** **position** **13**

**3.2.** **RBOC Exclusive** **Rights** **13**

**3.3.** **Two Switching** **Markets** **14**

**n.** **PUBLIC PROCUREMENT** **16**

**1.** **Procurement** **in** **the rteld** **of** **Information Technology** **Industry** **(Japan)** **16**

**1.1.** **Time for** **the** **Preparation of** **an offer** **16**

**1.2.** **Single Tendering** **16**

**1.3.** **Technical Specifications** **16**

**2.** **Procurement in the Field of** **Information** **Technology**
**Industry (United States)** **17**

**3.** **Procurement of Telecommunication Equipment** **(Japan)** **18**

**4.** **Procurement of Telecommunication Equipment (United States)** **21**

**4.1** **ATT procurement** **21**

**4.2.** **US unilateral sanctions** **23**

**5.** **Procurement** **of Satellite (Japan)** **23**

**HI.** **STATE** **AIDS** **25**

**1.** **State Aids** **(United States)** **25**

**1.1.** **HPCC** **25**

**1.2.** **Flat Panel displays** **26**

_**2.**_ **State Aids** **(Japan)** **28**

**IV. DISCRIMINATORY PRACTICES** **29**

**1.** **Standards and Certification Systems (Japan)** **29**

**1.1.** **Video** **products** **29**

**1.2.** **Terminals** **30**

**2.** **Ownership Restrictions (Japan)** **31**

**2.1.** **Type** **I** **carriers** **31**

**2.2.** **Company acquisitions** **31**

**2.3.** **Different types of carriers** **32**

**3.** **Ownership Restrictions (United-States)** **33**

**3.1.** **Common carriers services** **33**

**3.2.** **Radio Communications** **33**

**3.3.** **Mergers, acquisitions and takeovers** **34**

**4.** **Conditional National Treatment (United States)** **35**

**4.1.** **Advanced Technology Programme (ATP)** **35**

**4.2** **Proliferation of conditional treatment** **35**

**5.** **Satellites and satellites launch services (United States)** **36**

**6.** **Patent and Trademark Applications (Japan)** **37**

**7.** **Patent issues (United States)** **39**

**7.1.** **Patents** **39**

**7.2.** **Government Use** **39**

**7.3.** **Section** **337 of Tariff Act** **1930** **39**

**V.** **STRUCTURAL IMPEDIMENTS** **41**

**1.** **Access to Technology in the Semiconductor Field (Japan)** **41**

**2.** **Access to Technology in the Semiconductor Field (United States)** **43**

**3.** **Standards Setting (United States)** **44**

**ANNEXES (14)** **1 to 26**

**STATISTICAL TABLES** **27 to 30**

**E X I S T I N G** **S O U R C E S**

**A number of** **studies,** **legal texts and other documents have been used in drawing up the**
**present working** **document.** **These texts are listed below. They** **are quoted** **within the**
**working** **document.**

**I.** **A N T I - C O M P E T I T Î V E** **PRACTICES**

**- Paper by the Confederation of Germany Industry on** **"Grievances** **of German**
**Industry** **Towards the** **Japanese Government and** **Industry" (translation)**

**- "Japan's** **Protected** **Market** **:** **Significance,** **Extent,** **Outlook** **and Challenges for** **US**
**Policy" - Study by** **the** **Congressional Research Service -** **July** **9,1990**

**- "The Distribution of** **Consumer Electronics** **in** **Japan"** **by BIS Strategic Decisions**
**of August 12,1991**

**-** **"Central Office Equipment Purchases"** **-** **a report** **prepared for** **The Office of the**
**US** **Trade Representative Executive** **Office of** **the President** **by Northern**
**Business** **Information** **(dated** **March 20,1992)**

**II.** **PUBLIC** **PROCUREMENT** **^**

**- "Market Access for European** **IT-Industry** **to** **the** **Japanese Market" by Eurobit**
**(1992-1993)**

**- "The Japanese Telecommunications Procurement Market" by** **EGIS** **of August**
**1990**

**- Report on United States Trade and Investment Barriers** **(1993-1994)** **by Services**
**of the Commission of the European Communities**

**-** **Market** **access problems in Japan. State of play** **(1994)** **by services of** **the**
**Commission ofthe** **European Communities**

**- Global competitiveness** **of** **US advanced-technology industries: computers.**
**Publication 2705, December 1993**

**- "Industrial Policy for the Telecommunications Equipment Industry" by** **ECTEL,**
**December** **1991**

**Til.** **STATE** **AID**

**- Report on "Mandala Project on High Performance Computing** **and ***
**Communications"**

**- High Performance Computing and Communications:** **toward.a National**
**Information** **Infrastructure.** **1994**

**IV** **DISCRIMINATORY** **PRACTICES**

**-** **Council** **Directive of** **14** **February 1973 on the Harmonization of the Laws of**
**Member States Relating to Electrical** **Equipment** **Designed for Use** **Within**
**Certain.** **Voltage** **Limits**

**- United** **States-Japan** **Trade White** **Paper 1993** **by the American Chamber in Japan**
**(ACCI)**

**- Section on Japan from the 1994 US national Trade estimate report on foreign**
**trade barriers**

**- Foreign Exchange and Foreign Trade Control law by Ministry of finance Japan,**
**March 1980**

**- Barriers to European industry trading in the US satellite communications market**
**by KPMG, January** **1993**

**V** **STRIICTIJR** **AL** **IMPEDEMENTS**

**- Japanese competition Law by the Fair trade Commission of Japan, September**
**1991**

**- US Business** **Accès** **to certain foreign state-of-art technology, September 1991**

**M R E M Ï U ***

**I.** **The new** **global** **economy in** **order** **to realize all its virtualities implies the setting up**
**of a harmonized set of competition rules and the scrapping of all barriers impeding**
**the access to third markets. This is particularly true for the** **information** **technology**
**and** **communications** **industry which represents the core of the emergence of the**
**information society** **and** **for the United States and Japan which represent the two**
**biggest economic powers** **both** **in general terms and** **as** **far as the** **ITC** **industry is**
**concerned.**

**Change** **is accelerating** **both** **in Japan and in the US. However, this change tends to**
**take** **place** **within their respective markets rather than in their outside relations. The**
**ensuing** **tendency of creating more** **competitive** **markets** **and** **industry creates an**
**additional** **threat** **to the competitiveness of the Community** **industry.** **There is on the**
**other hand a danger that the** **Community** **industry benefit comparatively less than**
**its Japanese and US competitors from** **thé** **global economy.**

**II.** **An open and fair world economy is an essential complement to the completion of**
**the internal market in order to foster the competitiveness of the** **Community**
**industry.** **In** **the Communication of the Commission [Sec** **(91)** **565 final - April 3th,**
**1991] it was suggested** **in** **particular to sustain a competitive Community**
**electronics and** **IT** **industry** **by** **improving** **the access to the markets of the main**
**trading partners in** **electronics** **and IT and by the establishment of fair competition**
**in international markets.**

**The Council Resolution of** **18 November** **1991** **concerning electronics, information**
**and communication** **technology** **has retained this approach by mandating the**
**Commission to establish a Centralized Point of Information, charged with**
**monitoring** **marketing,** **market access and distribution practices throughout the main**
**industrial areas in the world** **in** **the domain of electronics, information and**
**communication technology industry.**

**The** **Communication** **from** **the** **Commission** **on** **"The** **European**
**Telecommunications Equipment** **Industry** **-** **the state of play, issues at stake and**
**proposals for action" [Sec (92) 1049 Final - July** **15th,** **1992J** **represents a specific**
**application of this approach since it** **is** **suggested that** **"the** **search** **for a level playing**
**field" for the telecommunications industry on the world level, could be reached by**
**the use of two means, combined or not** **:**

**- the elimination of those** **unsatisfactory** **access conditions which prevail in**
**markets outside the Community;**

**- the setting of appropriate** **rules** **of** **competition at world level.**

**The Council's** **conclusions** **on the latter Communication has embodied this specific**
**application of** **the** **global** **approach by** **stating** **in particular that "commercial policy**
**and competition** **policy** **will be instrumental in the Community's efforts towards the**
**objective of a level playing field; the Centralised Point** **of** **Information** **providing**
**supporting information and analysis to this effect."**

**8**

**I.** **ANM4CÔMPEÏ1TIVE** **PRACTICES**

**The Community's objective is the furtherance of truly equal conditions of**
**competition of all economic operators, whatever their nationality, in all countries.**

**1.** **CONCERTED PRACTICES (JAPAN)**

**1.1 Dealer** **Networks**

**The small traditional retailers are not financially controlled by the manufacturers;**
**however, manufacturers hold a certain power through large exclusive relationships:**
**loans at low interest rates, help with accounting procedures, demonstrators at then-**
**disposal, the allocation of advertising and descriptive material, taking back of**
**unsold** **goods,** **exchange of personal services, etc., in exchange for an unchanging**
**loyalty to the manufacturer's** **name** **[3]** **.** **This empowers them to control the supply of**
**goods and services and conversely impedes foreign suppliers from distributing their**
**products. This is presently being challenged by** **the** **emergence of specialists and**
**discounters.**

_**Comments**_

_**A fair and open**_ _**distribution**_ _**system is essential in order to allow an**_
_**unhindered flow of imports and the competitive determination of the**_
_**condition of**_ _**their**_ _**sale. Lack of competition prevents European companies**_
_**from selling in Japan: concerted**_ _**practices**_ _**are not sufficiently discouraged**_
_**and**_ _**they**_ _**keep European**_ _**companies out of**_ _**the**_ _**Japanese**_ _**market.**_

**1.2** **Price** **levels**

**Japanese** **companies have been seen practicing higher retail prices** **in** **Japan than**
**overseas, which reflects the lack of competition at the price level on the Japanese**
**market** **[4]** **and has an effect on the possible dumping practices.**

**Japanese companies often practice prices lower than production prices overseas in**
**order to eliminate competitors on a given market and to establish a monopoly** **[ 5]** **.**
**The losses incurred are** **compensated** **by higher prices on the Japanese market. This**
**price difference is made possible by a network of typical relations in Japan between**
**manufacturing companies, banks, users (including the distribution system) in**

**-**
**conjunction with restrictive behaviour on imports** **[ 6]**

**3** **"The Distribution** **of Consumer Electronics in** **Japan"** **by BIS Strategic** **Decisions,** **November** **1991** **- page 16.**

**4** **"Worldwide** **Pricing** **Study for selected IT** **Products"** **- study prepared for DG XIII by Dataquest (June** **1992).**

**5** **CRS Report for Congress "Japan's Protected Market: Significance,** **Extent,** **Outlook and Challenges for U.S. Policy" - 9 July**

**1990.**

**6** **Paper by the Confederation of German Industry on "Grievances of German Industry towards the Japanese Government and**
**Industry".**

The unusual degree to which Japanese multinational companies dominate trade
flows into and out of Japan is a trade pattern often cited as an indication of market
protection. Stated differently, Japanese corporate control over imports limits the
channels for getting foreign goods into Japan that compete directly with Japanese
goods.

_Comments_

_The competition rules should be thoroughly implemented and enforced_
_without any exception as to_ _the_ _economic sectors actually affected by the_
_rulings of the Fair Trade Commission._ _The problem is that the FTC_
_enforces the anti-trust law in areas in which international trade is not_
_concerned and_ _which_ _therefore bear no interest for European exporters._

_The_ _investigation_ _launched by the Fair Trade_ _Commission_ _against_
_Matsushita (National Panasonic), Sony, Hitachi and Toshiba has opened a_
_loophole_ _in_ _the system. The charge was actually not of fixing prices but of_
_imposing trade conditions and it has opened the room to_ _discount_ _stores of_
_consumer electronics to offer discounts of up to 50%. They have succeeded_
_in doing this because:_

_-_ _they do not purchase the products directly from the manufacturers_
_but from wholesalers and retailers who want to get rid of excessive_
_inventories, i.e. something that the normal retailers cannot do_
_because of their agreements with the manufacturers;_

_-_ _they practice the_ _five_ _no i.e. no price showing, no explanations on_
_the working of the products by_ _the_ _salesman, no to home delivery,_
_no to exchange_ _of_ _products after_ _sale,_ _no to after sales service._

_Despite these limitations, the discount stores have got their turnover_
_multiplied by five in the last five years._ _They_ _have, however, clear_
_limitations to their growth since_ _they-_ _may offer only a limited sample of_
_products since:_

_-_ _they can sell only what they_ _get_ _from their suppliers, and_

_-_ _they have no access to manufacturers_ _who,_ _in order not to_
_relinquish their control on the final prices, steadfastly refuse to sell_
_directly to them._

_DAEI is_ _a big discounter aiming at the lower end of the market, where_
_volumes are huge and margins are thin_ _i.e._ _refrigerators, rice cookers,_
_television sets etc and has become a big catalyst for change in Japanese_
_retailing._

_DAEI was a pioneer in selling products under a private label at cut-rate_
_prices. It has recently forged relationships with a number of manufacturers_
_and big trading_ _houses._ _By consolidating these mergers and thus acquiring_

10

_more_ _purchasing power, they will be able to keep reducing their cost and to_
_control their pricing._

_In relevant_ _rulings,_ _although not directly affecting the ITT sector,_
_discounters won a round_ _in_ _their battle with manufacturers when the Tokyo_
_District Court ordered Shiseido Co to supply a retailer that puts the_
_company's cosmetics on store shelves rather than dispensing them through_
_sales personnel._

_The Court ruled that the Shiseido demand for sales people "impeded mass_
_sales by retailers_ _without_ _a proper reason and amounted_ _to_ _price fixing" The_
_Court said that because of this "there is a possibility that it is violating the_
_anti-monopoly_ _law._ _In September 1993 the Fair trade Commission raided_
_offices of the Shiseido units for alleged anti-trust practices involving another_
_discount_ _store._ _Following these raids the Court ordered Shiseido to resume_
_supplying_ _retailers,_ _even if they sell by mail order and ignore the cosmestic's_
_maker's quiet pressure never to undercut the suggested retail price._

_A law bringing in financial penalties for anti-competitive practices was only_
_passed in 1977; these penalties are calculated on a case by case basis. Since_
_this date, none of the interventions of the Fair Trade Commission in the_
_household electronics sector have resulted in financial sanctions_ _[7]_ _. These_
_penalties_ _apply_ _in particular_ _against private_ _monopolisation_ _or_
_unreasonalbe restrainst of trade_ _(see_ _Annex 1)_

2. LACK OF EFFECTIVE COMPETITION (JAPAN)

**2.1.** **Dominant Position of NTT**

NTT remains the dominant purchaser of equipment and provider of services, a
situation likely to continue for some time. Since its creation in 1952, NTT has
maintained a close relationship with selected suppliers, most notably Hitachi, NEC,
Oki and Fujitsu. These four companies, account for more than 60% of the Japanese
domestic production of Telecommunication equipment.

To date, it is difficult to enter the Japanese switch market without tendering into a
research contract with NTT

It is also difficult to enter the non-NTT market for telecommunications equipment,
because the new common carriers depend greatly on interconnection to the NTT
network to provide service and therefore tend to procure most critical network
equipment from Japanese suppliers most familiar with NTT's network.

The Ministry of Posts and Telecommunications (MPT) is considering a plan that
would end NTT's local monopoly and see full voice and data competition via
wireless.

7 "The distribution of Consumer Electronics in Japan" by BIS Strategic Decisions -page 92

11

**Under the plan, the** **MPT** **would award personal handy-phone service** **(PHS)**
**licenses by the end of 1994 to NTT, long distance carrier DDI Corp and an**
**embryonic consortium of common carriers, regional electric power utilities, railway**
**companies and cable television** **operators.**

_**t**_ _**[ Comments ]**_

_**a) Numerous specific regulations and complicated procedures limit a**_
_**smooth**_ _**business**_ _**expansion for service providers.**_

_**The procedures to be registered as a special type II carrier [prerequisite for**_
_**providing International Value Added Network**_ _**Services**_ _**(IVANS)], the**_
_**cooperation with type I carriers (unavoidable due to the basic regulatory**_
_**approach in**_ _**Japan),**_ _**the authorisation**_ _**procedures for specific services, the**_
_**introduction**_ _**of new and**_ _**innovative**_ _**services, etc. are governed by**_ _**numerous**_
_**formal and**_ _**informal**_ _**regulations.**_

_**b) Lack of**_ _**definition**_ _**of services (basic,**_ _**enhanced)**_ _**in the context of business**_
_**authorisation**_ _**by regulatory instances.**_

_**The**_ _**Japanese**_ _**Telecommunications**_ _**Business Law distinguishes carriers not**_
_**by the type of services they provide, but according to whether they own a**_
_**communication infrastructure**_ _**or**_ _**not.**_ _**However,**_ _**the**_ _**provision of any service**_
_**is subject to**_ _**some**_ _**form of authorisation (as a service, or through tariffs).**_
_**The intrinsic difficulty therefore**_ _**results from the lack of specific**_ _**definition**_ _**of**_
_**services. This makes any long-term**_ _**business**_ _**planning**_ _**difficult**_ _**since each**_
_**service case**_ _**must be**_ _**discussed**_ _**individually**_ _**with**_ _**the**_ _**regulatory**_ _**authorities.**_

_**c) Lack of**_ _**separation**_ _**between regulatory authority and**_ _**dominant**_ _**carriers.**_
_**Formally, the Ministry of Post and**_ _**Telecommunications (MPT)**_ _**is to be a**_
_**neutral regulatory authority (authorisations of**_ _**services**_ _**and**_ _**tariffs,**_ _**etc.)**_ _**In**_
_**practice, MPT stabilises the current**_ _**competition**_ _**situation which establishes**_
_**Kokusai Deushin Denwa**_ _**(KDD)**_ _**as**_ _**a**_ _**dominant player for**_ _**the**_ _**market of**_
_**international**_ _**services.**_ _**Though**_ _**the**_ _**regulatory and**_ _**supervising function of the**_
_**administration would suggest a clear separation between MPT and KDD,**_
_**the**_ _**practice seems to be**_ _**different.**_ _**Typical examples are that**_ _**MPT enquires**_
_**with KDD for technical expertise needed when defining and applying**_
_**regulations to foreign service providers who also have to**_ _**negotiate**_ _**with**_
_**KDD as for the access of**_ _**circuits,**_ _**for**_ _**tariffs**_ _**(later formally approved by**_
_**MPT),**_ _**etc.. The**_ _**relationship**_ _**between MPT and KDD is also**_ _**influenced**_ _**by**_

_**•**_ _**KDD as a reservoir for**_ _**"retirement**_ _**careers" for**_ _**senior**_ _**MPT**_ _**staff.**_ _**As for**_ _**the**_ **.**
_**few Japanese competitors of KDD, it is generally known that the degree of**_
_**competition (e.g. tariff**_ _**differences,**_ _**foreign share to be**_ _**allowed,**_ _**etc.) is**_
_**implicitly**_ _**determined under**_ _**the coordination of MPT.**_

_**As a**_ _**result,**_ _**European**_ _**service providers**_ _**are.**_ _**in**_ _**practice obliged to negotiate**_
_**with their main competitor (KDD) which often means the disclosure of**_
_**business plans.**_

**12**

_d) Restrictions resulting from bilateral IVANS agreement between Japan_
_and Member_ _States,_ _usage of the_ _US/Japan_ _IVANS agreement as reference._

_The Japanese authorities state that the IVANS agreements are needed to_
_accommodate the differences in regulatory environments between Japan and_
_third countries and have consequently concluded IVANS agreements with_
_most of_ _the_ _European countries. However, these agreements appear to be_
_insufficient to meet the concrete problems European service providers_
_encounter in Japan and, in addition, increasingly limit their business_
_opportunities because of their inflexibility with respect to the evolution of the_
_services market (new services, evolving regulatory environments in third_
_countries)._ _Also, the fragmentation of agreements does not allow so far for a_
_common European position and requests for improvements in the context of_
_objective market access difficulties. There are reports that, in boundary_
_cases and when negotiating with European type II carriers, the type I_
_carriers try to enforce the US/Japan IVANS agreement stipulations as_
_reference._

3. LACK OF EFFECTIVE COMPETITION (UNITED STATES)

The 1984 Modified Final Judgment (MFJ) divested AT&T of its regional/local
activities which are now performed by the Regional Bell Operating Companies
(RBOCs). AT&T retained the right to offer long-distance telecommunications
services, although in competition with other carriers. The RBOCs enjoy exclusive
rights to provide local/regional telecommunications services and are not subject to
effective competition in these markets.

3.1. AT&T Dominant Position

AT&T's remains the largest US long-distance carrier providing over 60% of U.S.
long distance services. Its strong position as network operator combined with its
size as an equipment manufacturer gives it a major structural advantage over many
foreign firms. This vertical integration gives AT&T experience in operating and
maintaining a telecommunications network in addition to designing and
manufacturing equipment. Because no other manufacturers of comparable size
operate networks, this is a competitive advantage. Vertical integration also entails
the possibility of cross-subsidization, which has a number of negative effects
including lack of long-term competitiveness for those companies which are
competitors in the subsidized activity, in this case telecommunications equipment
manufacturing. Thus, in order to prevent such cross-subsidization, it is necessary
to ensure that the network operator is under effective competitive pressure (see
Annex 2).

3.2. RBOC Exclusive Rights

Under current law, the RBOCs are prohibited from having vertical links with
respect of the production of telecommunications equipment. They enjoy
monopolies on provision of basic services in their areas of operation, and they are
subject to regulation in a number of different ways. The FCC must authorise the
construction of new lines (S.214 of the 1934 Communications Act). It also

13

regulates tariffs through price caps. Intrastate communications are regulated by the
local State Public Utility Commissions (PUCs) whose administration of pricesetting involves them in all aspects of RBOCs" operation, indeed, it is estimated
that as much as 70% of RBOC revenue is regulated by PUCs rather than by the
FCC. This means that irrespective of ownership, public or private, the major
telephone companies in the US are subject to a major degree of federal and local
government control. These companies are therefore not free to act on the basis of
purely commercial criteria.

The RBOCs purchase approximately 80% of all telecommunications network
equipment sold in the United States. Their historical relationship with AT&T and
their large installed base of AT&T products have made it difficult for suppliers
other than AT&T to break into the U.S. market for extensions and upgradings.
Moreover, despite their exclusive rights, the RBOCs are not subject to open
procurement disciplines. The result is that AT&T and Northern Telecom supply
most of the switching requirements of the RBOCs.

**3.3.** **Two Switching Markets**

There are two separate switching markets in the US:

The first one is the market for the extension and the upgrading of the installed base:
according to a NBI study (NBI 1991 Central Office Market Analysis), this market
will grow from 61% of the total US switching market in 1991 to 65% in 1995; it is
the lucrative part of the business, because of the "unbundled" sales of "feature
software" for the enhancement of the existing network.

The second market is the market for new installations: it is mainly a "hardware"
market and is characterized by fierce price competition. While the incumbents
(AT&T and NORTHERN) can afford a price war in the new installations market
because they benefit from the resources derived from the feature software market
for extension and upgrading, the situation is obviously very difficult for the new
suppliers as they do not have revenues from an installed base and the SW sales
associated with new installations are much smaller than the SW sales for the

upgrading of the installed base:

Proportion of HW and SW in the US switching markets
. (Source: NBI 1991 Central Office Market Analysis)

1991 1995

Markets of new installations HW 90% 88%

SW 10% 12%

Market of installed base HW 52% 37%

SW 48% 63%

The AT&T situation in its internal market and the extraordinary benefits deriving
from it, lead to pricing so low in the only market accessible to new players (the
market of new installations) that it prevents or discourages competition.

14

Thus, the AT&T divestiture has not resulted in a substantial opening of the
telecommunications network equipment market to third-country suppliers, other
than Northern Telecom, a U.S. subsidiary of Bell Canada Enterprises.

_Comments_

_**More than at any time in the last 20 years, there is a consensus**_ _**in**_ _**private**_
_**industry and in Congress that the time is ripe for a major revision of**_

_**•**_ _**communication**_ _**law.**_ _**The**_ _**essence of that**_ _**consensus**_ _**is to relax barriers and**_
_**permit much greater competition between the local telephone, cable and**_
_**long-distance**_ _**companies,**_ _**while**_ _**protecting**_ _**consumers**_ _**as old regulations are**_
_**abandoned in favor of**_ _**market**_ _**place**_ _**competition.**_ _**A Bill is before Congress**_
_**(see Annex**_ _**3).**_

_**However, despite the large array of initiatives intended to reap benefits from**_
_**the new**_ _**opportunities,**_ _**no significant**_ _**European**_ _**involvement can be detected**_
_**(see Annex 4). The**_ _**EU**_ _**is pursuing negotiations with the US in order to**_
_**achieve an agreement on telecommunication procurement.**_ _**These**_
_**negotiations involve also competition aspects.**_ _**(See**_ _**also chapter**_ _**11-4)**_

15

**II.** **PUBLIC** **PROCUREMENT**

**The Community's objective in public procurement is to ensure comparable and**
**effective access for Community undertakings to the markets of third countries**

**1.** **PROCUREMENT** **IN THE** **FIELD** **OF** **INFORMATION** **TECHNOLOGY** **INDUSTRY** **(JAPAN)**

**The signature by Japan of the government procurement agreement in April 1994**
**should improve** **the** **situation described below.** **A** **careful assessment** **of its**
**consequences will be** **required.**

**1.1. Time for the Preparation of** **an Offer**

**The awards of public contracts has not yet been sufficiently opened. In particular,**
**according to the industry, the time given for the appropriate preparation of** **an** **offer**
**is** **not** **long** **enough** **[8]** **.**

_**Comments**_

_**The**_ _**deadlines**_ _**for**_ _**tenders**_ _**are too short for careful study of the**_
_**documentation and preparation of**_ _**the**_ _**bid. The same problem presented**_
_**itself in the**_ _**Community**_ _**and was effectively**_ _**addressed.**_ _**Eur**_ _**obit has actually**_
_**asked for equal access to pre-bid**_ _**information**_ _**for foreign**_ _**and**_ _**domestic**_
_**suppliers (see**_ _**Annex**_ _**5).**_

**1.2. Single** **Tendering**

**The award of contracts by negotiated procedure without prior call for competition**
**in the case of improvement or** **replacement** **of existing installations, known as** **"zuii"**
**contracts** **[ 9]** **gives advantages to former** **Japanese** **companies.**

_**Comments**_

_**Eurobit has actually asked for reduction of**_ _**single**_ _**tendering and the new**_
_**procurement procedures recently published in the framework of the**_
_**US/Japan**_ _**agreement seems to go in that way. The problem existed also**_
_**within the**_ _**Community**_ _**and**_ _**has**_ _**been effectively tackled**_ _**(see Annex**_ _**5).**_

**13.** **Technical Specifications**

**The technical specifications to be adhered to in the preparation of offers are**

**-**
**prepared by study groups made up of representatives from former suppliers** **[ 10]**

8 Paper by the Confederation of Germany Industry on "Grievances of German Industry Towards the Japanese
Government and Industry" 1992

9 "Market Access for European IT-Industry to the Japanese Market" by Eurobit.

. [1 0] "Market Access for European IT-Industry to the Japanese Market" by Eurobit.

**16**

_Comments_

_Eurobit has asked for neutral and non-discriminatory formation of technical_
_specifications and for equal opportunities_ _to_ _participate in the specification-_
_formulation study groups. The problem existed also within the Community_
_and has been effectively tackled_ _(see_ _Annex 5)._

2. PROCUREMENT IN THE FIELD OF INFORMATION TECHNOLOGY INDUSTRY (UNITED

STATES)

Under the Buy American Act of 3 March 1933, as amended and the ad hoc Buy
American provisions included in the annual authorisation/appropriation legislation,
federal governmental procuring entities are allowed to reject foreign bids.
Complementary Buy American legislation is also implemented at state level. Buy
American provisions may be waived in particular in order to allow the US to
respect its international commitments (e.g. GATT Code, free trade agreement,
MOU).

Buy America restrictions may take several forms. Some straightforwardly prohibit
public sector bodies from purchasing goods from foreign suppliers. Others
establish local content requirements ranging from 50% to 65%, while others still
extend preferential terms to domestic suppliers, the price preference ranging
anywhere from 5% to 50%.

The Defense Appropriation and Authorization acts for the 1994 fiscal year contain
a Buy America provision in the IT field for supercomputers and multibeam sonar
mapping systems and supporting software [11] .

_Comments_

_US Computer manufacturers believe that the "Buy American Act"_
_discourages sourcing decisions that allow US computer hardware_
_manufacturers to remain competitive globally. In the increasingly price_
_sensitive market, a number of successful companies_ _have_ _found it necessary_
_to_ _out-source_ _components that they cannot manufacture competitively_
_themselves. Thus, domestic content legislation, which hinders the ability of_
_computer firms to obtain the highest quality components at the best possible_
_global prices, impedes the global competitiveness of certain US computer_
_manufacturers._

_Accordingly US industry_ _recommended,_ _that there be a single rule of origin_
_for government procurement purposes, that of substantial transformation_

_which involved a shift in tariff classification._ _._ _They have also_ _urged-the_

_United States Trade representative (USTR) to support the use of substantial_

11 "Report on United States barriers to trade and investment" (1994 by services of the European Commission, page 31

17

_**transformation as a uniform rule of origin in the General Agreement on**_
_**Tariffs**_ _**and**_ _**Trade**_ _**(GATT)**_ _**[12]**_ _**.**_

_**Existence**_ _**of bilateral or multilateral**_ _**agreements**_

_**A further EC/US**_ _**agreement on**_ _**procurement was reached**_ _**in**_ _**the**_ _**aftermath**_ _**of**_
_**the conclusions of the GATT negotiation in April**_ _**1994.**_ _**This increases the**_
_**number of**_ _**entities**_ _**covered under the new**_ _**GATT**_ _**government Procurement**_
_**Agreement, to enter**_ _**into**_ _**force in January**_ _**1st**_ _**1996. Under this agreement,**_
_**access has been extended for the first time for EU suppliers to contracts at**_
_**sub-federal level**_ _**in**_ _**39**_ _**States,**_ _**including**_ _**five**_ _**of the biggest -**_ _**California,**_ _**New-**_
_**York, Texas, Florida and Illinois -plus seven cities - Boston, Chicago,**_
_**Dallas, Detroit, Indianapolis,**_ _**Nashville**_ _**and San**_ _**Antonio.**_ _**This agreement**_
_**does not cover telecommunications equipment procurement for which**_
_**specific bilateral negotiations were**_ _**undertaken in**_ _**parallel to the revision of**_
_**the GATT Code on procurement (see below "procurement of telecom**_
_**equipment**_ _**-**_ _**United**_ _**States).**_

3. PROCUREMENT OF TELECOMMUNICATIONS EQUIPMENT (JAPAN)

Access to Nippon Telephone and Telegraph's (NTT's) procurement is governed by
a bilateral US/Japan agreement reached at the end of 1994. This deal also covers
all NTT subsidiaries (e.g. DoCoMo). The agreement gives erga omnes treatment to
EU firms, although no binding agreement exists. However, the review mechanisms
provided for under the agreement is available only to the US: the European
Commission has made it clear to the Japanese side that it wants similar access to
the review mechanism. Negotiations are planned between the two parties to arrive
at an acceptable solution.

NTT's procurement procedures are divided into three groups:

     - Track I procedures: general commodities (including general
communications equipment such as fax machines, Private Branch
Exchange (PBX), computers, modems, etc.) submitted to GATT
Government Procurement Agreement (GPAV

      - Track II procedures: covering telecommunications equipment available on
the market such as switches, transmission equipment, telephone sets,
radios, cables, etc.; no open tendering, not submitted to GATT GPA.
(Procedure Ha covers follow-up procurement under II).

       - Track III procedures: covering telecommunications equipment not
available on the market, i.e. requiring new developments; open to
international tendering, but not submitted to GATT GPA. (Procedure Ilia
covers follow up procurement of products developed under III).

**'^** **Global competitiveness of US advanced-technology industries: computers, chapter 3, page 13. Publication 2705,** **december**
**1993.**

18

**Under the previous procedures problem arised from the following practices:**

**- Track II procedures: No possibility to tender for foreign entities, NTT**
**tends to select products from the "NTT family" (Oki, Fujitsu, Toshiba,**
**NEC,** **Hitachi) with whom NTT generally tightly cooperates for the**
**development of new products (a cooperation which does not necessarily**
**involve track III procedures);**

**- Track III procedures: In principle open to foreign players and fair, but**
**"uncontrollable";**

**(a) none of the "safeguards" included in the GPA is applicable (in**
**particular the principle of open procedures, of non-discrimination,**
**which consequently cannot be monitored or verified). EU firms**
**receive erga** **omnes** **treatment, but the monitoring procedures put in**
**place by the agreement are not yet open;**

**(b) interested firms complain that no long-term market perspective can**
**be guaranteed by NTT though significant start-up investment is**
**generally required from bidding firms to qualify as prototype**
**developers;**

**(c) interested firms have no guarantee that know-how brought in during**
**the prototype development is not disclosed to third parties;**

**(d) NTT requires compliance to technical standards which are**
**proprietary to NTT since the Telecommunications Business Law**
**(TBL) does not impose technical rules other than the "no harm to the**
**network" conditions.** **In practice, foreign firms (especially**
**newcomers) are disadvantaged vis-à-vis Japanese players who do not**
**generally know in detail NTT's specifications. In addition, NTT as a**
**dominant carrier can impose de facto standards which will be**
**endorsed by NTT's competitors, the New Common Carriers (NCC);**
**The new agreement obliges NTT to use international or** _**de facto**_
**standards, without specifying what the latter comprises;**

**e)** **Criteria for tender decisions will be based on the "economically most**
**advantageous offer" approach;**

**(f) no challenge procedure (other than an NTT internal ombudsman**
**scheme) is foreseen.**

**Concerning the management of the bilateral agreement, EU objectives are:**

**- Maintain the Erga Omnes status for European firms interested in tenders**
**(procedural wise, but also in practice through including European firms in**
**the scope of the flanking measures of NTT, such as, procurement**
**information distribution, request for cooperation in establishing technical**
**standards mandatory for NTT procurement, etc.), whilst ensuring a**
**maximum of transparency of the procedures under the given**
**circumstances.**

**19**

**This is to be pursued as an overriding priority, namely to see telecommunications**
**equipment procurement by market dominant players in Japan, including NTT,**
**covered by a public code. In this sense, NTT's procurement falls** **equally** **on the**
**chapter of** **the** **general procurement where the object formulated is to include NTT**
**in the list of entities covered by the harmonised public procurement code**
**established** **in** **Japan.**

**3.1. GOVERNMENT TELECOMMUNICATIONS PROCUREMENT**

**The** **governement of** **Japan** **also reached** **a** **bilateral deal with the US in November**
**1994 on the procurement of telecommunications equipment by central government**
**agencies. The main procuring agencies** **that** **are affected by this deal are the**
**Ministry of Posts** **and** **Telecommunications, the Ministry of Transport, and the**
**police service. The deal provides for a number of** **GPA** **compatible rules governing**
**contract tendering, selection and award procedures. No numerical targets for the**
**number or value of contracts awarded to** **non-Japanese** **firms were agreed.**
**However, although the EU firms are given erga omnes treatment by the agreement,**
**the fact that the monitoring** **arrangements** **are not** **yet** **open mean that** **mere** **is a**
**clanger of discrimination in practice in favour of US firms.**

_**Comments**_

_**The 1992 IT&T trade flows show an export-import ratio of**_ _**53%**_ _**on total EC**_
_**IT&T**_ _**trade.**_ _**Compared to this figure, the 4% export-import ratio for IT&T**_
_**trade**_ _**with Japan**_ _**seems to be extremely low.**_

_**This**_ _**contrasting picture occurs in all IT&T**_ _**sectors,**_ _**but above all in**_
_**telecommunications**_ _**equipment,**_ _**where the export-import ratios are**_ _**107%**_ _**for**_
_**total trade and 3% for trade with Japan. (An export-import ratio greater**_
_**than 100% indicates exports**_ _**exceed imports.)**_

_**Indeed,**_ _**there is no national legislation which obliges NTT to follow**_
_**principles of**_ _**transparency**_ _**and**_ _**non-discrimination.**_ _**Instead,**_ _**only political**_
_**pressure can**_ _**ensure**_ _**that NTT does not deviate**_ _**from**_ _**it.**_

_**In**_ _**particular, it seems that**_ _**NTT's**_ _**approach towards technical**_ _**specifications**_
_**is solely based on the aim of**_ _**ensuring**_ _**network integrity and functioning.**_
_**NTT may not give much attention**_ _**to thé**_ _**economic impact of**_ _**standards and**_
_**technical**_ _**specifications.**_

_**About 95% of the NTT's purchases**_ _**come**_ _**from**_ _**the**_ _**NTT family**_ _**(NEC,**_ _**Fujitsu,**_
_**OKI,**_ _**Hitachi,**_ _**Toshiba**_ _**and**_ _**others):**_

_**A Community company has allegedly been forced to withdraw from the**_
_**Japanese**_ _**market**_ _**although it has successfully bid for a public contract by**_
_**NTT because NTT's switch market is too small to justify the high costs of**_
_**having its product conform to Japanese standards and no other purchaser**_
_**could be found**_ _**despite NTT's**_ _**assurances to the**_ _**contrary.**_

_**NTT has seen a steady decline in profits in the last four fiscal years, as**_
_**erosion of its share in the long distance market**_ _**continued.**_ _**The Japanese**_

**20**

_government is planning to allow NTT, still_ _65.7%_ _government_ _owned,_ _to_
_raise_ _local_ _telephone_ _rates_ _in_ _order_ _to_ _revamp_ _the_ _nation's_
_telecommunications system. The investment in Japan's telecommunication_
_network is seen as the centrepiece of an economic stimulus package. A_
_combination of higher rates and government spending should allow NTT_
_room to fatten profits. President Masashi_ _Kojima_ _announced on 7 April_
_1993_ _that NTT would invest around 2 trillion yen per year in order to invest_
_a total of 45 trillion yen (US$395 billion) to complete its optical-fiber_
_networks during the next_ _22_ _years._

_Community Law_

_The problem of extending tendering procedures to telecommunications bids_
_has been addressed_ _and_ _solved by the Council Directive of 17 September_
_1990_ _on the procurement procedures of entities operating in the water,_
_energy, transport and telecommunications sectors_ _[ 13]_ _which applies equally to_
_undertakings over which the public authorities may exercise directly or_
_indirectly a dominant influence_ _in_ _particular by virtue of their ownership of_
_it._

_Existence of Bilateral and Multilateral Agreements_

_In the framework of_ _the_ _GATT negotiations, the Japanese government has_
_offered_ _to_ _include track I NTT telecommunications equipemnt under the GPA_
_provided that the procedures spelled out in their bilateral agreement with_
_the US also apply._

**4.** **PROCUREMENT OF TELECOMMUNICATION EQUIPMENT (UNITED STATES)**

**4.1 ATT procurement**

ATT is not subject to open procurement rules and buys all of its central office
equipment, representing about 8% of the total U.S. market, from its own
manufacturing subsidiary [14] . AT&T's internal market for telecom equipment
(switching, transmission and cables) amounts to more than $ 1.5 billion p.a. In
total, this is a $ 1.5 billion market which is structurally out of reach of European
competitors. As a telecommunications manufacturer AT&T is a principal supplier
to the regional Bell Companies. With regard to the RBOCs, the procurement
process is not very transparent - intimate knowledge of their organisation and
preference is necessary-. The process inherently favours those suppliers which are
most familiar with the RBOCs.

13 L 297/1 dated 29.10.90

1 Communications from the Commission "The European Telecommunications Equipment Industry, the State of Play, Issues at
Stake and Proposals for Action" - SEC (92) 1049 final - pages 20-21

21

_**Comments**_

_**In**_ _**its**_ _**response**_ _**to**_ _**the**_ _**Commission's communication**_ _**on**_ _**the**_
_**telecommunications**_ _**equipment**_ _**industry,**_ _**the European**_ _**Telecommunications**_
_**and**_ _**Professional Electronics Industry (ECTEL)**_ _**stated**_ _**that**_ _**[15]**_ _**:**_

_**"The**_ _**CEC should insist**_ _**that**_ _**regulated operating companies (having special**_
_**or**_ _**exclusive**_ _**rights), whether privately or publicly**_ _**owned,**_ _**follow**_
_**procurement procedures which are comparable to those enforced**_ _**within**_ _**the**_
_**EC, in order to demonstrate that**_ _**such**_ _**procedures are based exclusively on**_
_**sound**_ _**commercial**_ _**considerations.**_

_**Moreover, even in the absence of special or**_ _**exclusive**_ _**rights,**_ _**in the case of a**_
_**dominant**_ _**position, a telecom operator vertically integrated with a supplier**_
_**should follow procurement procedures comparable in their effect to the ones**_
_**in place in**_ _**the European**_ _**Community.**_ _**"**_

_**More**_ _**generally,**_ _**any assessment of the level of**_ _**Community**_ _**access to the**_ _**US**_
_**network**_ _**equipment**_ _**market is**_ _**difficult,**_ _**because of a variety of factors, such**_
_**as the insufficient transparency in Regional Bell Operating Companies**_
_**(RBOC) and AT&T procurement procedures, the special rights and/or**_
_**dominant**_ _**position enjoyed by these utilities, the existence on this market of**_
_**strong**_ _**manufacturers**_ _**who are also carriers, the influence of**_ _**the**_ _**Federal**_
_**Communications Commission (FCC) and of State Public Commissions**_
_**(PUCs) on the procurement practice which create little incentive to buy**_
_**competitively. AT&T and**_ _**Northern Telecom**_ _**have almost a duopoly position**_
_**in the equipment**_ _**market.**_ _**Moreover, AT&T also benefits from a set of**_
_**advantages**_ _**such**_ _**as the**_ _**company's**_ _**large installed**_ _**base;**_ _**the fact that**_ _**network**_
_**specifications**_ _**are**_ _**based**_ _**on**_ _**the**_ _**requirements**_ _**of**_ _**the AT&T**_
_**telecommunications**_ _**network and the**_ _**influence**_ _**that the company has on the**_
_**standardisation process in the US.**_

_**Existence**_ _**of Bilateral or Multilateral**_ _**Agreements**_

_**Telecommunication equipment is at present excluded from the GATT**_
_**Procurement**_ _**Code - apart from**_ _**the**_ _**partial**_ _**inclusion**_ _**of NTT**_ _**in**_ _**Japan.**_ _**In**_ _**the**_
_**framework of the GATT negotiations, the US side has refrained from**_
_**extending the coverage of provisions on public procurement to the many**_
_**private entities which carry out their activities under special or exclusive**_
_**rights.**_ _**This**_ _**implies**_ _**in**_ _**particular that the**_ _**telecommunication**_ _**operators were**_
_**not**_ _**included in the American**_ _**offer.**_

_**Negotiations in the**_ _**Uruguay**_ _**Round**_ _**have**_ _**proved**_ _**inconclusive**_ _**because of the**_
_**lack of political willingness from the**_ _**US**_ _**side to make**_ _**commitment.**_ _**This**_ _**is**_
_**on the ground that their market is**_ _**"open"**_ _**while other countries markets are**_
_**"closed".**_ _**An assumption that is**_ _**now**_ _**patently**_ _**flawed.**_ _**The Commission has**_

_._ [15] "Industrial Policy for the Telecommunications Equipment Industry" by ECTEL, December 1992

**-22**

_concerns that_ _the US_ _with_ _a_ _leading position_ _in the_ _services market, regards_
_bilateralitism_ _and_ _reciprocity_ _as the_ _quickest route_ _to_ _market access._

4.2 US unilateral sanctions

Access to US public procurement may be impeded to EU operators following the
US government's decision to impose sanctions against the EU, on the grounds that
procurement practices in the EU are discriminatory for US interests. Two
instruments are available: Title VII of the Omnibus Trade and Competitiveness Act
of 1988 and the Telecommunications Trade Act of 1988. In particular the US
Trade representative, M. Kantor announced on 30 April 1994 that the US would
maintain sanctions imposed on 28 May 1993 against the EU operators because of
the EU's remaining discriminatory procurement practices in the
telecommunications équipement sector. These US sanctions prevent European
bidders from participating in some Federal agency contracts for supplies, services
contracts and construction.

_Comments_

_The_ _US_ _administration_ _has put_ _forward_ _the_ _figure_ _of_ _$19_ _million_ _for the_
_estimated impact of its_ _28 May_ _1993_ _decision_ _to_ _exclude European bidders_
_from some US federal procurement._ _At_ _that_ _time,_ _the_ _EU reacted by deciding_
_on_ _8_ _June_ _1993_ _to_ _impose counter sanctions against_ _US_ _operators, which_
_mirror_ _US_ _sanctions._ _The_ _EU_ _counter sanctions are also still in_ _force._ _[16 ]_

5. PROCUREMENT OF SATELLITE (JAPAN)

The commercial satellite market has been opened in April 1990 to foreign suppliers
through US-Japan bilateral negotiations. This represents about 50% of the
Japanese satellite demand. US companies have benefited most from this change.
Experimental satellites will be kept within the domestic industry. For true opening,
the question is what the new Japanese satellite schedule will be, and how much of
the technology used in experimental satellites will be required in the future

                             specifications of the commercial satellites [ 17]

^ "Report on United States Barriers to Trade and Investment" 1994 Services of the Commission,page 32

17 "The" Japanese Telecommunications Procurement Market" by EGIS. August 1990

**23**

_**Comments**_

_**Since Japan opened the market to international bidders, all three**_
_**commercial**_ _**satellites bought by**_ _**Japan,**_ _**were sold by**_ _**US**_ _**companies.**_ _**The**_ _**EC**_
_**has requested that Japan apply erga omnes treatment for satellite**_
_**procurement.**_ _**A**_ _**non-paper**_ _**of the MPT confirmed that the satellite**_
_**procurement procedures are applied on a**_ _**non-discriminatory**_ _**basis to all**_
_**nations. However, a bilateral consulting**_ _**mechanism**_ _**provided for disputes**_
_**with the**_ _**US government**_ _**does not apply to the**_ _**EC.**_ _**Thus,**_ _**as far as complaint**_
_**mechanisms**_ _**are**_ _**concerned,**_ _**preferential**_ _**treatment**_ _**is provided for the U.S.**_

**24**

III. **STATE AIDS**

The Community's objective in state aids is to eliminate illegal aids and to achieve
comparable award conditions.

**1** . **STATE AIDS (UNITED STATES)**

**1.1. HPCC**

Under the programme for High Performance Computing and Communication
(HPCC) firms may benefit from up to 100% funding subsidies unlike the maximum
50% funding scheme of Esprit. Also the aids extend far beyond R&D and cover all
costs prior to commercial sale. (See annex 6).

_Comments_

_Such a high rate of aid would not be allowed under the Community_
_framework of state aids for R&D and the scope of the aid could not extend_
_beyond R&D. The goal of the HPCC programme is to develop computer_
_architectures that can achieve a trillion mathematical operations per second_

_- two or three orders of magnitude above current performance levels. The_
_systems that seem most likely to develop_ _this_ _power first are called massively_
_parallel supercomputers._ _Conventional supercomputers have a small_
_number - usually fewer than 16 - of very fast processing units working on a_
_problem._ _In contrast, the massively parallel systems can have several_
_hundred or even thousand slower processing units._

_The_ _TFLOPS_ _machine performance is_ _1,000_ _times faster than that of current_
_supercomputers, and the Grand Challenge aims at the achievement of this_
_level in_ _1995._ _Problems which require 500 hours of CPU_ _time_ _will be solved_
_in only 0.5 hours. Furthermore, if tasks_ _can_ _be accomplished 1,000 times_
_faster than at present, not only the area of science and_ _technology,_ _but also_
_basic intelligent labor in all areas such business, and culture and arts will_
_be influenced and drastic change will_ _take_ _place._

_On 12 January 1994, Bell Atlantic Corp. announced that it will spend some_
_$25 million for three new supercomputers plus software to build a first leg of_
_the information superhighway. Two companies, nCube_ _Inc_ _and software_
_maker Oracle Systems Corp., will share the spoils. With the Bell_ _Atlantic_
_deal a new market is opening: giant servers_ _to_ _feed digitized movies, home_
_shopping, games and other interactive multimedia services to homes across_
_the country. Selling servers for movies on demand could help develop other_
_markets such as video-based business information services. For instance_
_DEC envisions setting up media service centers around the country to help_
_detailers create video-shopping services._

_In digital form, a feature film takes 2 billion characters, or bytes, of_
_computer storage-Just_ _a_ _few dozen of the tapes in any video store_ _would,_ _if_
_digitalized, exceed the 100 billion bytes or so used by the largest airline_
_reservation system and unlike banking transactions video data streams can_

**25**

_tolerate no more than microscopic delays in transmission. There are good_
_reasons why digital data should be more expensive than traditional text,_
_recordings or_ _video._ _For one thing, information in digital form can be easily_
_transmitted,_ _edited_ _and manipulated with_ _a_ _computer to find trends, patterns_
_or insights._ _That makes it more valuable to the user._ _For another,_
_converting_ _text and images (e.g. photographs, charts and paintings) into_
_digital form can be costly. This is one reason why less than 1% of mankind_
_documented_ _knowledge has been captured in digital form.._ _Computer_
_archives go back only 12 years (i.e. to when_ _newspapers_ _began using_
_computerised_ _type-setting)._ _This leaves more than 99% of the world's_
_knowledge in_ _books,_ _reports and other_ _publications_ _gathering dust on library_
_shelves._

_That is why many players are insisting that only a massively parallel_
_machine_     - _such as the nCube machine selected by Bell Atlantic will do._

_While hundreds of computers such as nCube will be needed_ _to_ _move digitized_
_data from point to point, legions of workers will be needed to digitalize the_
_data to be_ _moved._ _It will then_ _be_ _up to the software_ _développer_ _s to write_
_programmes to make the data really_ _accessible_ _and hardware manufacturers_
_to offer_ _equipment_ _to present the data easily and effectively._

**1.2. Flat Panels Displays**

In the biggest industrial policy move since the creation of Sematech the US
government has approved a plan to spend up to $ 1 billion to help the American
flat-panel computer display screen industry compete with Japan. The plan involves
a partnership between more than a dozen of US companies and the Defense
Department in a bid to overtake Japan's lead in the manufacture of thin electronic

screens.

The plan goes far beyond Sematech, a consortium that has limited itself to
developing computer-chip production techniques but does not sell chips. For flatpanel displays, which are thin computer screens mainly used in laptop computers
and other portables devices, the government wants to help with research and
development, the construction of commercial factories and even marketing.

The plan calls for the Defense Department to contribute $ 50 million for the
immediate construction of a high-capacity pilot plant, while the Defense and
Energy Department would jointly spend $ 450 million to subsidize development
over the next five years. The government is already subsidizing the construction of
a small pilot plant in Michigan.

In order to support this partnership a provision has been added to H.R. 4650, the
Defense Department Appropriations Bill, that would prohibit the department from
procuring flat panel displays unless they are produced and manufactured in the
United States by a domestic-owned and domestic-operated entity.

26

_**Comments**_

_**The companies which**_ _**include**_ _**Xerox Corp. and AT&T submitted a proposal**_
_**to the**_ _**Defense**_ _**Advanced Research Project Agency on January**_ _**15,**_ _**1993, five**_
_**days before President Bill Clinton was to be**_ _**inaugurated.**_

_**The**_ _**plan,**_ _**if approved by**_ _**Congress,**_ _**would**_ _**be**_ _**a major**_ _**example**_ _**of government**_
_**backing for an industry viewed as important to US**_ _**competitiveness.**_ _**If**_ _**the**_
_**United States does succeed in becoming**_ _**a**_ _**major competitor in the mass**_
_**manufacture**_ _**of**_ _**"Flat-Panel"**_ _**display**_ _**screens,**_ _**it will be a surprising**_ _**turn**_ _**in a**_
_**story that many have cited as a startling**_ _**example**_ _**of US failure to exploit its**_
_**own technological**_ _**breakthroughs.**_

_**Several**_ _**American**_ _**companies invented the screens more than three decades**_
_**ago.**_ _**But**_ _**Japanese**_ _**companies took the lead in**_ _**manufacturing**_ _**them for lap-**_
_**top computers and other products, and many American companies closed**_
_**their doors in the face of competition.**_

_**American**_ _**computer makers**_ _**such as Apple**_ _**Computer**_ _**Inc.**_ _**have bemoaned**_ _**the**_
_**lack of a US display industry, which has forced them to rely mainly on**_
_**imported screens. The lack of an American industry also has potential**_
_**national security implications. In the future, the screens will be used in**_
_**military ships, armored vehicles, fighter**_ _**plane**_ _**cockpits, training**_
_**programmes and command and control centres. They will also be used in**_
_**wall-mounted televisions, video-phones and space vehicles; nearly**_
_**everywhere**_ _**information**_ _**is displayed electronically.**_

_**American companies currently account for less than 5 % of a $ 3.5 billion**_
_**industry, one that is expected to swell to $ 8.4 billion by 1995 and to $ 15.2**_
_**billion by**_ _**the**_ _**year 2000.**_

_**Industry sources said there were several reasons why American companies**_
_**have decided to band together with the Defense Department including a**_
_**sense of urgency over Japan's efforts to develop a new generation of**_
_**displays. Some industry sources estimate the Japanese are outspending the**_
_**United States more than 20 to 1 on flat-panel research, with the lead**_
_**Japanese company, Sharp Co, having committed close to $ 1 billion for**_
_**research and**_ _**development**_ _**between**_ _**1991**_ _**and**_ _**1993.**_

_**Existence**_ _**of Bilateral or Multilateral**_ _**Agreements**_

_**Under the**_ _**GATT**_ _**subsidy code, a subsidy on R&D may be non-actionable if**_
_**"the**_ _**assistance covers not more than 75% of the cost of industrial research**_
_**or 50% of the costs**_ _**ofpre-competitive**_ _**development**_ _**activity".**_

_**11**_

**2.** **STATE AIDS (JAPAN)**

The $ 116 billion stimulus package adopted by the Japanese government features
prominently the "Mandala Project on High Performance Computing and
Communications [ 18] . The project is a direct response to the US government's High
Performance Computing and Communications Program. The Japanese say they
fear their industry could be held hostage by a U.S. refusal to grant Japan access to
"this closed (HPCC) intellectual possession".

Therefore, the "urgent employment of HPCC (in the United States) will control life
in the future of Japan." With the "drastic improvement in performance in
computing networking environments used for intelligent work in manufacturing
and service businesses... Japanese research development power, industrial
manufacturing power and economic competitive power will decrease in quantity as
well as quality. Long-term decrease in GNP and the standard of living will occur
within a few years."

The central part of Japan's HPCC program would be the creation of 10 centers for
high performance computing. These would be open to manufacturers as well as to
public and educational organizations throughout Japan. Like the supercomputing
centers in the United States, they would be tied together by a gigabit-per-second
network. "To build nationwide HPCC centers quickly and smoothly, it would be
most effective to establish a foundation by collecting funds from Government and
the private sector," says the Mandala project summary.

The program would "borrow" one trillion yen from the government for use over 10
years and would spend 100 billion yen a year.

**Detailed** **expenses** —

HPCC Centers (10 locations) 50 billion Yen
Super High Speed Network 20 billion Yen
Project Operation expense 10 billion Yen
Business Office Activity Expense 10 billion Yen
Fund Accumulation 10 billion Yen

**TOTAL** **100 billion Yen/year**

18 Report on "Mandala Project on High Performance Computing and Communications".

**28**

IV. DISCRIMINATORY PRACTICES

The Community's objective is to ensure that Japan and the US implement and
enforce the principle of national treatment.

1. STANDARDS AND CERTIFICATION SYSTEMS (JAPAN)

1.1. Video products

Examination and authorisation procedures at the import stage are far more
complicated than the corresponding procedures for national producers. In
particular, the norms and standards are used to partition off the national market.

The Japanese authority has published two different guide-lines for foreign and
national products and has thus made a distinction between treatment reserved for
national products and that applied to foreign products.

Video products and, especially televisions need a lot of alterations and
developments to conform to local specifications. These products must conform to
the requirements of the "T" norm, as laid down in the law on electrical appliances
and the control of materials. The competent organisation is the MITI [19]   

Optional norms that apply to certain products can be much more insidious. They
can hold up sales quite considerably because retailers refuse to distribute products
that have not been officially recognised. Apart from the image of guarantee, safety
and good quality that is given by these norms, an insurance is attached to certain of
them and thus the retailer is not held responsible in the case of a problem or an
accident. It is the organisation which delivered the norm who compensates the
victim directly. It is thus in the retailers' interest to select preferably articles which
are "guaranteed", not only from a financial viewpoint but for its image.

_Comments_

_Certification procedures for materials_ _can_ _hold_ _up and_ _even block access_ _to_
_a market._ _It is_ _therefore necessary_ _to_ _take into account_ _the_ _equivalence_ _of_
_standards_ _and_ _certification procedures._

_In Europe, electronic products must conform with_ _the Low_ _Tension_
_Directive_ _[ 20]_ _._ _One of_ _the means of proof is_ _the_ _declaration_ _of_ _meeting_ _the_
_norms delivered_ _by the_ _manufacturer. This means that_ _a_ _Japanese product_
_can_ _be_ _immediately available_ _on the_ _European market without_ _a_ _previous_
_control._

_In Japan_ _the_ _standards_ _to_ _conform with_ _are_ _national_ _and_ _specific_ _as_ _they_ _are_
_provided for under_ _the_ _electrical appliances_ _and_ _materials control_ _law._ _This_

19 "The Distribution of Consumer Electronics in Japan" by BIS Strategic Decisions - page 19

2 0 The Directive (73/23/EEC of 19.2.73) covers electrical material intended to be used at a nominal level of tension

of between 50 and 1.000 volts for alternate current.

29

_**law provides in particular that all**_ _**products**_ _**bear the mark of**_ _**safety**_ _**"T"**_
_**(triangle)**_ _**[ 21]**_ _**.**_ _**However, the ways of obtaining this mark are different**_
_**depending on whether**_ _**a given product is**_ _**Japanese**_ _**or imported.**_

_**For products made in Japan, it is the manufacturer's workshop which is**_
_**officially recognised, allowing thus the product's immediate**_ _**entry**_ _**into the**_
_**market.**_

_**The**_ _**importer**_ _**must**_ _**first submit each batch of goods to a control by approved**_
_**testing laboratories whereupon**_ _**MITI**_ _**authorises the manufacturer to place**_
_**the mark**_ _**"T".**_ _**The whole**_ _**procedure**_ _**creates**_ _**delays of up to three months for**_
_**the**_ _**effective market**_ _**entry.**_

_**It is also**_ _**worthwhile**_ _**to**_ _**mention**_ _**that**_ _**under**_ _**Article 54 of the Material Control**_
_**Law, electrical appliances and materials for export**_ _**may,**_ _**in accordance with**_
_**cabinet**_ _**order,**_ _**be exempted from the application of provisions of this law or**_
_**be given special**_ _**consideration.**_

**1.2. Terminals** (See annex 7)

For terminals, there exists a restricted group called "Harmonisation of Advanced
Telecommunications Services" (HATS) which gathers representatives of Japanese
industry in order to ensure the compatibility of the respective equipment. After
testing a label is put on the equipment. No Community firm has ever tried to
participate in HATS. The telecommunication terminal équipement is the main
source of the large and growing telecommunications trade deficit between the
Community and Japan.

_**Comments**_

_**The great importance of terminals lies in their role as the interface**_ _**to**_
_**networks and services for the customers**_ _**and in**_ _**their**_ _**consumption**_ _**of state of**_
_**the art micro-electronics in large**_ _**volumes.**_ _**A further erosion of**_ _**European**_
_**terminal manufacturing will therefore have consequences on the micro-**_
_**electronics components industry in the EC and on the ability of European**_
_**service providers to compete in the longer term where there is a need for**_
_**dedicated**_ _**terminals**_ _**to cover specific services.**_

_**The terminal market represents**_ _**an**_ _**important segment of the**_
_**telecommunications equipment market (nearly 10 billion**_ _**Ecu/year)**_ _**and**_
_**. European**_ _**industry-**_ _**shows a real weakness in this sector.**_ _**Nearly three**_
_**quarter of the Community's imports from Japan consist of terminal**_
_**equipment**_ _**with over half of the imports being**_ _**accounted**_ _**for by fax**_ _**machines**_
_**and parts.**_

**2*** **For category A electrical** **appliances** **and materials (appliances and materials particularly liable to cause risk and injury**
**judging from their structure, method of** **use** **and other conditions of** **use):** **425 products.**

**30**

_**Existence**_ _**of**_ _**Bilateral**_ _**or Multilateral**_ _**Agreements**_

_**In the GATT framework, the code on the technical barriers to trade (TBT)**_
_**provides for an obligation inter alia to notify the standards and marks**_
_**adopted by the**_ _**contracting**_ _**parties and encourage the conclusion of mutual**_
_**recognition**_ _**agreements (MRA)**_

_**On 21 September 1992 the Council has approved the negotiating mandate**_
_**concerning mutual**_ _**recognition**_ _**agreements on conformity assessment which**_
_**aims at facilitating trade in the regulated**_ _**sectors.**_ _**Japan is included in the**_
_**mandate as one of the**_ _**ten**_ _**priority countries to negotiate with. One of these**_
_**sectors covers telecommunication terminal equipment (Dir**_ _**91/263/EF.C).**_
_**The situation concerning the structure and functioning of the Japanese**_
_**standardisation and certification systems and their relationship with**_
_**informal provisions or voluntary codes of**_ _**practice**_ _**for access to the market is**_
_**presently not fully**_ _**transparent.**_ _**The Commission has held exploratory talks**_
_**with**_ _**Japan.**_

**2.** **OWNERSHIP RESTRICTIONS (JAPAN)**

**2.1.** **Type I Carriers**

Ownership restrictions are placed on what are known as "Type I carriers". Foreign
ownership is restricted to a 33% investment.

Furthermore, this 33% is divided between several countries. As a result individual
foreign companies acquire a comparatively small percentage holding. This holding
does not allow the participant to exercise a decisive role in the organisation and
management of the Type I operator.

With respect to international communications there are foreign ownership
restrictions limited to 25%. There are also restrictions on foreign ownership of
radio licences. This means ownership of a licence to use the electro-magnetic
spectrum. Many forms of communications involve the use of radio waves, i.e.
radio, television, satellite communications, etc [22] .

_**Comments**_

**«** _**A company has alleged that in the allocation of shareholdings, US firms are**_
_**treated more favourably than European firms. This state**_ _**of**_ _**affairs**_ _**is**_
_**believed**_ _**to**_ _**reflect**_ _**the**_ _**more effective lobbying of the**_ _**US**_ _**government.**_

**2.2.** **Company Acquisition**

The European Business Council (EBC), which represents European companies
established in Japan, has on the occasion of Mr. Bangemann's visit to Japan (end of
March 1993), drawn his attention to the very low number of Japanese companies

**2 2** **"Market access problems in Japan-State of** **play"** **by the Commission services, April** **1994,** **page 14**

31

that have been acquired by foreign companies, although there has been an increase
recently, i.e. 37 acquisitions in 1992 against 15 in 1989 (see Annex 8).

. Japan's lack of receptivity to foreign investment has the effect of a trade barrier in
today's global economy where investment pulls trade. Foreign subsidiaries or
affliates frequently purchase or sell to the parent companies back home, to the
extent that intracompany trade constitutes 30 to 40 percent of total world trade in
manufactures. The effective denial to establish majority owned subsidiaries which
source from their affiliates translates into a substantial loss of potential exports
from foreign firms to potential Japanese subsidiaries [ 23] .

When buying a Japanese company, the Japanese government has the right of veto
on the basis of vague provisions (article 26 of the law on the control of
international commerce and transactions) [ 24] (see Annex 9).

_**Comments**_

_**A part of transactions, concerning the in-flow of foreign**_ _**funds,**_ _**are defined**_
_**as "direct domestic investments" and therefore are excluded from the**_
_**definition of capital transactions; the relevant provisions are therefore**_
_**different from those applicable to the flow of internal funds, i.e. this**_ _**implies**_
_**that**_ _**rïo**_ _**right of veto is applicable**_ _**to**_ _**them.**_ _**The category of direct domestic**_
_**investments,**_ _**etc. employs**_ _**a**_ _**concept of**_ _**"foreign**_ _**investor**_ _**[1]**_ _**'**_ _**as**_ _**a party**_ _**involved,**_
_**which differs**_ _**from**_ _**either the concept of resident or**_ _**non-resident.**_ _**For direct**_
_**domestic**_ _**investments,**_ _**the administration's**_ _**main**_ _**concerns rest upon how to**_
_**discern and regulate the**_ _**transactions**_ _**after effects such as how or to what**_
_**extent the recipient business concerned is controlled by**_ _**foreign**_ _**investors**_
_**etc., rather**_ _**than**_ _**how to regulate**_ _**the**_ _**flow funds crossing**_ _**the**_ _**border.**_

**2.3.** **Different** **Types of Carriers**

The telecommunications business law (TBL) of April 1985 distinguishes between
types of carriers based on facilities ownership (see Annex 10). Additional
regulatory guidelines cloud this distinction by introducing the concepts of "basic"
and "enhanced" services. The services type II carriers can offer are limited by these
definitions.' Yet, type I carriers are free to enter into enhanced services without
sufficient safeguards to ensure fair competition [ 25 ]

The Japanese government is expected to adopt a fast-track package of deregulation
measures in the near future.

**2 3** **Section on Japan** **from** **the** **1994** **US national trade estimate** **report on** **foreign trade barriers, page** **168.**

**2 4** **United States-Japan Trade White Paper** **1993** **by** **the American Chamber of Commerce** **in** **Japan** **(ACCJ)**

**2 5** **United** **States-Japan** **Trade White Paper** **1993** **by** **the American Chamber** **of** **Commerce** **in** **Japan (ACCJ)**

**•-32**

3. OWNERSHIP RESTRICTIONS (UNITED STATES)

**3.1.** **Common carrier services**

Foreigners are virtually precluded from offering common carrier (telephone, telex,
etc.) services in the US using radio communications by the ownership restrictions
imposed on common carriers under the US Communications Act (47 U.S.C.).

_Comments_

_There is a significant part of the US domestic market to which EC companies_
_have, in principle, unrestricted_ _access,_ _i.e._ _private services._

_Section_ _310_ _does not apply to companies offering non-common (or private_
_carrier) communications. Entities which lease or own domestic_ _transporter_
_capacity may offer that capacity to users on a non-common carrier basis._
_The difference between carriers_ _[ 26]_ _and non-common carriers tends to be that_
_common carriers may provide services which interconnect with the public_
_switched_ _network, while a non-common carrier provides_ _private_
_communications to closed user groups (i.e. not to the general public)._
_However, common carrier is not a well-defined term and there are many_
_sub-issues of law and fact upon which the outcome may turn in a particular_
_case. Hence it may often be difficult for a would-be license applicant to_
_predict its licensability under Title HI of the Act._

_Section_ _310_ _obliges foreign carriers either to enter into subcontracting_
_arrangements with US_ _carriers,_ _or to use alternative (non-radio) technology._
_The ultimate rationale for these restrictions is the argument that US control_
_of communications is essential at all_ _times,_ _for reasons of national security._

**3.2.** **Radio Communications** (See annex 11)

Section 310 of the Communications Act of 1934 imposes limitation on foreign
investment in radio communications: no broadcast (or aeronautical en route or
fixed radio station licence) may be held by foreign governments, aliens,
corporations in which any officer or director is an alien or of which more than 20%
of the capital stock is owned by an alien (25% if the ownership is indirect). As
most common carriers need to integrate radio transmission stations, satellite earth
stations and in some cases, microwave towers in their network, foreign-owned US
common carriers are unable to compete in much of the long-distance market, and
only through a minority shareholding in the mobile market [27 ]

2 6 Communications Act of 1934, Sec 3(h) : "Common carrier" or "carrier" means any person engaged as a common
carrier for hire, in interstate or foreign communication by wire or radio or in interstate or foreign radio
transmission of energy, except where reference is made to common carriers not subject to this Act... (i.e. a
common carrier is a common carrier !).

2 7 Report on United States Trade and Investment Barriers (1993) by Services of the Commission of the European
Communities - page 72

**33**

_Comments_

_**Opening**_ _**the US telecommunications**_ _**market to British operators will test**_ _**US**_
_**regulatory authorities, and the outcome is likely to have significant**_
_**implications for access to the**_ _**US market**_ _**by other overseas operators.**_

_**Cable & Wireless, the UK**_ _**Telecommunications**_ _**group is seeking a waiver**_
_**from a**_ _**restriction on**_ _**foreign operators owning**_ _**more than**_ _**25% of a company**_
_**holding a radio-based licence in the US. The waiver application to**_ _**the**_
_**Federal Communications Commission, is prompted by the**_ _**prospect of**_
_**licence being granted nationwide for personal communications services**_
_**(PCS) a new cellular**_ _**mobile**_ _**technology.**_

_**More than 400 licences will be granted for franchise areas across the US.**_
_**The contest for licences**_ _**will**_ _**be fought fiercely among US Telecoms**_
_**operators: more**_ _**than $10**_ _**billions is expected**_ _**to**_ _**be raised by the**_ _**government**_
_**infees.**_

_**The**_ _**FCC**_ _**has discretion to issue a waiver and will judge the C & W**_
_**application on its merits. The terms of this rulings are that the US has**_
_**placed**_ _**no**_ _**bar on foreign ownership of licences for personal**_ _**communications**_
_**networks, the UK**_ _**equipvalent**_ _**of PCS. One network was**_ _**launched**_ _**last**_ _**year,**_
_**in wich US**_ _**West**_ _**has a**_ _**50%**_ _**share with C &**_ _**W**_ _**its partner.**_

_**The 25% ceiling dates back to the first world war and its was imposed for**_
_**security**_ _**reasons.**_ _**Despite this the evidence**_ _**ofopeness**_ _**in the UK could lead**_
_**to a change of policy with regard to the UK. The decision has wider**_
_**ramifications. British Telecommunications has sought and obtained a**_
_**clearance by the FCC of its joint**_ _**venture**_ _**with MCI as AT&T**_ _**has**_ _**obtained a**_
_**licence to operate in the UK.**_

**3.3.** **Mergers, Acquisitions and Takeovers**

Section 5021 of the 1988 Trade Act, the so-called Exon-Florio amendment (from
the names of its sponsors), provides that the President or his nominee may
investigate the effects on US national security of any mergers, acquisitions and
takeovers which could result in foreign control of legal persons engaged in
interstate commerce in the US. This screening is carried out by the Treasurychaired Committee on Foreign Investment in the US (CFIUS) [28] (see Annex 12).

2 8 United States-Japan Trade White Paper 1993 by the American Chamber of Commerce in Japan (ACCJ)

_**34**_

**4.** **CONDITIONAL NATIONAL TREATMENT (UNITED** STATES)

**4.1.** **Advanced Technology Programme (ATP)**

Already in the past, there have been US provisions conditioning the granting of
national treatment to foreign-controlled economic operators by reciprocity clauses
or the fulfiment of performance requirements [ 29] . Under the Advanced Technology
Programme (ATP), a company's eligibility to receive financial assistance under the
programme depends on a determination by the Department of Commerce of the US
economic interests as evidenced by the company's investment in the US, its
significant employment contributions, and local manufacturing and procurement
from competitive suppliers. Furthermore, the ATP submits foreign-owned firm's
participation to reciprocity and non-germane conditions regarding local investment
and intellectual property rights protection. (See Annex 13)

**4.2 Proliferation of conditional national treatment**

Under the current, 103 rd, Congress, there has been a marked increase in draft
legislative proposals which seek to condition national treatment for foreign-owned
companies. The following legislation regarding R&D is affected:

    - National Cooperative Production Amendments Act of 1993, signed into law on
10 June 1993;

    - National Competitiveness Act (S 4 / HR.820)

    - Aeronautical Technology Consortium Act (S 419 / HR 1675);

    - National Environmental Technology Act (S 978);

    - Hydrogen Future Act (HR 1479);

    - National Aeronautics and Space Administration Authorisation Act (HR 2200);

    - Omnibus Space Commercialisation Act (HR 2731 );

    - Defense Authorization Legislation (HR 2401 / S 1298);

    - Authorization for the Earthquake Hazards Reduction Act of 1977 (HR 3485);

    - Environmental Technologies Act of 1994 (HR 3870)

The discrimination of non-US controlled companies is mainly brought about by
two different kinds of conditioning the granting of national treatment. On the one
hand, there is the straightforward conditioning of national treatment towards private
operators by requiring the country of origin of the foreign economic operator to

**2 9** **Cf. Stevenson-Wydler Technology Innovation Act of 1980, Bayh-Dole Act of 1980, Primary Dealers Act of 1988; American**
**technology Preeminence Act including the technology Administration Authorization Act of 1991; National Critical**
**technologies Act of** **1991;** **Advanced Manufacturing technology Act of** **1991;** **Energy policy Act of 1992.**

**35**

**grant reciprocal treatment to US companies which are economically** **activé** **in that**
**country in order for the foreign company to receive formal** **national** **treatment in the**
**US.** **It is important to note that the** **reciprocity** **conditions is not always related to**
**the** **sector** **in which the foreign company is active in the US, but may also be cross-**
**sectoral. Furthermore, the proposed US legislation contains distinctive operative**
**conditions either** **in** **the** **form of a definition of** **the** **notion of "US company", or in**
**the** **form** **of** **additional** **performance** **requirements** **for** **non-US** **companies.** **In**
**general, the performance requirements formally apply to all economic operators**
**whether or not they are domestic or foreign-controlled, and thus do not constitute a**
**de jure deviation from the formal national treatment principle. However, in these**
**cases foreign-controlled enterprises can face indirect, de facto discrimination, in**
**that they** **experience** **more practical difficulties than** **US** **firms in** **fulfilling** **the**
**performance requirements.**

_**Comments**_

_**Even if the**_ _**need**_ _**for the US Administration to**_ _**seek the**_ _**best value**_ _**for US**_ _**tax-**_
_**payer's money is acceptable, this does not**_ _**necessitate**_ _**the**_ _**exclusion**_ _**of**_ _**non-**_
_**US**_ _**companies**_ _**from all federally funded R&D projects.**_ _**In**_ _**particular, some**_
_**European firms already have substantial research operations in the US,**_
_**which contribute substantially to the development of**_ _**the**_ _**US technological**_
_**base; it seems inappropriate that they should be arbitrarily excluded from**_
_**funded**_ _**projects.**_ _**While the Administration**_ _**has normally resisted Congress's**_
_**proposals for**_ _**CNT,**_ _**it has**_ _**often**_ _**not**_ _**done**_ _**so very**_ _**vociferously;**_ _**equally, it has**_
_**not pressed ahead**_ _**with**_ _**its own internal reflections on what constitutes a US**_
_**company for**_ _**the**_ _**purpose of**_ _**defining automatic**_ _**eligibility to federal funding.**_

**5.** **SATELLITES** **AND** **SATELLITE** **LAUNCH** **SERVICES** **(UNITED** **STATES)**

**The National Space Policy Directive of 6 September 1990 establishes that US**
**Government satellites will** **be** **launched on US** **manufactured** **launch vehicles** **unless**

**a specific exemption has been granted by the President. The measure is explained**
**as part of a set of** **coordinated** **actions which are required to reach the long term**
**goal of creating a free and fair market in which the US launch industry can**
**compete.**

**The promotion of the US commercial space launch industry, by reserving all US**
**launches of government satellites exclusively to domestic launch** **service** **suppliers,**
**is clearly detrimental to European launch service providers. European launch**
**operators are effectively barred from** **competing** **for** **US government** **launch**
**contracts, which account for approximately 80** **%** **of the US satellite market.** **The •**
**restriction, which is justified by the US for national security reasons as regards the**
**launching of military satellites, is now also imposed on government** **satellites** **for**
**civilian** **use** **[30]** **.**

3 0 Report on United States Trade and Investment Barriers (1993) by Services of the Commission of the European
Communities - page 75

**36**

**Satellite manufacturing** is dominated by the US space industry which takes
benefit of their important protected domestic civil and defense markets (see
Annex 14).

It is recognised that the US **satellite services** market is restricted as regards entry
by European satellite service providers, in the sense that licences may not be
granted to operators owned by foreign governments (e.g. state-owned telecom
operators and broadcasters), nor to suppliers of broadcast, common carrier or
aeronautical services in cases where the foreign ownership exceeds 20% (or 25%
indirectly).

Regarding **mobile satellite services** (MSS), the FCC decision to give American
Mobile Satellite Corporation (AMSC) the exclusive monopoly rights to serve the
domestic US market for these services means that any foreign competition, either at
space segment level or at service level is excluded. The US Court of Appeals
reversed the FCC's decision to require several mobile satellite service applicants to
join a consortium under a single license. However, in January 1992 the FCC
launched the process for a final decision granting the US monopoly mobile satellite
service licence to AMSC.

As far as **aeronautical mobile satellite services** are concerned, in 1989, the FCC
confirmed its 1987 decision on the exclusivity of the AMSC licence and ruled that
Inmarsat-based aeronautical satellite services may not be used on the domestic
segments of international flights, thereby preventing effective market entry by
Inmarsat-based systems, since any aircraft in flight between two domestic US
points would be obliged to use AMSC space segment [31] .

_**Comments**_

_**US**_ _**manufacturers**_ _**have a 69% market share of**_ _**the**_ _**worldwide commercial**_
_**satellite market.**_ _**The US Department of Commerce estimates that US**_
_**exports in this area were about $ 600 million in 1991 compared with $ 643**_
_**million in 1990, and that imports were as little as $ 20.000 in each of those**_
_**years ! It is worth noting that Hughes alone has approximately 38%**_
_**worldwide market share which is greater than all of**_ _**Europe's**_ _**collective**_
_**share**_ _**(approximately**_ _**25%).**_

_**This market dominance by US manufacturers is a result of economies of**_
_**scale and market power due to the overall**_ _**size**_ _**of the commercial**_ _**US**_ _**market,,**_
_**but more significantly, to the size of**_ _**the government**_ _**civilian and military**_
_**markets**_ _**which**_ _**are largely closed**_ _**to non-US**_ _**suppliers.**_

**6.** **PATENT** **AND** **TRADEMARK** **APPLICATIONS** **(JAPAN)**

In recent years the Japanese Patent Office (JPO) has made progress in reducing the
uncommonly long time involved in the processing of patent and trademark

31 Report on United States Trade and Investment Barriers (1993) by Services of the Commission of the European
Communities - page 82

**37**

**applications. Unfortunately, however,** **the** **process remains one of** **the** **slowest**
**among developed nations when coupled with the practice of publishing all**
**applications. This results in** **a** **long period of** **public** **access without legal protection**
**of the inventions.**

**The problem is compounded by a number of additional issues:**

**- due both to** **the** **common practice in** **Japan** **of filing a large number of**
**applications to cover slight variations in known technology and to the narrow**
**interpretation of patent claims** **by** **Japanese courts, protection is effectively**
**reduced and the system is overburdened with applications;**

**-** **multiple oppositions after examination often introduce significant** **delays** **in the**
**patenting process, since the** **applicant** **must respond to each opposition**
**separately. In addition, since** **Japanese** **law contains no discovery procedure**
**whereby the, owner of a process patent may seek evidence of suspected**
**infringement, the protection offered by a process patent is weakened;**

**-**
**Japan has a well-established trademark registration system. However, as in the**
**Japanese patent system, the period of pendency, even in uncontested cases, is**
**still unduly long (about three years on average, versus one year** **or** **less in the**
**United States);**

**- Despite the recent enactment of the** **Trade Secret** **Law, there is still a lack of**
**effective protection for trade** **secret** **material during procedures in the** **courts** **[32]** **.**

**While the Japanese** **patent** **office has stated that it has reduced the pendency** **period**
**from 37 months in 1988 to 28 months today, this refers only to one portion of** **the**
**patent** **issuance** **process. Total time submission of a patent application to granting**
**of** **a** **patent is usually five to six years, and it is much longer in many cases.** **[33 ]**

_**Comments**_

_**The**_ _**publication**_ _**"Sub-committee**_ _**Report on Patent and**_ _**Utility**_ _**Model Laws**_
_**and Their Practices Leading to International Harmonisation" by an**_
_**Advisory Council to the Ministry of International**_ _**Trade**_ _**and**_ _**Industry (MITI)**_
_**addresses**_ _**this problem according to the American Chamber of**_ _**Commerce.**_
_**Its**_ _**implementation**_ _**should**_ _**be**_ _**closely**_ _**monitored.**_

_**Existence**_ _**of Bilateral and Multilateral**_ _**Agreements**_

_**Articles 35 to**_ _**38**_ _**of**_ _**the**_ _**Trips Agreement provide protection to the layout-**_
_**designs**_ _**(topographies)**_ _**of integrated**_ _**circuits.**_

3 2 United States-Japan Trade White Paper 1993 by the American Chamber of Commerce in Japan (ACCJ)

3 3 Section on Japan from the 1994 US national trade estimate report on foreign trade barriers, page 161

**•-38**

7. PATENT ISSUES (UNITED STATES)

**7.1.** **Patents**

US patent law is based on the "first to invent system", with almost the rest of the
world following the "first to file system". Section 104 of the US Patent Law says
that it is not possible to establish a date of invention by reference to any activity in
a foreign country. A non-US inventor who typically carries out research and
development activities outside the US cannot therefore establish a date earlier than
that in which he or she applied for the patent.

This treatment clearly discriminates vis-à-vis foreign inventive activities in
comparison to US domestic inventive activities and" thus has the effect of forcing
foreign companies to carry out research and development in the US rather than
abroad. The discrimination features under Section 104 appear incompatible with
Article 27 of the Uruguay round.Agreement on TRIPS. The US will have to
undertake the necessary modifications.

**7.2.** **Government use**

US law allows governmental use of intellectual property rights without even having
to notify the right holder. This practice is particularly frequent in the activities of
the Department of Defense. For obvious reasons this practice is particularly
detrimental for foreign right holders because they will generally not be able to
detect such government use and are thus likely to miss the opportunity to initiate an
administrative claims procedure. The TRIPS Agreement contains some safeguards
for the patent holder which should eventually lead to considerable changes in the
US law and practices on mandatory licensing.

**7.3.** **Section 337 of Tariff Act 1930.**

Sec. 337 of the US Tariff Act provides among others remedies for holders of US
patents with a view to keeping imported goods infringing such patents out of the
US (exclusion order) or to get them out of the US market once they have come into
the country (cease and desist order).

These procedures are carried out by the US International Trade Commission (ITC)
and are not available against domestic products infringing US patents.,

In July 1987 the European Community requested the establishment of a panel to
consider the compatibility of Sec. 337 of the US Tariff Act with the US' obligations
under the GATT notably with its Article III.

The Panel Report which was adopted by the Contracting Parties on 7 November
1989 established the existence of a number of inconsistencies with US obligations
under article III of the Agreement [34 ]

34 Report on United States barriers to trade and investment, 1994, page 61

39

_**Comments**_

_**Despite the**_ _**GATT**_ _**Panel finding of**_ _**1989**_ _**the US have to date not taken any**_
_**measure to bring**_ _**Sec.**_ _**337 in line with its**_ _**international**_ _**obligations**_ _**under**_ _**the**_
_**GATT.**_

_**The chilling effects of**_ _**Sec.**_ _**337 on European companies' activities were**_
_**highlighted in**_ _**1992**_ _**by several cases, whereby the discriminatory character**_
_**became particularly apparent in one case where**_ _**the**_ _**federal district court**_
_**had stayed**_ _**the procedure**_ _**before it on the ground of an arbitration clause,**_
_**which did not prevent the ITC which was subsequently petitioned to take**_
_**action. In 1992 Senator Rockefeller introduced a bill into the US Senate**_
_**which was intended to bring**_ _**Sec.**_ _**337 in line with the GATT panel findings.**_
_**While the bill addresses indeed some of**_ _**the**_ _**issues addressed**_ _**in**_ _**the panel**_
_**findings it clearly falls short of**_ _**remedying**_ _**the GATT inconsistencies in a**_
_**meaningful**_ _**manner.**_

**40**

**V. STRUCTURAL** **IMPEDIMENTS**

The Community's objective is to remove all barriers which objectively block access
for Community companies to the Japanese and US markets.

1. ACCESS TO TECHNOLOGY IN THE SEMICONDUCTOR **FIELD (JAPAN)**

The intricate types of association among Japanese firms and the strong links
between business and public administration make it easy to ensure that Japanese
firms have a systematic preferential access to technology developed in Japan.

Difficulties have been allegedly experienced in the timely access to state-of-the-art
materials, processes and equipment newly developed by Japanese suppliers,
necessary to develop and produce the most advanced generations of the
(semiconductor) technology supporting the most advanced electronic equipment
and products. The report by Lloyd Bentsen on US business access to certain
foreign state-of-the-art technology has outlined the problem from the US
perspective. [35 ]

Difficulties are also experienced in the access to the highest quality materials,
processes and equipment necessary to develop the most advanced and to produce
with highest quality the generations of the technology supporting the advanced
electronic equipment and products (in semiconductor this often relates to
production with lower cost).

_**Some examples:**_

Photo lithographic equipment e.g. Canon, for the production of semiconductors,
defining the line width of the lines on the silicon, which is the main factor for
improved performances and increased density, is first introduced in the internal
market of Japan. European firms trying to access this crucial equipment for
introducing their next generation of technology are offered this equipment 1 to 1.5
years later and face long delivery times resulting in delays in entering the market,
higher costs, longer learning curves. Basically this delay is encountered while all
development of these types of new equipment is done in combination with local
customers and only released after full qualification.

Photo lithographic equipment for the production of flat panels follow the same

pattern.

Japanese suppliers are generally presenting engineering samples of components
several (10-18) months in advance to their preferred (Japanese) customers, which
allow these customers to use this advantage in more up to date electronic
equipment. Typically Europe is a half generation behind Japan for electronic
equipment.

3 5 "US business access to certain foreign state-of-the-art technology" September 1991

41

Some advanced materials e.g. sputtering material for advanced deposition and e.g.
high quality resist materials for advanced photolithographic processing are today
not available in Europe and are delivered with major delays and in small quantities.
This is delaying the learning curve related with the production ramp-up of semiconductor processing. Some gases and chemicals are not delivered with the highest
quality available (liquid source chemicals, gases for deposition) resulting in
decreased quality and yielding loss in the processing (higher cost).

Packaging of components are using plastic packaging material of high quality. The
most advanced materials (e.g. Sumitomo) are delivered much later to European
companies and initially only in small quantities. This results in a delay in
reliability improvements and yield loss. The same with ceramic substrates and high
quality spin-on glass for planarisation used in the fabrication process of semiconductors.

_**Comments**_

_**The**_ _**US market**_ _**is served**_ _**before**_ _**Europe.**_ _**The**_ _**delay can be from 1 to 2 years.**_
_**Japanese suppliers, by systematically serving their own market before the**_
_**US**_ _**and**_ _**Europe,**_ _**influence the**_ _**early**_ _**introduction of**_ _**new**_ _**products putting**_
_**European companies at a disadvantage even to compete in their own home**_
_**market.**_

_**This,**_ _**systematically serving the home market earlier and**_ _**with**_ _**higher quality**_
_**supporting**_ _**materials,**_ _**processes and equipment for the manufacturing,**_
_**influences the ultimate quality of the product, the initial cost and the**_
_**progress of the**_ _**learning curve**_ _**in**_ _**manufacturing.**_

_**The**_ _**Act concerning**_ _**prohibition**_ _**of private monopoly and**_ _**maintenance of**_ _**fair**_
_**trade prohibits**_ _**in**_ _**particular the unreasonable restraint of trade. This**_ _**term**_
_**means "that**_ _**any**_ _**entrepreneur, by contract, agreement or any other**_
_**concerted actions, irrespective of the names,**_ _**with**_ _**other entrepreneurs,**_
_**mutually restrict or conduct their**_ _**business**_ _**activities in such a**_ _**manner**_ _**as to**_
_**fix, maintain, or increase prices, or to limit production, technology,**_
_**products, facilities, or customers or suppliers, thereby**_ _**restraining,**_ _**contrary**_
_**to**_ _**the**_ _**public interest, substantially competition in any particular field of**_
_**trade.**_ _**The same**_ _**Act provides that no trade associations shall engage in acts**_
_**"causing**_ _**entrepreneurs**_ _**to employ such acts as constitute unfair trade**_
_**practices". Concerted refusal to deal and other refusal**_ _**to**_ _**deal fall within**_
_**the definition of**_ _**unfair**_ _**trade practices**_ _**[ 36]**_ _**.**_ _**On the**_ _**contrary,**_ _**there is no**_
_**provision**_ _**concerning the**_ _**delayed**_ _**refusal**_ _**to**_ _**deal.**_

Two Community companies manufacturing semiconductor fabrication equipment
are attempting to commence trading in Japan with their latest products and they
view that market as crucial to support their business level.

3 6 Japanese Competition Law by the Fair Trade Commission of Japan - September 1991

**42**

_Comments_

_The world-wide market for integrated circuit production equipment is_
_currently at 6B$ and forecast to rise to_ _9.3B$_ _by 1996._ _Besides this_
_commercial consideration, it is more important to appreciate the impact of_
_such equipment arising from its capability to manufacture advanced_
_intergrated circuits, which is dependent on its level of technological_
_development. In an industry which has technology upgrades_ _every_ _three to_
_five years, the equipment manufacturers' ability to offer the latest technology_
_is dependant on very high R&D expenditures - typically_ _15%_ _to 20%._
_Failing to invest will result in not outperforming the competition and then_
_resulting_ _in an insufficient market share to survive._

_Since the money for R&D comes from volume sales, and the endemic_
_European_ _IC_ _manufacturers do not represent sufficient market size then_
_European equipment companies must look to areas such as Japan for volume_
_sales. The single market has encouraged foreign manufacturers to set up_
_factories in Europe, but to sell equipment to Japanese companies here, it is_
_first necessary to sell in Japan. However, European IC manufacturers need_
_advanced production tools available locally, to ensure that they are in time_
_to market advanced microelectronics_

2. ACCESS TO TECHNOLOGY IN THE SEMICONDUCTOR FIELD (UNITED STATES)

Semiconductor equipment in the US is developed in the framework of Sematech,
the semi-conductor programme in the US, which is using only local suppliers.
Consequently there is a delayed access to the most advanced equipment. European
producers established in the US have so far not been able to directly participate to
Sematech programmes. However, US producers with R&D facilities established in
Europe are able to participate and receive support in Community and Eureka (Jessi)
activities

_Comments_

_JESSI_ _have_ _established an arms-length frame for cooperation with Sematech_
_including workshops for exchange of_ _information,_ _but so far this has been_
_limited in scope to the involvement of European equipment and material_
_(E&M)_ _producers. However, this_ _is.viewed_ _as important from the European_
_perspective since the European market size alone is not_ _sufficient_ _to_ _allow,_
_viable development of advanced technologies._ _The_ _best way to sell offshore_
_in the E&M business is to collaborate at an early stage of development with_
_the prospective customers. The limited existing cooperation is, therefore,_
_valuable to Europeans as it gives them access to the "club" of US IC_
_producers who are key customers. At present joint working is also difficult_
_due to differences in the legal status and structure of JESSI (cooperation_
_agreement status) and Sematech (legal_ _entity)._ _Direct transatlantic strategic_
_alliances have been established on essentially commercial grounds (e.g._
_Siemens/IBM alliances on 64 Mbit and 256 Mbit_ _memories)._

**43**

_**Vice-President**_ _**Gore has announced at the beginning of March**_ _**1994**_ _**a new**_
_**government-industry partnership to strengthen America's leadership**_ _**in**_
_**semiconductors.**_

_**The**_ _**goal of this initiative is to assist the US industry to develop the**_
_**semiconductors technology for the next 15 years, on the basis of a**_
_**"roadmap" of the long-term technology requirements of**_ _**the**_ _**industry,**_
_**developed**_ _**earlier**_ _**by expert**_ _**in**_ _**industry,**_ _**government**_ _**and Academia.**_

_**To this end the Department of**_ _**Commerce**_ _**through the National**_ _**Institute**_ _**of**_
_**Science and Technology will establish a National Semiconductor**_
_**Methodology**_ _**programme.**_ _**The Department of**_ _**Defense**_ _**will sponsor high**_
_**priority research on electronic packaging and will continue to support the**_
_**efforts of**_ _**Sematech.**_ _**The**_ _**Department of Energy will establish a Center on a**_
_**cost-shared basis with industry, for**_ _**the**_ _**simulation and modelling of**_
_**semiconductor materials,**_ _**manufacturing**_ _**processes and chip design. The**_
_**National**_ _**Science**_ _**Foundation**_ _**will**_ _**continue**_ _**to invest**_ _**in**_ _**long-term**_ _**research.**_

_**This**_ _**initiative,**_ _**in**_ _**principle,**_ _**will not involve additional funding for**_ _**R&D,**_ _**but**_
_**rather represents a shift in priorities. To this end the administration will**_
_**establish later in the year 1994 a Semiconductor Technology Council**_
_**composed of top**_ _**government**_ _**officials,**_ _**senior**_ _**industry**_ _**executives**_ _**and**_ _**leading**_
_**academicians.**_

```
3. STANDARDS SETTING (UNITED STATES)

```

**The EC** **continues** **to be concerned about Certain developments taking place in the**
**United States because of** **:**

**-** **standards for** **Telecommunications** **services being developed independently of**
**national and international standardisation procedures;**

**-**
**the high cost of** **adapting** **European-based switching equipment to US**
**specifications;**

**-** **the existence of** **voluntary** **standards for terminal equipment which are "de facto**
**mandatory";**

**-** **the attempt by the FCC to** **enforce** **a standard in the area of mobile**
**communications which is incompatible with the Digital European Cordless**
**Technology (DECT), system for which** **Technical** **Bases for Regulations**
**(TBRs) under Directive** **91** **/263/EEC** **has recently been finalized.**

**44**

_Comments_

_Standards are strategic in terms of controlling_ _the_ _further flow of products._
_The standards of the US_ _télécoms_ _network are completely different from_
_those in Europe._

_Before any telecommunications equipment can be sold in the U.S., it must_ _**be**_
_approved by Bellcore, U.S. largest research consortium which_ _**performs**_
_technical work for its shareholders, the seven Regional Holding_ _**Companies**_
_(RHCs),_ _in five major areas : applied research, operations_ _**technology,**_
_software technology and systems, network technology,_ _**and information**_
_networking services._ _The process for EC producers of_ _**adapting their**_
_products to US. standards and of gaining such "type_ _**approval" for**_
_equipment in combination with the tendering process makes securing_ _**orders**_
_difficult. In addition, the expense of testing certain network_ _**equipment**_
_through Bellcore can be very high in some cases, so that although_ _**the system**_
_is open to all in theory,_ _in_ _practice it is open only to those suppliers_ _**with the**_
_ability to make this investment._

_Although officially FCC requirements are the only mandatory_ _**standards**_
_imported terminals have to meet, exporters have no certainty as_ _**to which**_
_other standards will in practice need to be complied with in_ _**order to**_ _**sell**_
_their products. The multiplicity of "voluntary" standards and the_ _**absence of**_
_a central point where information on all relevant standards can be_ _**obtained**_
_represents an effective trade barrier._

_In the area of_ _mobile_ _communications the FCC has taken a stand_ _**against**_
_promoting internationally compatible standards._ _Under pressure from_ _**a**_
_national industry_ _grouping,_ _the FCC is in_ _the_ _process of creating_ _**a technical**_
_barrier to trade against European DECT systems._

_Existence of bilateral or_ _multilatéral_ _agreements_

_Negotiations are being pursued with the US for the mutual_ _**recognition**_
_agreement of conformity assessment of terminal equipment._

**45**

### ANNEXES

##### _i*ç_

**Annex** 1:

Financial penalties for anti-competitive practices in Japan -some examples

**Annex 2:**

AT&T's position in the US market

**Annex 3:**

Modification of final judment for the RBOCs

**Annex 4:**

New competitive trends in the US Telecom market

**Annex 5**

Community law for public procurement

**Annex 6:**

The US HPCC programme

**Annex** 7:

Technical standards and requirements for terminals in Japan

**Annex 8:**

Foreign direct investment in Japan

**Annex 9:**

Japanese law on the control of international commerce and transactions

**Annex 10:**

Types of carriers in Japan

**Annex 11:**

Restrictions for foreign companies in telecommunications in USA

**Annex 12:**

US restrictions on mergers, aquisitions and takeovers

**Annex** 13:

Comparaison of current advanced technology programme language with Manton
Amendment adopted by House

**Annex** 14:

The US Space Industry

_**<i6**_

**F I N A N C I A L P E N A L T I E S F O R A N T I - C O M P E T I T I V E** **P R A C T I C E S I N** **J A P A N**

-SOME EXAMPLES

ANNEXI

In February 1992, Japan's Fair Trade Commission asked prosecutors to file charges in the
case against four printing companies i.e. Toppan Moore, Hitachi Information Systems,
Dai-Nippon Printing Co. and Kobayashi Kirokushi Co. According to the Fair Trade
Commission, at a meeting in late April 1992 at a Tokyo branch of Kobayashi Kirokushi,
the four decided to allow one among them to win a contract and sub-contract to the
others.

On 30 March 1993, in the first convictions in nearly two decades under Japan's anti-trust
legislation, two former officers of two printing companies were found guilty on charges
of bid-rigging. The Tokyo District Court gave a former officer of Toppan Moore Co. a
one-year suspended prison sentence and three years probation. A former officer of
Hitachi Information Systems Ltd. received an 18-month suspended sentence and three
years probation. The convictions were the first of their kind since 1974. They came as
Washington is pressing Tokyo to step up the fight against the price cartels and other
monopolistic practices that the United States considers barriers to imports. Prosecutors
arrested 14 officers including the 2 sentenced, at 5 printing companies in October and
November, 1992. They were suspected of illegally fixing prices on the coded seals the
Social Insurance Agency affixes to post card identifications of pension payments. The
cases of the other 12 officials are still pending.

On Friday, 21 May 1993 in a conclusion to a closely watched anti-trust case, a Tokyo
court found eight companies guilty of fixing prices of plastic film used for wrapping
food. The companies were given fines of between 6 million and 8 million yen, or about
$ 54,000 to $ 73.000. Fifteen executives of the companies were given suspended
sentences of six months to one year in prison. Some of the eight food-wrap companies
did not deny price fixing but argued in court that it would be unfair to single them out
since there were so many other more serious examples of price fixing in Japan.

Source: Commission's services

**AT&T'S** **POSITION** **ON THE** **US** **MARKET**

**ANNEX** **2**

**It is instructive to contrast AT&Ps position with that of companies in the more dynamic**
**segments of the U.S. telecommunication market, where EC suppliers are afforded a fair**
**opportunity to compete. In those dynamic market segments, for example the supply of**
**switches, mobile communications, and transmission products to the U.S. independent**
**telephone companies, EC suppliers have been more successful in obtaining orders.**
**Nonetheless, taking the U.S. switch market as a whole, the recent independent study**
**demonstrates that two North American companies, AT&T and Northern Telecom,**
**supplied respectively 44% and 40% of** **the** **U.S. central office switching market in 1990**
**and that virtually all switches sold in the U.S. are manufactured in North America** _**[ l]**_ _**.**_
**From the same study, one can also derive the average price per line for AT&T on the one**
**hand and the other IXC's (MCI,** **Sprint,** **other smaller long distance carriers) on the other**
**hand. The resulting prices are the following:**

1989 1990

AT&Ts : price per line ($) 1073 745

Other IXC's : price per line ($) 565 601

**It seems therefore that the price at which AT&T buys its switching equipment from itself**
**is actually higher than the purchase price the other IXC's get from competitors of** **AT&T.**
**This is in line with the existence of the monopoly and contradicts the repeated US official**
**statement that there cannot be any bias resulting from the self-dealing practices of**
**AT&T.**

**AT&T share which climbed to about 47% in** **1992** **is expected to grow to about 50% of** **a**
**$6 billion market by the end of 1993 while Northern's share would sink to 33%.**

**Northern Business Information Inc., a New York research firm, plans to increase that**
**share further to 60% within a couple of years. AT&T network systems has put further**
**distance between itself and foreign entrants such as Siemens and** **Ericson;** **At the same**
**time the upturn also owes much to the troubles at Northern Telecom.**

Northern Business Information (NBI), "Central Office Equipment Purchases", a report prepared for The Office
of the U.S. Trade Representative Executive Office of the President, Mc Graw Hill. 20 March 1992.

US Public Network Digital Switch Market

~~] "Ï993 i 1992

($6 billion) ($5.2 billion)

AT&T "~" " [ —] ~5Ô%" " 47%""

Northern Telecom "" 33% 35%

Siemens Stromberg 6% 6%

"GTE* _'_ ~~ _~1%_ _ 6%

LM Ericsson "" " 5% " 5% ~"~

—
~DSC ~ ï% ï%

**'Equipment** **Unit** **50%** **owned by AT&T**

MODIFICATION OF FINAL JUDGMENT FOR THE R B O C S

ANNEX3

The Chairmen of the House Energy and Commerce Committee (Dingell) and the House
Judiciary Committee (Brooks) have reached agreement on a bill (H.R. 3626) which
would phase out the limitations contained in the Modification of Final Judgment (MFJ)
which prevent the RBOCs from engaging in long-distance telephony services and
manufacturing. The bill will be the subject of hearings in 1994.

The bill would allow an RBOC, within one year of enactment, to submit an application to
the Justice Deptartment to engage in manufacturing. The Justice Dept. will have to
determine "whether there is no possibility that such company or its affiliate could use
monopoly power to impede competition in the market such company seeks to enter".

If, within the following year, the Attorney General fails to enjoin the company from
going forward with its plans, the RBOC will be free to engage in manufacturing, subject
to certain safeguards:

separate subsidiary requirements;

separate books, records and accounts;

obligation to sell equipment to other carriers on non-discriminatory terms, provided
such carriers do not manufacture telecom equipment, or provided they agree to make
available telecom equipment which they manufacture;

filing of information on protocols and interconnection requirements with the FCC;

no cross subsidization.

The bill does not contain any requirements that the RBOCs procure equipment in a
transparent and non-discriminatory manner (a request made by the Telecommunications
Industry Association with respect to previous bills).

The RBOCs must conduct all manufacturing in the US and, like the old "Hollings Bill",
they may use foreign components only if they make "a good faith effort to obtain
equivalent components in the US at reasonable prices, terms and conditions", and if the
cost of foreign components does not exceed 40% of the sales revenues derived in any
calendar year from such equipment. The RBOCs must also certify to the FCC on a
quartely basis that they have made good faith efforts to obtain parts in the US and they
must list foreign components. Failure to do so would entail the imposition of penalties
by the FCC. Also, any supplier claiming to be damaged because of a RBOCs failure to
make the good faith effort may make complaint to the Federal Communications
Commission or may bring suit for the recovery of actual damage in any district court of
the United States of competent jurisdiction.

Also, the Chairman of the House Energy Subcommittee on Telecom (Markey) has
succeeded to craft, with bi-partisan support, a bill allowing RBOCs' entry into cable in
their area of telephone service and (as a quid pro quo) competition in the local network.
The bill (H.R. 3636), "the National Communications Competition and Information
Infrastructure Act of 1993", will be the subject of hearing in 1994.

4

**The bill, which aims at promoting competition and preserving universal service, would:**

**-** **repeal the** **cable-telco cross-ownership** **rules;**

**-** **prohibit telcos** **from** **buying** **cable** **systems** **within their service areas;**

**-** **create a Federal-State Joint Board to ensure universal service by requiring** **all**
**providers to contribute to universal service;**

**-** **require the FCC to review how the concept of universal service should be** **expanded**
**to include provisions of "digital service" (digital service means making available** **to**
**residential consumers, at reasonalbe** **cost,** **digital compression capability).**
**Specifically,** **the** **FCC must investigate the policy changes necessary to provide**
**"open** **Platform Service"** **("Open** **Platform Service" means a switched end-to-end**
**digital telecom service, which 1)** **provides subscribers** **with** **sufficient** **network**
**capability to** **access** **multimedia information services, 2) is widely available**
**throughout each State, 3) is provided based on accepted standards, and 4) is**
**available to all customers on a single line basis upon resonable request);**

**-** **preempt State laws prohibiting entry into local telephone networks,**

**-** **require telcos to set** **up** **separate subsidiaries for video programming services, and**

**-** **require local phone companies to provide equal access to and interconnection**
**with their network.**

**The administration will work with Congress to pass** **legislation** **by the** **end** **of 1994 that**
**will increase competition and ensure universal access** **in** **communications** **markets;**
**particularly** **those,** **such as** **the** **cable television and local telephone markets, that have**
**been dominated by monopolies. Such legislation will explicitly promote private sector**
**infrastructure investment, both by companies already in the market and those seeking**
**entry.**

**The US administration is hoping to influence events by reducing the regulatory barriers**
**that have prevented** **competition** **between telephone and cable television companies. The**
**US administration also wants to promote standards that allow** **different** **networks** **to**
**communicate with each other** **and** **gently prod** **the** **players to think about the broad public**
**interest. The administration will propose that companies providing a wide array of**
**switched,** **broadband** **digital services be only lightly regulated by the FCC (a new title VII**
**of the** **communications** **act) in exchange for providing services and** **access** **to their**
**facilites by others on a** **non-discriminatory** **basis.**

**The decision taken in February 1994 by the Federal Communications Commission to**
**lower the cable** **rates** **have made unlikely that the cable industry could generate the** **cash**
**flow** **expected.** **Consequently two partnership between a telephone company and a cable-**
**TV company have collapsed, i.e. the partnership between Southwestern Bell Corp and**
**Cox Cable Communications, Bell Atlantic** **Corp.** **and Tele-communications Inc.**

**On Friday** **26** **August** **1994 à** **Federal** **appeals** **court ruled that** **telephone companies**
**seeking to provide cable services over their lines do not need to obtain** **costly** **franchises**
**from local governments.** **The decision which affirms federal communications**
**commission policy, was a setback to the cable industry. The cable industry,** **which pays**

**5**

local governments millions of dollars annually in franchise fees, has appealed the FCC's
three year old policy, saying it put cable operators at disadvantage.

These two decisions have led to a reshuffle of the cards and it now appears that the two
industries i.e. telephone and cable are direct competitors. Accordingly Walt Disney Co.
and three regional companies, Ameritech Corp, Bell South Corp and Southwestern Bell
Corp. announced Monday 8 August 1994 that they had signed a Memorandum of
understanding to form a joint venture to develop interactive video services. Services
could ultimately include existing broadcasting and satellite televison networks as well as
movies on demand, home shoppping, educational programmes, games and travel
assistance. Americtch, Bellsouth and Southewestern Bell provide telecommunications
services to about 50 million customers lines in 19 States.

At the same time four of the largest US cable television companies announced on
Tuesday 9 August 1994 that they would spend more than $2 billion for equipment this
Autumn in an effort to offer "one-stop" telecommunications services to consumers.
Chief Executive of Cox Cable communications inc. Continental Cablevision inc,
Comcast Corp. and Tele-Communications Inc. said they each intended to offer highdefinition television, wireless telephone, video on demand basic telephone and computer
on-line services. The upgrades to their networks will allow them to compete directly
with the seven regional Bell operating companies in the $90 Billion a year local
telephone market.

Source: Commission's services

**NEW** **COMPETITIVE TRENDS IN THE US TELECOM MARKET**

**ANNEX 4**

**The** **regulatory** **framework** **of** **the** **Modified Final Judgement is increasingly rocked to its**
**very foundations by the new competitive trends that permeate the US market and which**
**are likely to bring radical** **change.**

**The monopolies enjoyed by the local industry, which comprises seven so-called "Baby**
**Bell" regional companies and a host of independents are beginning to break room** **thanks**
**to the new technologies of** **high-capacity** **fibre optic cable, digital compression and**
**cellphones. New competitors** **are** **starting to eat into the phone** **companies'** **most lucrative**
**existing businesses, and** **threaten to** **take a large slice of promising new ones such as**
**interactive video to the home.**

**On the one hand the RBOCs face** **a** **looming end to their monopolies** **because** **of the**
**emerging competition of cable television and try to react and reap the benefits of the new**
**business opportunities by getting rid of the interdictions foreseen in the Modified** **Final**
**Judgement,** **where they were barred from entering three markets i.e. long-distance,**
**equipment manufacturing and information services. After a long campaign, the Baby**
**Bells managed to get** **the** **information services ban removed in** **1991** **and their request** **has**
**been eventually upheld by the Supreme Court and they** **are** **pressing to** **be** **allowed into**
**the two other businesses on the grounds** **that they** **now face significant local competition.**

**Ameritech Corp. is pushing a plan to enter** **the** **long distance market in a trial as early as**
**1995,** **sparking loud objections** **from** **AT&T and the two other major rivals in the market:**
**MCI** **Communications** **Corp. and Sprint Corp. Opponents have argued that the baby bells**
**shouldn't be allowed in long distance because they enjoy a monopoly in local phone**
**services. Ameritech has sought to sidested that argument by offering to surrender its own**
**monopoly rights. The Chicago based Bell company told US regulators it would throw**
**open its local calling market to all comers in exchange for the** **right** **to offer long-distance**
**services in the five States it serves.**

**On the other hand, AT&T and the other long-distance carriers are urging that the local**
**market be opened to greater competition in the hope** **that** **this will cut access charges and**
**spur traffic growth. They, in particular, resent the high charges they have to pay the local**
**telephone companies to carry calls over** **the** **last** **mile** **or two of** **wire** **to customers. These**
**"access charges" bear little relation to the cost of providing the service, yet account** **for**
**about 30% of local** **operations'** **revenues and are the largest single expense for** **long-**
**distance groups (about** **40%** **of the total cost of a long-distance call).**

**MCI Communications Corp. intends to challenge regional Bell monopolies in at least 20**
**major US cities, including New York and Los Angeles, for the right to provide local**
**communication** **services and to spend $20 billion on the electronic equivalent of**
**widening, paving and building access** **ramps,** **for** **its idea** **of** **a US information**
**superhighway.** **If successful, the bid for local service would give MCI, which is already**
**the primary competitor of** **the long-distance** **leader AT&T, an opportunity to carry a full**
**range of communication and entertainment products directly to consumers and**
**businesses, with business as the initial target.**

**Also,** **there has been a rapid growth of the cellular telephone industry, which offers an**
**alternative means of communication to the local phone** **companies'** **network. The Baby**
**Bells are among the leading players in this business but by acquiring McCaw Cellular**
**Communications Inc., the US's largest cellular phone company, AT&T plans to get a**
_**foothold**_ **in the local market, as well as another potential means of by-passing the Baby**
**Bells'** **access charges. Mr. Allen,** **AT&Ps** **president, recently declared that cellular is "an**
**exploding market" and such wireless services combined with pocket communicators**
**"will make anywhere, any time, communications a reality".**

**On Monday 28 February 1994, MCI Communications Corp announced it was spending**
**$1.3 billion for a 17% stake in Nextel Communications Inc. in an effort to provide the**
**first nationwide wireless personal communications services later in the year: MCI and**
**Nextel will** **form** **a "strategic alliance" with Comcast Corp which also holds** **17%** **of**
**Nextel. The agreement will allow the three companies to provide wireless voice and data**
**service to 95% of the US population. It will also allow users to have one number for**
**their office, home and mobile telephone.**

**The group will use equipment made by Motorola** **Inc;** **Nextel offered a 20% stake to**
**Motorola in November 1993 in exchange for mobile radio licences. Nextel's Network is**
**digital rather than analog, which means customers will have to use a sophisticated**
**telephone made by Motorola to take advantage of the system.**

**Finally, state and federal regulators** **have** **allowed new local telecommunications**
**companies, known as "competitive access providers" (CAPs), to establish themselves in**
**many metropolitan areas, where they operate highly efficient fibre optic networks. They**
**cream off some of** **the** **local monopolies' most profitable business customers by offering**
**cheaper rates to transmit their bulk traffic around the area and directly into networks run**
**by long-distance carriers.**

**But apart from the individual strides to best position itself in order to take advantage of**
**the new business opportunities, a new cooperation trend is taking shape as** **multimedia's**
**emphasis on integration flies in the face of the administrative breakup of communications**
**services such as that embodied in the 1982 court order.**

**For a while it seemed that telecom operators and cable TV owners would be natural**
**competitors, each of them trying a technical or legal way to step** **into** **the other one's**
**kingdom. Recently, however, both entities have realized that it is to their common**
**advantage to cooperate. Through such associations, telecom operators may hope to get**
**around the many** **limitations** **ruled by Judge Green when setting up Baby Bells** **(1984)**
**while cable operators acquire the funds** **needed** **in order to build up the "information**
**highways".**

**Each Baby Bell can see its** **local-exchange** **monopoly coming** **under** **increasing pressure**
**from cellular companies, private-line operators and nimble intermediaries offering**
**customers alternative ways to reach** **long-distance** **operators.** **The growth of cable**
**networks is even more of** **a** **threat.** **Thé** **1992 Cable Act bans the Baby Bells** **from** **taking**
**a stake in cable networks in their monopoly areas. They can, however, invest in others**
**that operate in other Bell franchises. By developing telephone services via the data**
**highway, they might be able to expand in each other's markets. Accordingly Pacific Bell**
**has sought to offer customers on the East coast around Washington a "video dial tone"**

**8**

**that would bring a wide choice of video services into their homes** **and** **offices** **on** **request.**
**Any local telephone company that can wire a house and produce that kind of dial tone**
**has the opportunity to dominate its market.**

**Other Baby Bells have hooked up with cable companies to ugrade their systems for**
**entertainement,** **interactive television, home shopping, access to data bases and other**
**telecommunications advances. Bell Atlantic has agreed to buy** **Tele-Communications**
**Inc.,** **America's** **top cable company; US West Inc. has invested in Time Warner Inc. and**
**intends to buy two Atlanta-area cable TV companies; Nynex Corp. has invested in**
**Viacom Inc; Bell South is expected to join** **with** **QVC Inc., the home** **shopping** **network;**
**South Western Bell** **and** **Cox plan** **a** **cable partnership.**

**For** **one** **thing cable companies are ahead on** **certain** **technologies, such as digital**
**compression. On the other hand, the Federal Communications Commission (FCC) has**
**served** **notice that** **it** **is going to treat** **cable** **firms under the terms of** **the 1992** **Cable Act,**
**more or less as it** **treats** **telephone companies, that is with vigilance. Price cuts of** **10%** **on**
**basic cable services are already being imposed. Cable bosses** **once** **sought to** **keep** **the**
**Baby Bells out of** **their** **industry fearing** **the-telephone** **firms would use local-exchange**
**profits to cross-subsidize cable subsidiaries unfairly. Now they are keen to get in on any**
**subsidization themselves.**

**A Federal District judge in** **Alexandria,** **Virginia,** **declared unconstitutional, on first**
**amendment grounds,** **a** **provision of the 1984 Cable Act that prevents telephone**
**companies from selling video prograrnming to** **subscribers** **in their own telephone service**
**area. If the ruling by judge T.S. Ellis is upheld in appeal, it would give** **telephone**
**companies an incentive to** **spend** **billions of** **dollars** **building new** **fiber-optic** **networks to**
**provide both telephone and video services. The** **cable'industry** **has argued that allowing**
**telephone companies to sell prograrnming would be dangerous, because they could use**
**their monopoly over telephone service** **to** **subsidize low rates for video services.**

**Furthermore in order to reduce the cost for consumers and to stimulate the** **competition** **of**
**new technologies, the Attorney** **General** **of** **the** **State of New York has announced at the**
**beginning of June** **1993** **that seven cable companies, i.e. Telecommunications Inc. (TCI),**
**Time Warner** **as** **well as Newhouse, Cox, Continental, Comcast, Viacom and the joint**
**venture Primestar Partners between the seven and General Electric on satellite**

**communication, had agreed to allow an equal access to cable television programmes to**
**operators using technologies different from the** **cable.** **This is intended to allow operators**
**using any other technology but** **cable,** **i.e. microwave or telephony, to gain access to**
**entertainment or news programmes at competitive prices. AT&T is presently** **talking**
**with US cable companies about linking their customers into one big multimedia network.**

**American Telephone &** **Telegraph** **Co has** **urged** **the Government to allow it to** **compete**
**for long-distance customers on the same terms as its competitors do within and outside**
**the United States.** **The** **company said that the Federal Communication Commission**
**should end the designation of** **AT&T** **as a "dominant** **carrier"** **that requires it to notify the**
**government in advance of deploying new services.**

**On Thursday, 23 September 1993, the Federal Communications Commission adopted**
**rules that will create two to six new wireless networks in every American city and town.**
**In what the communications industry considers a landmark decision, the FCC** **by** **a** **2-1**

**vote, designated** **160** **megahertz of spectrum for the new services, an amount that far**
**outstrips the bandwith alloted to the now booming cellular industry.**

**The new wireless technology will take cellular telephones into the next century, allowing**
**voice, paging and computer communications to be linked by radio waves rather than the**
**age old traditional copper telephone wires. It will be more powerful than current cellular**
**technology, a hybrid of radio waves and traditional land wires, and open** **up** **a new area of**
**competition in mobile communications. The technology is expected to fuel a revolution**
**in mobile pocket-sized phones, making it possible for customers to have one telephone**
**number to reach them wherever they are.**

**Source: Commission's services**

**10**

COMMUNITY LAW FOR PUBLIC PROCUREMENT

ANNEX 5

Under article 9.1 of the Council Directive of 22 March 1988 amending directive
77/62/EEC relating to the coordination of procedures on the award of public supply
contracts and repealing certain provisions of Directive 80/67/EEC :

1. The contracting authorities listed in Annex 1 to Directive 80/767/EEC shall make
known, as from 1 January 1989, as soon as possible after the beginning of their
budgetary year, by means of an indicative notice, the total procurement by product
area of which the estimated value, taking into account the provisions of Article 5 of
this Directive, is equal or greater than 750.000 ECU and which they envisage
awarding during the coming 12 months.

2. Contracting authorities who wish to award a public supply contract by open,
restricted or, under the conditions laid down in Article 6 (3), by negotiated procedure
within the meaning of Article 1 shall make.known their intention by means of a
notice.

Under article 6.e of the Council Directive of 21 December 1976 coordinating procedures
for the award of public supply contracts, contracting authorities may award their supply
contracts by negotiated procedure without prior publication of a tender notice. "For
additional deliveries by the original supplier which are intended either as part
replacement of normal supplies or installations, or as the extension Of existing supplies or
installations where a change of supplier would compel the contracting authority to
purchase equipment having different technical characteristics which could result in
incompatibility or disproportionate technical difficulties of operation or maintenance.
The length of such contracts as well as that of recurrent contracts may, as a general rule,
not exceed three years".

Under article 7.2 of Council Directive of 21 December 1976 coordinating procedures for
the award of public supply contracts :

"2. Unless such specifications are justified by the subject of the contract, Member States
shall prohibit the introduction into the contractual clauses relating to a given contract
of technical specifications which mention goods of a specific make or source or of a
particular process and which have the effect of favouring or eliminating certain
undertakings or products. In particular, the indication of trade marks, patents, types
or specific origin or productions shall be prohibited; however, such an indication
accompanied by the words "or equivalent" shall" be authorized where the subject of
the contract cannot otherwise be described by specifications which are sufficiently
precise and fully intelligible to all concerned."

Source: Commission's services

**It**

THE US HPCC PROGRAMME

ANNEX 6

_**The**_ _**HPCC programme comprises four**_ _**sub-programmes**_ _**of**_ _**which**_ _**one,**_ _**the**_ _**NREN,**_ _**is**_
_**specifically focussed**_ _**on**_ _**networking.**_ _**The sub-programmes**_ _**are:**_

_**- High Performance Computing Systems (HPCS) - the development of the**_
_**underlying**_ _**technology**_ _**required for scalable**_ _**high performance computing**_ _**systems**_
_**capable of sustaining trillions of operations per second on large problems.**_
_**Research in very**_ _**high**_ _**performance systems is focusing both on increasing the**_
_**absolute level of performance attainable and on reducing the cost and size of**_
_**these very high performance systems in order to make them accessible to a**_
_**broader range of applications.**_

**-** _**Advanced Software Technology and Algorithms (ASTA)**_ **-** _**the development of**_
_**generic software technology and algorithms and the deployment of the most**_
_**innovative systems for Grand Challenge research application in a networked**_
_**environment.**_

_**- National Research and Education Network (NREN) - the development of a**_
_**national high speed network to provide distributed computing capability to**_
_**research and educational institutions and to further advanced research on very**_
_**high speed**_ _**networks**_ _**and applications.**_

**-** _**Basic Research and Human Resources**_ _**(BRHR)**_ _**- support for individual**_
_**investigator and multidisciplinary long term research drawn from diverse**_
_**disciplines,**_ _**including computer**_ _**science,**_ _**computer**_ _**engineering, and**_
_**computational science and engineering; initiation of activities to significantly**_
_**increase the pool of trained personnel; and support for efforts leading to**_
_**accelerated**_ _**technology**_ _**transition.**_

_**The High Performance Computing and**_ _**High**_ _**Speed**_ _**Networking Applications**_ _**Act of**_
_**1993**_ _**(H.R.**_ _**1757)**_ _**has incorporated a**_ _**new**_ _**program into the HPCC by adding a fifth**_
_**component to the program**_ _**for FY**_ _**1994**_ _**and by putting more emphasis on**_
_**applications throughout the program.**_ _**This new component, Information**_
_**Infrastructure Technology and Applications**_ _**(IITA),**_ _**will develop and apply high**_
_**performance computing and**_ _**communications**_ _**technologies to improve information**_
_**systems needed to address what are called**_ _**"National**_ _**Challenges"**_ **-** _**major societal**_
_**needs that computing and communications technology can help us address - and**_
_**include design and manufacturing, health care, education, digital libraries,**_
_**environmental**_ _**monitoring,**_ _**energy demand**_ _**management,**_ _**public**_ _**safety,**_ _**and**_ _**national**_
_**security.**_ _**These National Challenges are analogous to the "Grand**_ _**Challenge"**_
_**research problems which have been the primary focus of**_ _**the**_ _**HPCC Program to**_
_**date. In addition to addressing**_ _**these**_ _**problems,**_ _**this**_ _**new component**_ _**will**_ _**support**_ _**the**_
_**development, with**_ _**industry,**_ _**of the**_ _**Nil**_ _**and**_ _**the**_ _**development of the**_ _**computer,**_ _**network**_
_**and database technology needed to provide appropriate privacy and security**_
_**protection for users.**_

Source: High performance computing and communication: toward a national
information infrastructure. 1994

**12**

**TECHNICAL STANDARDS AND REQUIREMENTS FOR TERMINALS IN JAPAN**

**ANNEX 7**

**Technical standards and Technical Requirements for terminal facilities are based on**
**three** **principles stipulated by the Telecommunications Business Law of 1985:**

**1.** **Telecommunications** **circuits** **facilities shall not be damaged or impaired, nor shall**
**functions there of be impaired.**

**2.** **Nuisance** **shall** **not be caused to other users of the telecommunications circuit**

**facilities.**

**3.** **The demarcation of responsability between the telecommunications** **circuit** **facilities**
**established by a Type I telecommunications carrier and terminal facilities connected**
**to them by a user** **shall** **be clearly stipulated.**

**Technical Standards are stipulated by the Regulations concerning Terminal Facilities, etc.**
**(Ministerial Ordinance N° 31 of 1985).**

**Technical Requirements are specified by Type I telecommunications carriers who**
**provide their telecommunications circuit facilities with the** **approval** **of the Ministry of**
**Posts and Telecommunications. They do not guarantee telecommunications quality and**
**functions,** **or reliability and operability of terminal** **equipment.**

**Source: Commission's services**

FOREIGN DIRECT INVESTMENT IN JAPAN

ANNEX 8

Japan accounts for 16% of the world's GNP, but has attracted only about 1% of the
world's cumulative inbound foreign direct investment (FDI) since 1970. Cumulative
outbound investment by Japan since 1950 is $ 352.4 billion, while cumulative direct
investment by foreign firms in Japan is $ 22.8 billion. Foreign firms now account for
less than 2% of Japan's domestic sales and assets, compared to 15% for the U.S., 18% for
Germany, and 26% each for France and Canada [ 2 ]

Japan's massive investments in the United States are boosting Japanese exports of parts
and machinery, just as the huge investments in Europe by American companies in the
1960's promoted, and are still promoting, US exports to Europe. A key element of the
new global economy is that a staggering amount of trade is now conducted within
multinational companies. More and more trade consists of parts and components that are
shuttled around the globe as every stage of production is moved to the most economically
efficient area.

One of the reasons the US-European trade relationship is so much more stable and
uncontentious than the US-Japanese or the European-Japanese is the vast amount of
trans-Atlantic investment in both directions. If the US-Japanese or the EuropeanJapanese investment could be brought into greater balance, it would have a similarly
beneficial effect on trade relations. According to Eurostat the trend is leading
downwards as the flow of funds to Japan which amounted to MECU 667 in 1989 and
MECU 914 in 1990 has actually fallen to MECU 363 in 1991.

United-States - Japan Trade White Paper 1993 by the American Chamber of Commerce in Japan
(ACCJ)

14

```
JAPANESE LAW ON THE CONTROL OF INTERNATIONAL COMMERCE AND TRANSACTIONS

                 ANNEX 9

```

Article 26 reads in particular as follows:

"3. Any foreign investor who wants to make a direct domestic investment, etc.,
mentioned in any Item of the preceding Paragraph (except for those cases
determined by a Cabinet Order, in consideration of such instances as inheritance,
legacy, amalgamation of juridical persons, etc.) shall give a prior notice, as a Cabinet
Order provides for, to the Minister of Finance and the Ministers) in charge of the
industry involved of those matters as designated by the Cabinet Order such as the
objective of the business, amount, time of execution, and others concerning that
direct domestic investment, etc.   

4. Any foreign investor who has given a notice under the provisions of the preceding
Paragraph concerning the direct domestic investment, etc., mentioned in Paragraph 2
(hereinafter referred to as "direct domestic investment, etc.,") shall not execute that
direct domestic investment, etc., until a period of thirty (30) days has elapsed,
counting from the day of receipt of the notice by the Minister of Finance and the
Minister(s) in charge of the industry involved. However, the Ministers may shorten
this period when they deem it not specifically harmful, judging from the objective of
the business, etc., of the direct domestic investment, etc., under notice.

5. Any person other than a foreign investor (including a juridical person Or other
organization, which shall also apply to Paragraph 1 of the next Article) who
performs any transaction or act tantamount to a direct domestic investment, etc., on
behalf of a foreign investor but not in the latter's name shall be deemed as a foreign
investor, and the provisions of the preceding two Paragraphs shall apply to such a
person."

The following text is taken from the "Gist of Bill for Partial Amendment of the Foreign
Exchange and Foreign Trade Control Law".

"When the Minister of Finance and the Minister(s) in charge of the industry involved
deem that a given direct domestic investment, etc., under notice would cause
apprehensions as to the occurrence of any of the consequences mentioned in (i) or (ii)
below, or that it falls under (iii) or (iv) below, they may, upon hearing the opinion of the
Committee on Foreign Exchange and Other Transactions and within a specified period,
recommend or direct the one who gave that notice either to alter the particulars thereof, or
to suspend the execution thereof. (Article 27)

(i) It might imperil the national security, disturb the maintenance of public order, or
hamper the protection of the safety of the general public;

(ii) It might adversely and seriously affect activities of our business enterprises engaging
in a line of business similar to the one in which the direct domestic investment, etc.,
is to be made, or the smooth performance of our national economy;

(iii) Because it is made by a foreign investor with whose country no treaties or other
international agreements are concluded by our country in regard to direct domestic

15

investments, etc., its particulars are required to be altered, or its execution is required
to be suspended, so as to make conditions substantially equal to those allowed to our
national's similar investment activities in that country; or

(iv) When seen from its purpose of the use of funds and others, it falls under, in whole or
in part, the capital transactions upon which an obligation to obtain a license is
imposed, and therefore its particulars are required to be altered, or its execution is
required to be suspended.

Special provisions concerning acquisition of stock of listed companies, etc. :

(a) For the time being, when the Minister of Finance and the Minister(s) in charge of the
industry involved deem it necessary to make an inquiry in order to determine
whether or not apprehensions as to the occurrence of any consequences mentioned in
(i) or (ii) above might ensue from the acquisition by a non-resident, etc., of stock,
etc., in excess of a certain quantity of listed companies, etc., they may designate
certain companies which issue such stock, etc. (Article 2, Paragraph 1 of
Supplementary Provisions).

(b) Any non-resident, etc., who is to acquire stock, etc., in excess of a certain quantity of
a designated company shall give a prior notice to the Minister of Finance and the
Minister(s) in charge of the industry involved. (Article 3, Paragraph I of
Supplementary Provisions)

(c) When the Minister of Finance and the Minister(s) in charge of the industry involved
deem that given acquistion of stock, etc., in excess of a certain quantity under notice
would cause apprehensions as to the occurrence of any of the consequences
mentioned in (i) or (ii) above, they may, upon hearing the opinion of the Committee
ort Foreign Exchange and Other Transactions and within a specified period,
recommend or direct the one who gave that notice to suspend such acquisitions in
whole or in part. (Article 3, Paragraph 3, Paragraph 5, and Paragraph 6 of
Supplementary Provisions).

Source: Foreign exchange and foreign trade control law.

16

**TYPES OF CARRIERS IN** **JAPAN**

**ANNEX** **10**

**No distinction between telecommunications carriers based on facilities ownership exists**
**in the Community. The Council Directive of 28 June** **1990** **on the establishment of the**
**Internal Market** **for** **telecommunications services through the implementation** **of** **open**
**network provisions concerns the harmonisation of conditions for open** **and** **efficient**
**access to and use of** **public** **telecommunications networks and, where applicable, public**
**telecommunications** **services** **[3]** **.** **Under this Directive Open Network Provisions,**
**concerning areas selected in accordance with the list in annex I of this Directive** **"must**
**not restrict access to public telecommunications networks or public telecommunications**
**services, except for reasons based on essential requirements, within the framework of**
**Community law, namely,**

**security of network operations,**

**maintenance of network integrity,**

**interoperability of services, in justified cases,**

**protection of data, as appropriate.**

**In addition, the conditions generally applicable to the connection of terminal equipment**
**to the network shall apply.**

**Open network** **provision conditions** **may not allow for any additional restrictions on the**
**use** **of the** **public telecommunications** **networks** **and/or** **public telecommunications**
**services** **except** **the restrictions** **which'hiày** **be derived from the exercise of special or**
**exclusive rights** **granted** **by Member States and which are compatible with Community**
**law."**

**Equal** **footing for both** **types** **of** **carriers,** **who** **do** **serve third parties, should be established**
**to include:**

**equal access to type I networks for** **type** **II carriers including access at the same**
**carrier's** **rate** **and** **under equal terms and** **conditions,**

**realisation of an open network architecture** **policy** **that provides for the release** **of**
**information regarding interconnects and technical** **requirements** **for the development**
**of new services, and which** **ensures** **that type II carriers will have access to the**
**network capabilities required to provide the enhanced services that customers**
**demand.**

OJL 192/! dated 24.7.90

**17**

**RESTRICTIONS FOR FOREIGN COMPANIES IN TELECOMMUNICATIONS IN USA**

**ANNEX** **11**

**Restrictions for foreign companies generally in the US are the following:**

**i)** **Licences for any service may not be granted to companies owned by foreign**
**governments (Sec** **310(a)).**

**ii) Licences for broadcast, common carrier or aeronautical services may not be granted**
**to foreigners or foreign corporations; that is to say, a foreign business or individual**
**cannot,** **by** **itself,** **receive a licence** **from** **the FCC (Section** **310** **(b) (1) and (2)).**

**iii) Licences for broadcast, common carrier or aeronautical services** **can** **be granted to**
**companies so long as they do not have foreign officers or directors or are not more**
**than** **20%** **owned by foreigners (or** **25%** **indirectly) Sec** **310** **(b) (3) and (4)).**

**iv) Any foreign-owned carrier which provides international services is classified as a**
**"dominant carrier" and regulated accordingly, i.e. subjected to "full" as opposed to**
**"streamlined" regulatory treatment depending on whether "... a relationship between**
**a US international carrier and a foreign carrier may present some substantial risk of**
**anti-competitive** **conduct...".** **(FCC Report and Order, 6 November** **1992).**

**The newly articulated FCC policy shifts the focus of competition analysis from whether a**
**given operator is US or non-US owned, and toward a focus on affiliated relationships**
**which may exist between specific US and non-US based operators. Accordingly, under**
**its new policy, FCC will ".... regulate a US international carrier, whether US or foreign-**
**owned, as dominant only on those routes where a foreign affiliate of** **the** **carrier has the**
**ability to discriminate in favor of** **its** **US affiliate in the provision of services or facilities**
**used to terminate US international traffic.**

**A key issue which faced FCC in arriving at this policy was an appropriate definition of**
**"affiliation". The FCC decided to treat** **"** **... a US carrier as an affiliate of a foreign carrier**
**when the US carrier controls, is controlled by, or is under common control with a foreign**
**carrier." For the purpose of applying this rule, it elected to adopt a legal test for "control"**
**which results in a case-by-case analysis.**

**The new FCC policy on international common carriers appears to move in a progressive**
**direction because it abolishes the presumption of "non-dominance" on the part of most**
**US operators and the presumption of "dominance" on the part of all non-US owned**
**operators. However, it must not be overlooked that, as the FCC was itself careful to note**
**in a footnote to the November 6 Report and Order :**

**IS**

"The scope of this Order is limited to addressing the question of how to regulate US
common carriers with foreign affiliations once they have been granted entry to the _US_
**market. The Order** does **not** address **the** question of entry standards for foreign**affiliated** entities **that** apply **for** authority **to** operate in the US market

These foreign-owned carriers face discriminatory treatment in matters pertaining to the
construction of lines, tariffs and traffic and revenue reports as follows:

Section 214 of the Communications Act requires common carriers to seek FCC
**authorisation to construct new lines or** **extend** existing lines. The FCC currently
forebears regulation for domestic services; but for international services, "dominant"
carriers must obtain authorisation for the construction, and extension of lines;
authorisation is required for each type of service, and each country; "non**dominant"** carriers **must** only **get** authorisation for the construction of new
lines.

All carriers must file tariffs at the FCC for international services; however:

"dominant" carriers must file most tariffs at the FCC on a 45 days' notice instead of
14 days for "non-dominant" carriers;

"non-dominant" carriers' tariffs enter automatically into effect at the end of 14 days
unless found unlawful, whereas dominant carriers' tariffs must obtain a positive
authorisation;

"dominant" carriers must also submit their costs to justify any tariff changes.

All carriers must file annual international traffic and revenue reports; but only foreignowned "dominant" carriers must file annual domestic traffic and revenue reports.

Regarding Section 214 authorisation, this requires that common carriers may not
construct, extend or acquire a communications line unless the FCC determines it would
be in the public interest. The legislative intent behind this section of the Act was to
regulate monopoly providers of communication services, and to make sure that they did
not duplicate facilities, which would lead to the monopoly's "captive" customers paying
higher charges than they should for surplus facilities: However, there are no set
criteria used by the FCC in order to judge whether it is in the present or future
public convenience that carriers provide services, and there is some concern that the
FCC, through its application of Section 214, is beginning to move away from the original
intent of the section and to independently make decisions affecting international trade
policy. For example, the FCC in its Further Notice of Proposed Rulemaking (May 1991),
on international accounting rates, sought comments on whether to condition Section 214
authorisations to ensure non-discriminatory treatment of US carriers serving a given
country [4] .

**Report** **on United States Trade and Investment Barriers (1993) by Services of** **the** **Commission of** **the European**
**Communities - page 73**

Finally, the Cable Landing Act requires a common carrier to seek a (marine) cable
landing licence from the Secretary of State. This authority has been delegated to the
FCC. The Act requires consideration of reciprocity.

2D

**US** **RÉSTRICTIONS** **ON MERGERS, ACQUISITIONS AND TAKEOVERS**

**ANNEX 12**

**In determining whether a transaction threatens to impair national security, the President**
**is to consider, among other factors: domestic production needed for projected national**
**defense requirements; the capability and capacity of domestic industries to meet national**
**defense requirements; and the control of domestic industries and commercial activity by**
**foreign citizens as it affects the capability and capacity of the United States to meet the**
**requirements of national security.**

**Should the President decide that any such transactions threaten national security, he** **may**
**take action to suspend or** **prohibit** **them. This could include the forced divestment of**
**assets. There are no provisions for judicial review or for compensation in the case of**
**divestment.**

**Thus far in only one out of a total of 677 transactions reviewed, has the President blocked**
**or reversed** **an acquistion** **- that one instance being** **the** **purchase of an** **aircraft parts**
**manufacturered** **by an** **arm** **of the aerospace ministry of the People's Republic of China.**

**A number of bills intended to** **extend** **the scope** **of Exon-Florio** **provisions, or** **to** **widen the**
**concept of** **national** **security to purely economic matters, have been tabled in Congress.**
**The Fiscal** **Year** **1993 Defense Authorisation Act has strengthened** **Exon-Fiorio**
**procedures, by requiring a report by the President to the Congress on the results of each**
**CFIXJS investigation** **and by including among other factors to be considered "the potential**
**effect of the proposed or pending transaction on** **US's international** **technological**
**leadership in areas affecting** **US** **national security". This economic criterion is new.**

**Moreover, there are three new provisions concerning entities controlled by foreign**
**governments. This first requires that, if they engage in any merger, acquisition or** **take-**
**over which could result in a control that could affect the national security of** **the** **US,** **an**
**Exon-Florio investigation be** **made.** **The** **other** **two, although not substantially**
**burdensome,** **constitute** **a declaration of policy aimed at discouraging acquisitions by (and**
**certain contract awards to) such entities.**

**According to the provisions of the International Investment and** **Trade** **in Services Act**
**(IITSSA), all foreign investments in US business enterprises in which a foreign person**
**owns a** **10%** **or more voting interest (or the equivalent) are subject to** **reporting.**

**Many States impose reporting requirements for investments by foreign individuals,**
**foreign-controlled** **and foreign-incorporated corporations.** **Some States distinguish**
**between reporting requirements imposed on foreign individuals and those imposed on**
**foreign business entities. Also, some states treat differently aliens, aliens who have not**
**declared** **their** **intention to become a US citizen and alien corporations. Most states with**
**reporting requirements** **impose** **penalties for noncompliance with the reporting**
**requirements.**

**The ultimate rationale for these restrictions is the argument that US control of**
**communications is essential at** **all** **times, for reasons of national** **security.**

**21**

_**Comments/Estimated**_ _**Impact**_

_**While the**_ _**European Community understands**_ _**the wishes of the United States to take all**_
_**necessary steps to safeguard its**_ _**national**_ _**security, there is concern that the scope of**_
_**application may be carried beyond what is necessary to protect essential security**_
_**interests.**_ _**In this**_ _**context,**_ _**the**_ _**Community**_ _**has highlighted in comments to the US**_
_**Administration the wide scope of the**_ _**statute,**_ _**the lack of definition of national security**_
_**and the**_ _**uncertainty**_ _**as to**_ _**which transactions**_ _**are**_ _**notifiable.**_ _**Although**_ _**the US**_ _**Treasury's**_
_**implementing**_ _**regulations,**_ _**which were published in November 1991, do provide some**_
_**additional**_ _**guidance**_ _**on certain**_ _**issues,**_ _**these uncertainties**_ _**remain.**_ _**Coupled**_ _**with**_ _**the fear**_
_**of potential forced**_ _**divestment,**_ _**they have meant**_ _**in practice**_ _**that**_ _**many,**_ _**if not**_ _**most,**_ _**foreign**_
_**investors**_ _**have**_ _**felt obliged to give prior**_ _**notification**_ _**of**_ _**their**_ _**proposed**_ _**investments.**_ _**In**_
_**effect,**_ _**a very**_ _**significant number**_ _**of EC firms' acquisitions in the US will be subject to**_
_**pre-screening.**_

_**The**_ _**Exon-Florio**_ _**provisions could**_ _**inhibit**_ _**the efforts of**_ _**OECD**_ _**members to improve the**_
_**freeflow of**_ _**foreign investment**_ _**and**_ _**could conflict**_ _**with**_ _**the**_ _**principles of the OECD Code**_
_**of Liberalisation of Capital**_ _**Movements.-**_ _**Such an approach would also harm common**_
_**EC-US**_ _**efforts**_ _**to establish**_ _**multilateral disciplines**_ _**on trade-related**_ _**investment**_ _**measures**_
_**in the Uruguay Round**_ _**negotiations**_ _**and to strengthen the OECD National Treatment**_
_**Instrument.**_

Source: Report on United States Trade and Investment Barriers, 1993 by Commission's
services, page 82

**22**

ANNEX 13

**COMPARISON OF** CURRENT ADVANCED TECHNOLOGY PROGRAM

LANGUAGE WITH MANTON AMENDMENT ADOPTED BY HOUSE

15 USC 278n. Advanced Technology Program ... (d)
**Contracts or** **awards;** criteria; restrictions...
(9) A company shall be eligible to receive financial
**assistance under this section** **only** **if...**

**(A) the Secretary finds that the company's** participation **in**
**the Program would be in the** economic **interest** of **the** United
**States, as evidenced by investments** in the United States in
**research,** **development,** and **manufacturing (including,** for
**example, the manufacture of major components or**
**subassemblies** in **the** United States); significant
**contributions** **to employment in the United States; and**
**agreement with respect to any technology** arising from
**assistance** **provided under** this section **to** promote the
**manufacture** within **the** United States of products resulting
**from that** technology (taking into account the goals of
promoting **the** competitiveness of United States industry),
and to procure parts and materials from competitive
suppliers; **and**

(B) either 
(i) the company is a United States-owned company, or
(ii) the Secretary finds that the company is
incorporated in the United States and has a parent company
which is incorporated in a country which affords to United
States-owned companies opportunities, comparable to those
afforded to **any** other company, to participate in any joint
**venture** similar to those authorized under this chapter;
affords adequate and effective protection for the intellectual
property rights of United States-owned companies.

The Manton amendment adds additional definitions to-15

USC 3703. Definitions

"(20) the term 'United States company' .means an entity
which the Secretary finds, based on a demonstration by such
entity
"(A) maintains substantial employment in the United
States;

"(B) agrees, with respect to a technology arising from
assistance provided under this Act or the National
Competitiveness Act of 1993, to promote the manufacture
within the United States of products resulting from that
technology;

"(C) agrees to procure parts and materials for such products
from competitive United States suppliers; and

"(D)either
"(i) is a United States-owned company; or
"(ii) is a company incorporated in the United States
that has a parent company incorporated in a country which
the Secretary finds
"(I) affords to United States-owned companies
opportunities comparable to those afforded to any other
company to participate in programs and to have access to
resources and information equivalent to the opportunities
authorized under this Act or the National Competitiveness
Act of 1993 to foreign-owned entities engaged in commerce
in the United States;

"(II) has a standards development and conformity
assessment process that is open and transparent, and that
results in standards that are fair and reasonable and do not

discriminate against United States products and production

processes;

"(III) affords to United States-owned companies
local investment opportunities comparable to those afforded
in any other company; and

"(IV) affords adequate and effective protection for
the intellectual property rights of United States-owned
companies;
"(21) the term 'United States manufacturer" means a United
States company which the Secretary finds, based on a
demonstration by such company, makes substantial
investments in the United States in research, development,
and manufacturing (including the manufacture of major
components or subassemblies in the United States);
"(22) the term 'United States-owned company' has the
meaning given such term in section 28(j)(2) of the National
Institute of Standards and Technology Act (15 U.S.C.
278n(j)(2));"

**23**

## **THE US SPACE INDUSTRY H**

**ANNEX** **14**

**The US space industry had an annual revenue of approximately $ 22** **billion** **in** **1991,** **ten**
**times greater than that of Europe's industry.** **As shown below, $21 billion of US**
**expenditure (95%) is by the government compared** **to** **just $ 1.5 billion (70%) collectively**
**by Europe's governments.**

US SPACE

INDUSTRY

EUR SPACE

INDUSTRY

**BNECU**

**2.50**

**1.75**

**0.25**

**1.50**

**0.75**

Europe*/* of US

9.60

7.10

1.80

13.80

57.70

**% total**

**100**

**95**

**53**

**42**

**5**

- /• Total

100

70

10

60

30

Total sales

Government

Markets

—
Military

— Civilian

Commercial

**BNECU**

**26.00**

**24.70**

**13.85**

**10.85**

**1.30**

**(Exchange rate :** **1** **ECU = $** **1.166)**

**Sources : Aerospace Industries Association,** **Euroconsult,** **CEC**

**The high level of US government expenditure provides a very significant commercial**
**advantage to US satellite manufacturers over European manufacturers.** **Government**
**markets are effectively closed to non-domestic providers. This large captive market**
**provides US. satellite manufacturers** **with** **sufficient revenue and production volume to**
**avail of:**

**economies of scale in production,** **procurement,** **staffing, research and development,**

**opportunities to cross-subsidise eg. sales to the commercial market,**

**market credibility and image.**

**Although European organisations may establish or buy US defense subsidiaries, to meet**
**national security requirements they must be staffed by US citizens making direct control**
**of a subsidiary more difficult. Also, the onus is on the US purchaser to justify to**
**government that they are buying from foreign suppliers for every purchase undertaken.**

**This entails that the** **only** **way to compete in the US satellite market is as a member**
**of** **a** **US-led consortium.**

**European investment in the US to date has been limited. In addition to establishing some**
**US subsidiaries to target the equipment and private service markets mainly, European**
**companies have invested recently in US-led consortia (eg. Orion) to provide international**
**mobile satellite services. This reflects the US regulatory barriers but also the desire of US**

**•24**

**companies to spread the high capital costs involved, and their wish** **to** **have European**
**partners in order** **to** **facilitate entry** **to** **the European market.**

**US builders of commercial communications satellites have reasserted their dominance** **in**

**world** **markets** **after losing ground in the** **1980's,** **slowing** **the advance of European and**
**Asian manufacturers. According to the most recent** **multi-client** **study, by Euroconsult,**
**Hughes Space and Communications Company and General Electricity have pulled away**
**from** **the** **rest of the competition** **and** **appear likely to pace the market in the** **1990's.**

**The study** **throws** **into sharp relief the fact that the United States continues to make space**
**a higher priority for government spending than any** **other** **nation.**

**U.S. spending for both military and civilian space programs, which in 1992 topped $35**
**billion, is equivalent to 0.6% of the American gross domestic product. 60% of that**
**spending is on** **behalf of the** **U.S.** **Defense Department.**

**The 12 nations of the European Community spend a combined 0.05% of** **these** **nations'**
**domestic economic output - one-twelfth of the American** **level.** **Even in France, which is**
**Europe's** **biggest space power** **and** **has a thriving civil and military space program, spends**
**less man** **0.2%** **of its gross domestic product on space.**

**The contrast remains striking no matter how the figures are sliced: The United States**
**spends nearly 2.4% of its federal government budget on space, both civil** **and** **military;**
**France spends less** **than** **0.4%, with the rest of Europe and Japan at much lower** **levels.**

**These figures do not include spending in Russia, which is nearly impossible to** **assess** **on**
**Western terms.** **While impenetrable accounting practises may camouflage Russian**
**military space spending, the study says investment in these systems in Russia "is** **visibly**
**decreasing faster** **than the** **civilian** **budget."**

**Euroconsult's annual report gives the impression that Europe's space spending effort in**
**the 1980s did little to undermine the United** **States'** **leadership. The** **13-nation** **European**
**Space Agency more than quadrupled its spending between 1981 and 1992, but U.S.**
**industry** **remains** **"clearly** **dominant,"** **the** **study concludes.**

**V**

**U.S. companies have won slightly more than** **73%** **of the worldwide market in civil**
**communications satellites in geostationary orbit set for launch between 1990 and 1996.**
**Europe has** **25%** **of the market**

**The total market for these satellites thus far is** **125** **spacecraft launched or** **firmly** **ordered,**
**with.a** **market value of $10.4 billion in 1992 economic conditions.**

**Two years ago, Euroconsult's figures** **suggested** **that U.S. companies would continue to**
**lose market share to the Europeans in the early** **1990s,** **just as they had in the early** **1980s.'**
**However, a series of hotly contested battles since 1990 in Japan, the Middle East and**
**elsewhere, won by Hughes and** **GE** **Astro Space against European competition, appears to**
**have reversed the** **trend.**

**The American advantage is occurring despite a drift of satellite concentration away from**
**North America** **and** **toward Europe, Asia** **and** **elsewhere.**

**- 2 5 -**

Euroconsult reports that one-third of the communications satellites made in the 1980s
were for the U.S.market. That will slip to less than a quarter between 1992 and 2003,
meaning that U.S. satellite builders will be doing more and more business for non-U.S.

customers.

**United States continues to dominate Satellite Manufacturing** despite increased
competition, U.S. market share projected to grow in the 90's.

1980-89

99

6.39

69.7%

27.7%

16.8%

18.9%

6.3%

0.0%

0.0%

23.5%

4.4%

5.2%

8.2%

0.9%

4.8%

3.8%

3.0%

Number of satellites

Market value in billions

of 1992 dollars

UNITED STATES

Hughes Aircraft
General Electric

Space systems/Lora!

TRW

Fairchild

CTA

EUROPE

Matra

Aerospatiale
British Aerospace

Alenia

Deutsche Aerospace

CANADA

JAPAN

1972-79

37

2

100%

87.1%

12.9%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

1990-96*

125

10.40

72.3%

30.0%

26.6%

9.9%

4.3%

1.0%

0.5%

25.1%

9.8%

8.2%

3.3%

2.5%

1.3%

1.4%

1.2%

                     - Includes firm contracts for future launches

Source: barriers to European industry trading in the US satellite communications market.
A study by KPMG, January 1993

26

## **STATISTICAL TABLES**

**STATISTICAL** **TABLES**

**MARKET SHARES 1993**

**Workstations**

Market Share

In

Vendors

European
Vendors

US Vendors

Japanese
Vendors

Other

Total

Europe

**2.3%**

**7%**

; . .                  - >.

**100.0%**

Japan

**59.80%**

**40.2%**

**100.0%**

**Japan**

**0.0%**

**22.8%**

**77.3%**

**0.1%**

**100.0%**

ROW

100.0%

ROW

1.8%

45.1%

3.5%

49.6%

100.0%

**Personal Computers**

Market Share

In

Vendors

European
Vendors

US Vendors

Japanese
Vendors

Other

Total

US

**-**

**98.8%**

**0.0%**

**1.2%**

**100.0%**

**US**

**2.5%**

**85.7.%**

**7.6%**

**4.2%**

**100.0%**

WWide

0.7%

. - ' . - :

89.4%

9.4%

0.5%

100.0%

WWide

11.4%

                    

633%

13.2% '

12.1%

                                            -                                             - _

100.0%

V

**Europe**

**1993**

**32.2%**

**56.5%**

**3.6%**

**7.7%**

**100.0%**

**Source:** **International Data Corporation**

**-27-**

**Personal computers**

**Market share figures for personal computer manufacturers are collated by IDC in the US**
**at London in the Personal Computer European Expertise Centre and for the EDP IDC**
**Japan Reporting Service.**

**The single-user market (eg PCs, workstations, printers, add-on storage such as CD-**
**ROMs) is particularly strong at** **the** **moment, driven by decreasing prices, improving chip**
**technology (primarly the Intel 80486) and the Windows interface to the DOS operating**
**system. In 1993, IDC's preliminary figure for sales were 36.260.00 units, up from**
**30.376.000 in 1992** **(19%** **growth).**

_**Dominant players in**_ _**each market**_ _**are:**_

Europe USA Japan

IBM Âppîê" Nee (46.2%)

Compacq IBM Apple

Apple Compacq IBM

Olivetti HP Fujistsu

Hewlett-Packard Dell Epson

**Worldwide, Compaq has increased its market share from 5.1% of** **the** **market to 8.5%, as**
**its** **worldwide sales increased** **98%.** **Of the two major European suppliers, ZDS (i.e. Bull)**
**has increased sales 62% whereas Olivetti has put in a growth rate of** **15%,** **below the**
**industry average (but not surprising as the company operates mostly in Europe which**
**suffered widespread economic recession in 1993).**

**Europe**

_**Market size: 10.604.000**_ _**units,**_ _**$19.310**_ _**million**_

**Olivetti has targeted the PC market in recent years and is now the largest Europe-base**
**supplier. The company's offering tend to be lower cost machines** **than** **the other four**
**companies in the top five. Its unit market share being higher than its** **value** **market share**
**whereas for IBM, Compaq, Apple and HP the opposite is the case. However, Siemens,**
**Nixdorf** **(SNI)** **has recently made clear that it intends to target the PC market in the future.**

**Digital, one of the poorest performing IT companies at present, has also signalled its**
**intention to target the PC market more ferociously than in the past.**

**The most recent development (announced in the last two weeks) has been the intense**
**price war breaking out between Compaq and IBM as they attempt to shift boxes. Price**
**cuts of 20** **-** **30% price have been announced, in part to cut stock levels before future**
**launches. IBM is suffering particularly from having excess supplies of its low-end**
**machines but a shortage of its nex Power PCs.**

**-28-**

USA

At present only unit values for the US market are available. The most noticeable feature
of the US market is the strong growth of three companies - Compaq, Hewlett-Packard's
PC arm -Packard Bell and AST. IBM is still growing but market share is declining.

The only European supplier with a strong US presence is Bull. Bull's PC arm - Zenith
Data Systems (ZDS) - has been the saviour of Groupe Bull in recent months. Large
revenue increases for Groupe Bull have almost all been derived from the exceptionally
strong performance of ZDS.

In both the US and Europe, Japanese strength is in the notebook market where Toshiba is
particularly strong. ^

**Japan**

The Japanese market continues to be dominated by NEC (46% of the market by value,
49% by unit). However, Apple has a 13.4% market share and IBM 6.4%. No European
players are particularly active in Japan (ICL is defined by IDC as a European supplier in
Europe although Fujitsu has a majority stake in the company).

The second rank of US vendors have almost no presence in Japan, accounting for less
than 1% of shipments.

RestofWorld

The two largest markets in "Rest of World" are Canada and Australia. Information on
those markets is collated by Wordwilde PC Research by is not available until the year
end, although aggregate information is available (hence worldwide figures).

Workstations

Largest suppliers in each market (in descending order of importance)

Europe USA Japan

Sun . Sun Sun

HP HP ~ YokogawaHP

Digital Digital Fujitsu

IBM SGI NEC

SGI IBM Hitachi

Sun continues to dominate the workstation market with 37.8% of the worldwide market.
However, Hewlett-Packard is also a strong performer with nearly 20% of worldwide
sales. IDÇ expects the two companies leading the market in 1994 with Silicon Graphics

-29

**moving into third position within the traditional workstation segment as IBM focuses**
**more on personal workstations and servers** **and** **Digital continues rough times.**

**In 1993 a new category of system was being created** **from** **the upward push of PCs and** **the**
**downward push of workstations. IDC has labelled this category of system the personal**
**workstation. Sun accounts for the majority of sales at present (e.g. 60% in Europe)**
**following the launch of low cost SparcStations (now** **under** **$3000).**

**Europe**

**Hewlett-Packard is performing particularly well at present in Europe.** **While Sun**
**continues to dominate the** **worldwide** **market, in Europe the company only leads HP by**
**3.5%.**

**USA**

**Hewlett-Packard is expected to experience** **continued** **strong growth as it has neared**
**completion of its transition from Motorola-based workstations to** **PA-RISC-based**
**workstations.**

**Tatung, the Taiwanese firm,** **sold** **3000 units in the US in 1993, accounting for the small**
**proportion** **of** **sales outside Europe/Japan/US suppliers.**

**Japan**

**Growth of 10.6% in the Japanese market in** **1993** **was driven by an accelerated shift**
**towards** **downsizing from** **mainframes** **and proprietary minicomputers to Unix**
**workstations and servers. This trend is causing the focus of the workstation market to**
**migrate from traditional scientific and engineering applications to commercial**
**applications.**

**The US suppliers are working in counjunction** **wiih** **Japanese** **companies,** **hence Nihon**
**Sun Microsystems and Yokogawa-Hewlett-Packard. IDC Japan forecast almost 20%**
**growth in the Japanese workstation market in** **1994.**

**-30-**

###### **ISSN 0254-1475**

## **COM(95) 78 final**

# **DOCUMENTS**

#### **EN 15 11** **Catalogue number : CB-CO-95-086-EN-C** **ISBN 92-77-86386-2**

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