On February 1st, 2019, the EU and Japan Economic Partnership Agreement (EPA) came into force. The EPA signifies a new chapter in the economic and political cooperation between two of the largest economies in the world. While much of the attention is directed at lowering trade barriers such as tariffs for agricultural products or automobiles, the Agreement also includes a mutual commitment to open each other’s government procurement markets further, beyond the scope of the WTO Agreement on Public Procurement (GPA).

The information here is an overview of these commitments, as far as entry to the Japanese market is concerned. For details on the EU commitments, please consult the EU-Japan EPA-pages on the European Commission’s website.

Main points

Enlarged public procurement market access

On top of market access regulated by the WTO GPA, the EPA will give European companies access to additional government entities in Japan. These are:

National government agencies

At the central level, in addition to entities listed in Group B of Annex 3 to Japan's Appendix 1 to the GPA, the following six entities are covered by the EPA:

  1. Information Technology Promotion Agency
  2. Pharmaceutical and Medical devices Agency
  3. Japan Community Healthcare Organization
  4. Agriculture, Forestry and Fisheries Credit Foundation
  5. National Agency for Automotive Safety and Victims’ Aid
  6. Organization for Environment Improvement around International Airport

 

Sub-central level entities

At the sub-central level, which comprises of Japan’s 47 prefectures, and designated cities, the Agreement offers increased access for EU suppliers.

Designated City

The Japanese government has agreed to include an additional designated city, i.e. cities with a population larger than 500,000 inhabitants.

Kumamoto City was already included in Japan’s Trans Pacific Partnership (TPP) Agreement in 2016, but is formally not included in the WTO GPA. The city does however public large contracts under WTO regulations.  

Local independent administrative agencies 

The following agencies, mostly falling under the jurisdiction of prefectures and designated cities will have to provide equal access to procurement offers to EU suppliers under the EPA. The list is called indicative as more entities might be added in the future.

Core cities

The addition of (currently) 54 so-called “core cities” (Chūkakushi), which are cities with a population between approximately 300,000 and 500,000 inhabitants, signifies a substantial enlargement of the public procurement market in Japan, in that it potentially opens up a new category of government entities to international suppliers. It should be noted however that construction tenders are not covered by the agreement.  The scope of the FTA includes the supply of goods and services, in addition to architectural design and consulting. Thresholds for procurement will be a the same level as those for prefectures and designated cities.

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Removal of Operational Safety Clause for railway related procurement

The Operational Safety Clause (OSC) in the WTO GPA had been a contentious issue between Japan and the EU for a long time, as the liberal application of the Clause by the Japanese government effectively barred foreign suppliers from the Japanese railway market.

In the EPA, the clause is removed for procurement of goods and services from contracts above 400,000 SDR (approx. €480.000) and procurement by the following entities will be open to suppliers from the EU.

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Publicly-owned power generation

Although the majority of electric power infrastructure is privatized, their are still 26 prefectures and 3 cities (Yokohama, Kitakyushu and Kumamoto) where part of the production, transport and distribution infrastructure of electricity is managed by public utilities. This concerns primarily infrastructure such as dams, wind parks and solar parks. In the WTO GPA, Japan excludes procurement related to the production, transport or distribution of electricity by sub-central government entities (See Annex 2, Note 5). The EPA however opens procurement related to these for European companies, with thresholds applicable to sub-central government entities. As of February 2018, it concerns the following entities (Links are to departments in charge (In Japanese only):

 Hokkaido

 Iwate-ken

 Akita-ken

 Yamagata-ken

 Tochigi-ken

 Gunma-ken

 Tokyo-to

 Kanagawa-ken

 Niigata-ken

 Toyama-ken

 Yamanashi-ken

 Nagano-ken

 Mie-ken

 Kyoto-fu

 Hyogo-ken

 Tottori-ken

 Shimane-ken

 Okayama-ken

 Yamaguchi-ken

 Tokushima-ken

 Ehime-ken

 Kochi-ken

 Fukuoka-ken

 Kumamoto-ken

 Oita-ken

 Miyazaki-ken

 Yokohama-shi

 Kitakyushu-shi

 Kumamoto-shi

Services

Both parties have also agreed to open up additional service categories for EU suppliers, on top of those specified in Annex 5 of the WTO GPA. At the national level government level these are the following (Codes denote UN Provisional Central Product Classification (CPC) 1991 codes)

  • 754     Telecommunications related services
  • 812     Insurance (including reinsurance) and pension fund services, except compulsory social security services
  • 87201 Executive search services
  • 87202 Placement services of office support personnel and other workers
  • 87204 Supply services of domestic help personnel
  • 87205 Supply services of other commercial or industrial workers
  • 87206 Supply services of nursing personnel
  • 87209 Supply services of other personnel
  • 87501 Portrait photography services
  • 87502 Advertising and related photography services
  • 87503 Action photography services
  • 87505 Photography processing services
  • 87506 Motion picture processing services not related to the motion picture and television industries
  • 87507 Restoration, copying and retouching services of photography
  • 87509 Other photographic services
  • 87901 Credit reporting services
  • 87902 Collection agency services
  • 87903 Telephone answering services
  • 87905 Translation and interpretation services
  • 87906 Mailing list compilation and mailing services
  • 87907 Specialty design services;

 

At the sub-central government level (Prefectures and designated cities)

  • 643      Beverage serving services
  • 83106 to 83108 Leasing or rental services concerning agricultural machinery and equipment without operator
  • 83203 Leasing or rental services concerning furniture and other household Appliances
  • 83204 Leasing or rental services concerning pleasure and leisure equipment
  • 83209 Leasing or rental services concerning other personal or household goods
  • 86501 General management consulting services
  • 86502 Financial management consulting services (except business tax)
  • 86503 Marketing management consulting services
  • 86504 Human resources management consulting services
  • 86505 Production management consulting services
  • 86509 Other management consulting services

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Commitment to ease qualification as supplier

One of the features of Japanese public procurement is that suppliers need to qualify in advance in order to be allowed to participate in competitive tender procedures. The lack of transparency and perceived ambiguity favoring local suppliers with regard to the conditions to qualify as a supplier have long been a source of frustration for foreign companies, barring them from entering the procurement market.

This applies in particular to qualifying for participation in construction work-related tenders in Japan, where a Business Evaluation or Keishin for short, is required.  In the EPA, Japan has committed itself to that authorities will ensure that the assessment will take place in a non-discriminatory manner and will recognize accomplishments make in the company’s home country as equivalent. This includes information such as:

  • Number of technical staff
  • Labour welfare condition (social insurance)
  • Number of years in construction business
  • Accounting practices in construction business
  • R&D expenditures
  • ISO certification
  • Employment and training of young engineers and trained workers
  • Amount of sales for completed construction work
  • Amount of sales for completed construction work as prime contractor

And also financial information such as

  • Equity capital
  • EBITDA
  • Net interest expense to sales ratio
  • Liabilities turnover period
  • Gross profit/gross capital ratio
  • Recurring profit/sales amount ratio
  • Equity capital/fixed asset ratio
  • Equity ratio
  • Cash flow from operating activities and
  • Amount of accumulated earnings

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Technical specifications & Test reports

Country-specific technical specifications and test reports are often used to bar foreign suppliers from tenders. In the EPA, in order to increase mutual recognition of technical standards and test reports specified in tenders, both parties will ensure that the specifications are appropriate to the characteristics of the supplies or services required, objectively verifiable and non-discriminatory and accessible to all parties interested. With regard to test-reports the procuring entities shall accept the results of conformity assessment procedures conducted by registered assessment bodies in the EU and Japan. 

 

Domestic review procedures and challenging systems

While Japan already has a review and challenging system in place under the WTO GPA, there have been long-standing questions about the impartiality and independence of reviewing authorities in Japan, as members were often selected from the same organization they were to review.  The EPA includes further assurances to ensure that suppliers challenge results and have the procedures reviewed. These include:

  • Independence and impartiality of reviewing boards members;
  • Members should possess appropriate professional/legal qualifications;
  • Adoption of rapid interim measures to ensure that the supplier demanding the review will still be able to participate;
  • Postponement of the tender decision in case of a challenge until a decision of the review authority has been taken;

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Committee on Government Procurement

The Agreement also arranges the establishment of a Committee on Government Procurement. The Committee is  

  • to make recommendations in case the provisions of the GPA are amended or superseded by another agreement or when compensator adjustment are need in case of modifications in terms of coverage for instance  in case of entities being merged or reorganized etc.
  • ensure exchange of statistical information etc. but also procurement opportunities
  • consider issues regarding government procurement

This Committee shall be composed of officials from the Government of Japan and the European Commission.

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 Impact of EPA on Government Procurement practices in Japan

With the EPA signed, the next step is to make the Agreement work for both sides. The question in the coming years will be whether the commitments made by both sides will lead to new concrete opportunities for European companies in the Japanese government procurement market. For this, JTPP Helpdesk is also closely following developments in Japan and strives to act as a monitor/reporter of barriers for EU companies still found in the government procurement practice in Japan. 

As part of these activities, JTPP Helpdesk conducted a survey among 900 officials and offices in charge of procurement and contracting at Japanese government organizations, regarding the impact of the EU-Japan EPA on procurement practices in Japan. The Report of this survey is available here (PDF). 

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