U.S.-Japan Trade Talks Produce Medical Technology Arrangement

On November 1, 1994 Ronald Brown, U.S secretary of commerce, and Takakuzu Kuriyama, Japan’s ambassador to the United States, signed the Medical Technology Arrangement (MTA). The agreement marked an important step opening to U.S. manufacturers Japan’s public sector procurement market for medical devices and services.

Medical technology is one of several sectors subject to negotiations under the Framework Partnership, a series of ongoing talks between the United States and Japan designed to address their chronic trade imbalance. These talks produced the MTA.

U.S. negotiators are targeting the medical technology market because while Japanese device account for a mere 7% of the worldwide device sales, they control 71% of their domestic market, This dominance comes at the expense of U.S. manufacturers, which have captured 47% of the global market but only 21% of Japan’s. The stakes are high because Japan constitutes 18% of the worldwide market for medical devices, according to the Healthy Manufacturers Association (HMA).


The MTA specifically targets public-sector procurement, which refers to acquisitions made by government-funded, rather than private, entities. Japan’s public-sector procurement market for medical devices is valued at $2.6 billion, but under the government procurement code of the General Agreement on Tariffs and Trade (GATT), the minimum value for a procurement subject to competitive bidding is 130,000 SDRs (special drawing rights, based on exchange rates for the British, German, French, Japanese, and U.S. currencies; 130,000 SDRs equal approximately $200,000). Thus, the affected market amounted to just $234 million in 1991.

Equipped with this knowledge, U.S. negotiators bargained for lowering the minimum level subject to competitive bidding to 5000 SDRs. The level eventually agreed upon was 100,000 SDRs ($155,000), the same level Tokyo has universally imposed since fiscal year 1992. Edward Rozynksi, vice president of global strategies and analysis at HIMA, said the amount of procurement below 100,000 SDRs will be tracked, adding, “We expect the same percentage increase (in market share) for procurement below the threshold.”

The MTA’s primary mandate is “to ensure nondiscriminatory, transparent, fair, competitive, and open public-sector procurement procedures. One provision, for example, specifies that foreign products, services, and suppliers must receive treatment “no less favorable” than that received by their domestic counterparts. Another ensures fairness in qualifying suppliers. In order to prevent unfair treatment, government entities from both countries must compare suppliers’ success in Japan with their success in other parts of the world.

To promote competition, the MTA also includes a provision designed to limit single tendering (i.e., allowing a single supplier to make the only offer on a particular procurement). In cases where only one successful offer is received, the government entity must make a public announcement in the Kanpo, a publication put out by the Japanese government for all public procurement, at least 40 days before awarding the contract. Additional firms can then respond, increasing competition.


Making Japan’s public-sector procurement more transparent and open also requires improving the flow of information to foreign suppliers of medical technology products and services. Under the MTA, Japanese government entities must publish planned procurements that exceed the 100,000-SDR threshold in the Kanpo as early as possible each fiscal year. And for all procurements, information must be made available to the public at designated contact points within the organizations involved.

Individual procurements must then be announced in the Kanpo a minimum of 40 days before the submission deadline, and the information must be made available to the public. Pat Murdo of the Japan’s Economic Institute (Washington Dc) believes that better access to procurement information will make U.S. firms increasingly competitive in Japan.

The MTA also addressed the methods by which government bodies in Japan evaluate different offers. Previously, U.S firms lost out on many procurement opportunities because they often tried to sell products to the Japanese that offered numerous features and high quality but were comparatively expensive. The cost of such goods might in fact be lower over their life span, but buyers merely compared initial prices. To combat this de facto form of exclusion, the MTA implements and overall greatest-value system, which must be applied to the procurement of off-the-shelf products or services of more than 800,000 SDRs, as well as to products or services that are modified or specially developed. (The threshold for off-the-shelf products will gradually be lowered to 385,000 SDRs by April 1, 1998.)

According to Murdo, Japan’s public entities can still find ways around this provision, because the MTA allows them to determine their own methods for assessing greatest value. Identifying service as an important contributor to overall value, for example, would clearly favor Japanese companies with more extensive in-country resources.

A procurement review board was established to address the complaints of suppliers concerning procurements that diverge from the guidelines set forth in the MTA. The board has the authority to suspend contracts not yet awarded at the time a complaint is filed, and must make its determination and present its recommendations for action to the government entity under accusation within 90 days of the filing of the complaint.


Representatives from the United Stated and Japan are meeting annually to assess the progress of the MTA. According to Murdo, the annual meetings “irritate Japan, and they irritate the United States, but so far they work.” Apparently, the friction generated keeps both sides aware of what remains to be accomplished. Phil Agress, the director of the Office of Japan Trade Policy at the U.S. Commerce Department, says that because of the one-year lag of compiling data, U.S. government officials at the initial meeting, held in June, were forced to rely on the complaints and suggestions of U.S. manufacturers. Rozynski noted that specific figures will not be available until the 1996 meeting.

Consistent with the overall approach of the Framework Partnership, both quantitative and qualitative criteria will be used to track the progress of the MTA. One quantitative yardstick compares the annual share and value of medical technology products procured by government entities from non-Japanese suppliers under the MTA with the same figures for all procurements by those entities. The number of entities entering into procurement agreements, as a percentage of the total number of entities involved in procurements, will also be tracked under the arrangement.

According to HIMA’s Rozynski, “The hardest part is tracking the numbers.” Not only is the time lag in collecting the data a problem, he contends, but some of Japan’s public hospital systems pursue joint ventures with private concerns, so their figures are intertwined. He also notes that the share of Japan’s medical device market held by U.S. companies fluctuates for year to year anyway, so single-year changes should not be considered conclusive.

Qualitative criteria will include gauging how accessible Japan’s procurement information is to non-Japanese suppliers, and how much effort is required of such suppliers, and how much effort is required of such suppliers as they pursue new procurement opportunities. The results of any reviews performed by the procurement review board will also be considered, as will economic factors such as exchange rate fluctuations.


U.S. and Japanese trade officials are optimistic in the aftermath of the MTA’s signing. While U.S. officials welcome the creation of concrete indicators to help substantiate grievances if public-sector procurement opportunities do not improve for U.S. firms, Japanese officials are relieved that specific numerical targets were excluded from the agreement. The MTA is definitely a step in the right direction, but it will take some time to assess the results.