U.S. charges Japan with unfair practices in medical device buying

August 31, 1994

Trade representative sets 60-day process in motionThe Clinton administration moved into high gear in its negotiationswith Japan over medical technology market access last month. Bycharging that Japan discriminates against U.S. medical and

Trade representative sets 60-day process in motion

The Clinton administration moved into high gear in its negotiationswith Japan over medical technology market access last month. Bycharging that Japan discriminates against U.S. medical and telecommunicationssuppliers in government procurement, U.S. trade representativeMickey Kantor set a 60-day deadline for negotiations as stipulatedunder Title VII of the 1988 Trade Act.

It is unlikely, though, that a failure of the two nations toreach agreement within two months will result in trade sanctionsagainst Japanese medical imaging suppliers in the U.S. market.Under Title VII, retaliation need not be applied in the same industrywhere foreign trade discrimination is determined to exist. Furthermore,a sanctions list can only affect U.S. government procurement inareas not covered by the government procurement code of the GeneralAgreement on Tariffs and Trade.

"Within that framework, I am not sure if medical equipmentwould be an applicable area for sanctions," said one U.S.trade official who requested anonymity.

Both the government and medical device firms hope that a settlementis reached before trade sanctions are invoked.

"No one in this industry is looking forward to sanctions.It doesn't help us," said Terri Ethridge, director of globalstrategy and analysis for the Health Industry Manufacturers Association(HIMA).

In announcing its actions, the office of the trade representativenoted that U.S. manufacturers have only about a 20% share of thecombined public and private medical device market in Japan, comparedto almost 40% in the European Union.

This 20% figure includes sales in Japan by U.S.-owned companies,such as GE YMS, the Japanese subsidiary of GE Medical Systems,according to David Birdsey, international trade specialist withthe Department of Commerce. The U.S. government hopes, though,that an improvement in market share in Japan will involve increasedexports as well as sales by Japanese-based U.S. ventures.

"It does appear that this (medical device) industry makesmost of its sales from ventures within Japan," Birdsey toldSCAN. "Naturally, we are not only interested in seeing anincrease in sales by those firms, which are competitive worldwide,but also an increase in actual exports from the U.S."

Medical imaging equipment makes up a relatively small proportion-- about 15% -- of the total Japanese medical device market, hesaid. The imaging segment also tends to be the exception ratherthan the rule for medical devices in Japan. Large imaging suppliers,such as Toshiba, Hitachi and Shimadzu, produce internationallycompetitive equipment, which is not often the case for Japanesesuppliers of smaller types of medical devices.

It is in the area of smaller medical devices, however, whereU.S. concern over Japanese protectionism is greatest.

"There are many little (Japanese) companies that havedeveloped relationships with hospitals over the years," saidHIMA's Ethridge. "The hospitals are reluctant to break theserelationships despite the competitiveness of alternative products.That makes it very difficult for foreign firms to break into themarket."

The U.S. is also concerned about medical technology areas inwhich Japanese companies have no existing technological base,such as pacemakers, Birdsey said. U.S. pacemaker companies dovery well in this Japanese technology segment, with about 90%of the market. However, the Japanese government is funding developmentof domestic pacemaker technology and may be inclined to shut outforeign suppliers once they are no longer needed.

"It will be very interesting to see what happens oncea Japanese pacemaker is on-line," he said. "Given pasttrends,we would expect to see a switch (to the domestic supplier)."

When Japanese companies begin to close in technologically ina given segment, foreign medical suppliers often find that governmentapproval times for new products slow down, Ethridge said. U.S.and other foreign suppliers can't afford to lose their technologicallead times, which they need in order to overcome the distributionstrengths of local firms.

"We often find that our approvals are held up until theJapanese product becomes available," she said.

Special relationships. A major U.S. concern in its currentnegotiations with Japan over the medical device trade is thatspecial relationships between Japanese hospitals and suppliersoften prevent foreign firms from competing on an equal basis,Birdsey said. Many times, Japanese suppliers find out about hospitalprocurements prior to publication or other public notification.

"They are able to make their pitch before the foreignfirms even know that a procurement is going to take place,"he said. "One of the things we have tried in the (July 1993U.S.-Japan Framework Agreement) talks is to get this kind of informationout in the open for all foreign suppliers."

The Japanese offered an action plan last March, which includedthe provision of future procurement information on a hospital-by-hospitalbasis, he said. That was a step in the right direction, but notenough to satisfy the U.S. negotiators.

The U.S. is seeking quantitative indicators of improved marketaccess for foreign medical devices as well as specific actionon the part of the government, such as a directive to procurementofficials telling them that buying competitive foreign productsis a good thing, Birdsey said.

Although Japan has a national health system, direct governmentpurchases make up only about 30% of the medical device market,Ethridge said.

However, U.S. government negotiators expect that decisionsin the public sector will have a widespread ripple effect throughoutthe Japanese medical device market, Birdsey said.

"Doctors in Japan go through training at university hospitals.If they learn on a Toshiba or Hitachi machine, that is what theyare going to use when they go into private practice," hesaid. "We want to make sure these doctors have access tothe best technologies available, so that when they do go intoprivate practice they are aware of the advantages of competitiveforeign technologies and will make their purchasing decisionsaccordingly."