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RESTRICTED GPA/MOD/JPN/86 27 July 2016 (16-3988) Page: 1/2 Committee on Government Procurement Original: English PROPOSED MODIFICATIONS TO APPENDIX I OF JAPAN UNDER THE REVISED AGREEMENT ON GOVERNMENT PROCUREMENT COMMUNICATION FROM JAPAN Replies from Japan to the questions from Canada (GPA/MOD/JPN/84) to its proposed modifications circulated in GPA/MOD/JPN/82 The following communication, dated 26 July 2016, is being circulated at the request of the Delegation of Japan. _______________ RESPONSE FROM JAPAN TO QUESTIONS FROM CANADA (GPA/MOD/JPN/84) TO ITS PROPOSED MODIFICATIONS CIRCULATED IN GPA/MOD/JPN/82 Please find below Japan's response to questions from Canada (GPA/MOD/JPN/84) regarding the proposed modification to Appendix I of Japan under the revised GPA (GPA/MOD/JPN/82) related to Kyushu Railway Company. 1. In paragraph 2 e. of its communication, Japan mentions that JR Kyushu is now financially independent. However, Canada notes that JR Kyushu has been granted a management stabilization fund of 3,877 billion yen from the national government, which will continue to subsidize the company beyond 1 April 2016. Furthermore, and contrary to what was done for the East, Central and West Japan Railway Companies, JR Kyushu is not required to reimburse the management stabilization fund to the Government of Japan. How does this fund affect the classification of JR Kyushu as a "financially independent" entity? Can the Government of Japan ask for reimbursement of the management stabilization fund in the future? At the time of the division and privatization of Japan National Railways, the Management Stabilization Fund was established in Kyushu Railway Company, Hokkaido Railway Company and Shikoku Railway Company respectively in order to stabilize their business with the investment profit of the Fund. The liability arising from the establishment of the Fund was borne by Japan National Railways in accordance with the Japanese National Railways Reform Act and former Law Concerning Passenger Railway Companies and Japan Freight Railway Company. In this sense, subsidy or governmental funds were not provided to the Fund, thus, it is not a kind of fund to be reimbursed to the Government of Japan (GOJ). The Fund was drawn on 31 March 2016 and therefore the GOJ has no influence over the Fund at the present as well as in the future. From the above facts, it is evident that Canada's comment that the GOJ subsidizes Kyushu Railway Company before as well as beyond 1 April 2016 is not correct. In addition, the amount of the Management Stabilization Fund owned by Kyushu Railway Company was not 3,877 billion yen but 387.7 billion yen. GPA/MOD/JPN/86 - 2 - 2. In paragraph 2 f., Japan notes that "The whole shares of the Company are to be sold by the end of this fiscal year." Canada understands that the current Japanese fiscal year will end on 31 March 2017. Why is Japan seeking to withdraw JR Kyushu from its Appendix I before the complete privatization of the entity? As stated in the proposed modification to Appendix I of Japan, Japan notified the modification based on the following: the Amendment to the Law concerning Passenger Railway Companies and Japan Freight Railway Company entered into force in April 2016 and Kyushu Railway Company is no longer subject to the law. government control or influence over the Company was effectively eliminated. the share of Kyushu Railway Company is supposed to be on the list of stock market and the share of the company which Japan Railway Construction, Transport and Technology Agency holds is supposed to sell in a package in this fiscal year. 3. We understand that the Minister of Land, Infrastructure and Transport will retain the authority to require JR Kyushu to maintain services on lines that may not otherwise be commercially viable. Is this accurate and, if so, will the Minister have the ability to direct how JR Kyushu maintains these services (i.e. could the Minister impose requirements in relation with procurement by JR Kyushu)? There is no law or regulation that grants authority to the Ministry of Land, Infrastructure, Transport and Tourism (MLIT) to require Kyushu Railway Company to maintain the money-losing routes. Kyushu Railway Company can discontinue such routes based on its management decision through the procedures in accordance with the Railway Business Law. Likewise the MLIT has no authority to impose any requests regarding the procurement to Kyushu Railway Company. On the discontinuance of routes, there is a guideline that applies to Kyushu Railway Company, similar to that of the three JR Honshu companies (East Japan Railway Company, Central Japan Railway Company and West Japan Honshu Railway Company). However, the guideline stipulates procedures similar to those applied to railway companies in general including other railway companies in accordance with the Railway Business Law, and they have no special control or influence over Kyushu Railway Company. 4. Canada notes that three other Japanese Railway companies are listed under Japan's Annex 3: JR Shikoku, JR Hokkaido and JR Freight. Does Japan plan to withdraw these entities from its GPA coverage in the foreseeable future? The GOJ has basic policy to privatize Passenger Railway Companies and Japan Freight Railway Company as soon as possible, once conditions are met such as establishment of management base, in accordance with the relevant cabinet decisions since the reforms of the Japanese National Railway. However at present, there are no concrete plans for privatization of Hokkaido Railway Company, Shikoku Railway Company and Japan Freight Railway Company. __________ .
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