tions on imports without a firm order, which made rapid deliveries impossible, the user was showing a clear preference for U.S.-made modems.

NTT, the Nippon Telephone & Telegraph Co., virtually eliminated this market by the simple maneuver of raising the rate charged for a bare leased circuit to the same level as a NTT-operated data circuit, which is already equipped with NTT-supplied modems. Obviously, the customer had no incentive to purchase his own equipment.

Since the effective data of this new tariff in Japan, our company has experienced a reduction in the overall volume of Japanese business. Not only have sales of modems dropped, but, as a result, sales of other equipment associated with modem installations, such as multiplexers, have also suffered.

It should be noted that the effect of this tariff change did not affect the Japanese manufacturers, since any sales lost in the direct market would then be satisfied by NTT, which meant even larger contracts to their suppliers.

Why is this market so important to U.S. manufacturers? The Japanese market is second only to the U.S. market for communications. It is roughly one-third the U.S. size. Data communication networks are being installed in every country in the world and, while equipment for these networks is made in a number of the industrialized nations, the majority of the manufacturers are in the United States and Japan. Therefore, the competition for such business is increasingly between United States and Japanese compa

nies.

It takes little imagination to appreciate the relative bidding capabilities of such competition. On the one hand, a supplier with a captive market which can support all needed research and development and, depending on the desires of the Government, can underwrite some of the costs of equipment to be exported; while, on the other hand, the U.S. supplier who has no such capability and who, therefore, must seek the return of all costs plus profit on each bid. Our complaint was lodged with the Trade Facilitation Committee very early in its life. If I am not mistaken, ours was the fifth case to be received. Since that time, there have been many negotiations between United States and Japanese officials regarding this overall problem. The direction that these talks are taking is not satisfactory. Much is being made of opening NTT to outside bidding-this is a waste of effort, even if U.S. companies could bid on supplying NTT, there is an unlimited number of reasons to reject a bidder. The only true solution is for Japan to open their network to interconnection, the same as the United States.

In the negotiations that have taken place, NTT has made the point that the Bell System is not open to outside suppliers, and that is largely true, but the network is available for interconnection of customer-owned equipment. Clearly, we should demand the same opportunity in Japan as a requisite for continued access to the U.S. market.

We strongly believe some action in this area is needed in order to insure the proliferation and growth of new companies in this growing field. The computer and communication field is the one where new businesses can be formed-most of the companies in this field

did not exist 10-15 years ago. Without such opportunities, our employment problems would be much more severe than they are today.

Senator LEVIN. Thank you very much. Have they filed an answer?

Mr. LEHRMAN. There have been many meetings. There is no formal answer which has been filed that I know of. Discussions with the Trade Facilitations Committee have not reached any significant conclusions.

Senator LEVIN. How long has it been since you filed your complaint?

Mr. LEHRMAN. It was filed in February of 1978.

Senator LEVIN. 1978?

Mr. LEHRMAN. Yes.

Senator LEVIN. Is there a procedure for their filing an answer to your complaint?

Mr. LEHRMAN. I cannot answer that, Senator.

Senator LEVIN. Do you know whether or not the complaint has been transmitted by the Trade Facilitation Committee to the Japanese Government?

Mr. LEHRMAN. Yes, it has, very definitely.

Senator LEVIN. We will ask our staff to give us the chronology of this and let you know more about it.1

Mr. LEHRMAN. This particular matter was mentioned in Representative Jones' report.

Senator LEVIN. We will bring you up to date as to the status of that.

Mr. LEHRMAN. Very good.

Senator LEVIN. While bringing ourselves up to date as well. Can you give us the justification provided by the Japanese for this procedure of raising the rates charged on the circuits so in essence they can throw in the modems?

Mr. LEHRMAN. The response they gave to our representatives was that the rate to be charged was purely a matter which the telephone company was concerned about. With this we have no argument. They can charge whatever they want, except when the particular action had the effect of barring only U.S. companies.

Senator LEVIN. Do they have a monopoly on services? Mr. LEHRMAN. Absolutely, 100 percent total monopoly. Senator LEVIN. Does the Government of Japan own NTT? Mr. LEHRMAN. NTT is a public corporation of which ownership is the Japanese Government. It is the Japanese Government.

Senator LEVIN. Do you know what the amount of their imports is and how much they export to the United States?

Mr. LEHRMAN. As I understand it, we are exporting only about 1 percent of their requirements while the amount coming into the United States is perhaps something on the order of 1,000 times that. I don't know actual numbers.

Senator LEVIN. You don't know percentages or numbers?

Mr. LEHRMAN. No.

1 See letter dated July 28, 1980, to Alan L. Chvotkin, legal counsel, Senate Small Business Committee, from Abraham Katz, Assistant Secretary for International Economic Policy, U.S. Department of Commerce, p. 45.

Senator LEVIN. Do you have any specific suggestions in terms of legislation? Would you, for instance, support legislation which proposed a tax on Japanese exports to us similar to the effective cost of their trade barriers on our exports until they eliminate their own barrier?

Mr. LEHRMAN. It would be difficult to quantify the cost in our particular field. I think we would have machinery to effectively restrict Japanese imports through the approval process which is a requirement of the FCC in this country.

I do not like to see those kinds of barriers being erected, but I think the threat should be put there and made implicit that unless they reduce theirs our barrier will be put in place.

Senator LEVIN. Has that threat been made implicitly or explicitly to your knowledge by our trade representative?

Mr. LEHRMAN. I don't believe so. It has been my impression through discussions with people in Commerce there has been a reluctance to threaten that kind of action.

Senator LEVIN. Is your firm prepared to bid on NTT contracts if the procurement process is opened?

Mr. LEHRMAN. Yes.

Senator LEVIN. Have you been told when there will be a resolution of your complaints?

Mr. LEHRMAN. No. We are all looking forward to December of 1980 at which time NTT was supposed to be open for competitive bidding. As indicated in my statement, the concept of competitive bidding for NTT's major procurements would not satisfy the requirements of American business for the simple reason that the situation regarding the Bell System in this country parallels NTT closely.

The Bell System has a relationship with Western Electric, which makes it much more to their advantage to work closely in developing their requirements. NTT has the same situation, vis-a-vis their suppliers.

However, the market itself which we are addressing is the market where the end user has the ability to buy his own equipment. In that case the U.S. market has been made available.

Senator LEVIN. Thank you very much for your testimony. We appreciate your coming by.

The next witness will be Mr. Steven Myers, attorney, international section, Amway.

He is a constituent of mine. I feel badly regarding the order of your appearance this morning. I thought if I called you second they would think I was playing favorites.

STATEMENT OF STEVEN D. MYERS, MANAGER, INTERNATIONAL PUBLIC AFFAIRS, AMWAY

Mr. MYERS. It is a pleasure to be here. It has turned out to be quite exciting to hear from you the kind of bottom line questions that we in industry have been asking for some time. Hopefully the questions will have the kind of effect you wish them to have. I have so much to say about nontariff barriers that I was certain I could not say them in 10 minutes or 10 hours. I brought to this committee a collection of items I know some in the audience would

also be interested in receiving. I have 30 packets but if anyone wants more they can let me know.

To highlight what is in this material, the first is a paper written some 22 years ago by the Small Business Committee of the American Chamber of Commerce in Japan, "Yankee Trader's Goin' Home." It could not be any more relevant today than it was then with the possible exception of the taxation question.

I confirmed the relevancy in a long distance call with the American Chamber of Commerce in Japan yesterday morning. They underscored exactly the issues, and in fact, after 2 years of very hard and tough negotiations, we are still at square one.

I would also point out item five in this packet. It is a list of some of my contacts in the private sector which are particularly aware of United States-Japan trade problems. I will note to the Trade Facilitation Committee, if they are looking for staff, they might start looking at this list of people.

The "Yankee Trader's Goin' Home" has four items of particular relevance today. I will touch on them briefly. I will not follow my comments exactly because they will be part of the record, I understand.

Senator LEVIN. They will be.

Mr. MYERS. Financing, licensing, visas, and customs. Of particular interest to the small trader in Japan, the American small trader, is the amount of financing available to him from sources like Eximbank. In 1978, the Japanese Eximbank funding was some five times the size of the American Eximbank.

In 1976, the United States supported 8 percent of their exports whereas Japan supported 49 percent of its exports. Obviously there is a finger pointing here on the American side, but I wish to focus on the Japan side.

Since the American small businessman is thrown upon his own for financing, a number of interesting nontariff barriers that are not always obvious to government investigators have come to light. One is that mortgage money in general is not available to the American or any foreigner for housing or office facilities. This means that the startup costs for any business, any small office, are a tremendous burden. Amway Corp. in the first year of business, without significant financial return in the form of sales, used over $2.5 million in funding required to do our homework to get the product approvals, translating labels, and for all the legal help we have needed; $2.5 million has been required in the first year of operation. At Amway we can say we are pleased to be able to meet that requirement, but I privately wonder whether a small business could.

In addition to that, over $50,000 was required in leasing deposits alone. That is for a relatively small warehouse and office space and for one house for an American executive to be there during the first year-over $50,000.

Another interesting requirement in Japan is that inventory be paid for within 6 months. These are said to be the standard payment terms of the Bank of Japan. No one knows why these are standard payment terms, but before you get permission to import your products, you need to agree that they will be paid for by the Japanese subsidiary, within 6 months.

To get approval for nonstandard terms, that is a year or more, it takes applications, a great deal of time, a great deal of discussion, the supply of information which is not imaginable for that purpose but is nonetheless required, and we have to my knowledge up to now not received that permission. Therefore, we must obtain Japanese financing or the infusion of dollars from the parent at Amway Corp. in Michigan.

It takes permission to remit dollar funds to Japan. If one's requirements for dollar funds get "too high" this permission apparently is difficult to obtain. There are questions about why it is that one would want to spend so much money to start an operation in Japan.

All of this amounts to great delay, a lot of staff time required simply to start up operations in Japan.

Moving briefly to licensing, I will make a couple observations and then talk about cosmetics in slightly more detail.

When I was the assistant director of the American Chamber of Commerce in Japan, I was one of several hosts of some American EPA officials who had come to Japan to approve model types of certain Japanese vehicles. I think this effort on their part was consistent with the American ideal of free trade. However, as you know, there is no such kind of approval forthcoming from Japan such that American cars are individually inspected at the border in Japan.

You heard already this morning that the Japanese require retesting. In general, the Japanese do not accept foreign human toxicity test data so that pharmaceuticals and cosmetics must be retested in Japan.

Behind that statement, for those who have to actually perform it, is the understanding that this means one has to lease a section of a laboratory, hire a full-time chemist, translate incredible amounts of data as preliminary steps to the testing in Japan. The price tag on that I was not able to separate, but I do know it is high. This alone would exclude a small trader. The only option would be manufacture in Japan for a small trader.

While I was in Japan-we heard our previous discussant talk about the telephone system-a man came to me who wanted to sell telephonic devices to the Japanese. His device was a pendant which, when squeezed, would trigger an automatic dialing device. This would be useful for fire protection, crime protection, heart attack patients, various uses. The Japanese medical profession was extremely excited about this device. It would allow home care for people who otherwise would have to be institutionalized, and so on. This man has been very successful in California. He showed me testimony that the American Medical Association felt that his device was responsible for thousands of lives saved because of its early warning capability.

He was told at long length, when he finally got to NTT-Nippon Telephone & Telegraph-that they would like to receive his manufacturing and other proprietary information, manufacturing procedures, and so on, before they would begin to consider his application.

At that point he decided, despite the support of the medical community, he would forgo the Japanese market. You see here the