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JAPAN NETWORK CHANNEL TERMINATING EQUIPMENT AGREEMENT

What is this Agreement and what does it do?

Who benefits from this Agreement?

How can this Agreement help my company?

Can the U.S. Government help me if I have a problem?

How can I get more information?

What is this Agreement and what does it do?

The U.S. and Japan entered into the 1990 Network Channel Terminating Equipment (NCTE) Agreement on July 31, 1990 because NTT, as Japan's incumbent and virtual monopoly provider five years after privatization, was requiring customers to purchase equipment conforming to its proprietary standards. For example, customers were required to buy modems for high-speed Internet access from NTT or its partners who co-developed the equipment. The Agreement was designed to encourage competition by requiring advance notice of technical specifications and non-discriminatory approval processes.

The Agreement is in the form of an exchange of letters between the two governments. The responsible ministry for Japan is the Ministry of Internal Affairs and Communications, or MIC (formerly known as the Ministry of Posts and Telecommunications (MPT)). The governments agreed to meet at the request of either party to discuss issues related to the implementation of the policies and procedures in the Agreement.

Since 1990, the number of Internet providers in Japan has increased exponentially along with the proliferation of new technologies (e.g., DSL or fiber to the home). Additionally, the number of Type I carriers (who own networks and related facilities) has increased, and NTT East and West (regional carriers) were designated as dominant carriers with asymmetrical regulation in 2001. As competition intensified and Japanese providers rushed to offer increasingly faster broadband services, the lead-time for product development shortened. Companies found they were hampered by the Agreement's six-to-twelve month lead time for technical specifications and its coverage of all Type I Carriers, and asked for revision of those terms in order to adapt to the new market structure.

In June 2004, the U.S. and Japanese Governments agreed upon revised procedures, under the condition that the Agreement would expire in FY2006 unless interested parties introduce sufficient evidence to demonstrate a continued need for the revised Agreement. The revised procedures were published in the Third Annual Report to the Leaders under the U.S.-Japan Regulatory Reform and Competition Policy Initiative.

Who benefits from this Agreement?

Any U.S. equipment manufacturer interested in selling NCTE in Japan, as a supplier to a service provider or directly to the customer, can benefit from this Agreement. The revised Agreement favors the use of international standards.

How can this Agreement help my company?

This Agreement ensures that companies can obtain the technical requirements needed to manufacture NCTE (also known as "customer premise equipment"), which connects digital circuit facilities and other terminal equipment for digital communications. The obligations within the 1990 Agreement applied to services offered by "Type I Carriers," a category generally defined as those that own network facilities rather than operating through leased circuits. The original Agreement stipulated that the functional specifications for NCTE be provided between six months to a year in advance of launching a new service.

In June 2004, this Agreement was modified by the U.S. and Japanese Governments in the following three fundamental provisions:

1) Scope of carriers: Instead of covering all Type I Carriers, the obligations apply only to the designated dominant carrier(s). Currently, this refers to regional carriers NTT East and NTT West, and mobile operator NTT DoCoMo.

2) Scope of information disclosure: If the carrier relies on standardized specifications, it is only obligated to disclose the standardized specification it is using. This gives the carriers an incentive to utilize standardized interfaces for new services.

3) Term of disclosure of technical specifications: The period for advance disclosure was shortened to three months in order to allow for more rapid rollout (e.g., improved speeds for internet access), while balancing the need for consumer choice in NCTE.

The 2004 modifications did not affect other fundamental provisions, which remain in effect as originally agreed. Specifically, the regulator (MIC) must ensure that carriers provide the technical specifications to manufacturers in a non-discriminatory manner and that carriers do not impose restrictions on their customers' choice of NCTE. Furthermore, the Japan Approvals Institute for Telecommunications Equipment (JATE) will process conformity assessments for such equipment in a non-discriminatory manner.

As part of the modifications, the Japanese Government agreed to solicit opinions from interested parties (i.e., manufacturers, service providers, etc.) regarding the revised procedures and obligations. However the Agreement, as modified, will expire in April 2006, "unless sufficient evidence demonstrating the continued need for these revised procedures is introduced." If your company experiences problems with NTT not complying with the amended Agreement and/or your company determines that the Agreement can still play a beneficial role in ensuring a transparent and non-discriminatory market, please notify the U.S. Government (see below) and MIC.

Can the U.S. Government help me if I have a problem?

Yes. If your company is experiencing difficulties exporting under this Agreement, contact the Office of Trade Agreements Negotiations and Compliance at the U.S. Department of Commerce. The Center can help you understand your rights under this Agreement, and it can activate appropriate U.S. Government resources to make official inquiries with Japanese authorities that could help you resolve problems you may have encountered.

Since the Agreement will expire unless evidence is presented regarding its necessity, if your company has determined there is a continued need for this Agreement, please submit evidence to the Japanese Government and notify the U.S. Designated Monitoring Officer (contact information below). It is expected that MIC will hold a public comment period to seek opinions in a transparent manner.

How can I get more information?

The complete text of the U.S.-Japan NCTE Agreement is available on the Office of Trade Agreements Negotiations and Compliance's website.

If you have any questions about this Agreement or how to use it, you can e-mail the Office of Trade Agreements Negotiations and Compliance (TANC), which will forward your message to the Commerce Department's Designated Monitoring Officer for the Agreement. You can also contact the Designated Monitoring Officer at the following address:

Designated Monitoring Officer

U.S.-Japan Network Channel Terminating Equipment Agreement

Office of Technology and Electronic Commerce

U.S. Department of Commerce

14th Street & Constitution Avenue, NW

Washington, D.C. 20230

Phone: (202) 482-6083

Fax: (202) 482-5834

The Designated Monitoring Officer can also provide you with useful trade leads and contacts.

You can obtain additional information by visiting the following websites in the International Trade Administration of the Department of Commerce:

The Office of Japan Home Page. This office helps U.S. companies that encounter market access barriers in Japan. Its website contains information on market entry strategies as well as information on Japan's telecommunications market.

The U.S. Commercial Service, American Embassy, Tokyo. The American Embassy in Tokyo helps U.S. companies enter the Japanese market and expand their sales.

The Office of Technology and Electronic Commerce Home Page

Located in the International Trade Administration, the Office of Technology and Electronic Commerce (OTEC) helps U.S. companies increase international sales and overseas business opportunities in the information technology sectors of computers, networking, software, microelectronics, telecommunications, instrumentation, and Internet and e-commerce technologies by conducting market research, providing trade-related information, and promoting fair international trade.