Land of the Rising Trade Barrier

The U.S. software industry is preparing a defense against a Tokyo proposal that could jeopardize billions in U.S. exports to

Under the Software Quality System Registration scheme advanced by the Japan Accreditation Board, software companies would voluntarily submit their work to a quality review by a panel of auditors as early as September. The proposal builds on the widely used ISO 9000 standards, created by the International Standards Organization to grade production lines for hardware, such as machine tools. The JAB administers the voluntary ISO 9000 standards in Japan.

The proposal "has the potential to expose sensitive technology and know-how,... significantly increase the cost and time-to-market for software products, and could result in a major loss of market share for U.S. information technology products," according to John Stern, a Tokyo-based vice president of the American Electronics Association.

If enacted, the quality requirement would erect a barrier to U.S. software exports, said Bill Hanrahan, director of technology for the Washington-based Information Technology Industry Council. "It's a difficult issue.... It does not help feelings between the U.S. and Japan in the [auto-parts] negotiations," he said. "We are very concerned by what the Japanese are up to.... [It is] an attempt to bolster the domestic industry at the cost of U.S. industry," said an official in the office of the U.S. Trade Representative.

The Japanese market for shrink-wrapped software is growing at roughly 11 percent per year, and is expected to reach $15 billion by 2000. In 1994, U.S. companies sold $2.7 billion of shrink-wrapped software in Japan.

For example, Microsoft Corp.'s Excel product won 40 percent of the Japanese market for spreadsheets, while Lotus Development Corp.'s Lotus 1-2-3 won 21 percent of the market. Total U.S. exports to Japan amount to $26 billion in 1994.

But the JAB proposal covers much more than shrink-wrapped software sales in Japan, said Stern. Software animates many high-tech products such as car engines, microwave ovens, computer chips, computer games and aircraft flight controls, he said. Including those items, the JAB proposal could affect $70 billion in business, he said.

Although Japanese officials say the planned standards will be voluntary, "U.S. industry believes that the Japanese government and certain monopoly buyers such as [the government-backed phone company] may be induced by JAB and Japan's Ministry of International Trade and Industry to require adherence to the software standards for companies wishing to sell to them," creating a de facto standard, said Stern.

Some Japanese companies oppose the JAB proposal because they would also be required to submit their software for review, said Stern. But the Japanese companies "want to keep a low profile," said Hanrahan.

To head off the JAB proposal, U.S. industry officials met with JAB officials in April. Also, Hanrahan said they've begun to build an international coalition against the proposal, and have met with officials in the office of the U.S. Trade Representative. "We're trying to resolve the issue without elevating it to the ministerial level," said an official in the office. The office is the lead agency in the controversial effort to overcome Japanese trade barriers that hinder sales of U.S. auto parts to Japan. The trade barriers contributed to a $37 billion auto-related trade gap in 1994, Trade Representative Mickey Kantor said May 10. A JAB-like scheme in the United Kingdom is of less concern to U.S. industry, because it is not enforced, said Hanrahan. The Business Software Alliance, a lobbying group of eight major U.S. software companies, also is less alarmed by a European effort to establish a quality scheme for all high-tech products. But "we are in doubt about the motive [of the Japanese].... They've singled out software," said Diane Smiroldo, an alliance spokeswoman.

The industry's past inattention to non-tariff trade barriers has hurt U.S. companies, even in Europe. IBM was forced to spend $300 million to certify that its systems adhered to a manufacturing quality scheme called ISO 9000, endorsed by the European Community in 1991. And the American National Standards Institute, during an industry conference on standards earlier this year, emphasized the need to focus the U.S. Trade Representative more on non-tariff trade barriers.

Although there are many voluntary software standards backed by the U.S. government, there are no quality standards such as those being proposed by JAB. The government-sponsored Software Engineering Institute, based at Carnegie-Mellon University, Pittsburgh, Pa., has developed a Capability Maturity Model, which can be used by software developers to improve their software development process.