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Cablegate: Demarche Request: Seeking Japanese Engagement In

VZCZCXYZ0009
OO RUEHWEB

DE RUEHC #1288 2912141
ZNR UUUUU ZZH
O P 172134Z OCT 08
FM SECSTATE WASHDC
TO AMEMBASSY TOKYO IMMEDIATE 0000
INFO DEPT OF COMMERCE WASHINGTON DC PRIORITY

UNCLAS STATE 111288

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON ETRD JA
SUBJECT: DEMARCHE REQUEST: SEEKING JAPANESE ENGAGEMENT IN
TKS/GOSS DISPUTE

1. (U) This is an action request. Please see paras 6-10.

----------
BACKGROUND
----------

2. (SBU) In 2003 Goss, a U.S. newspaper printing press
manufacturer, was awarded $31.6 million in a suit filed in
federal district court against its Japanese competitor, Tokyo
Kikai Seisakusho (TKS), under the 1916 Antidumping Act. This
was the only instance in which a judgment was ever rendered
under the antiquated law, which the World Trade Organization
(WTO) had determined in 2000 to be inconsistent with U.S. WTO
obligations. In 2004, Congress repealed the 1916 Act, but
made its repeal prospective, so as not to affect the outcome
of the Goss case. Goss's $31.6 million judgment was
ultimately upheld on appeal in 2006.

3. (SBU) Prior to the U.S. Congress's repeal of the 1916
Antidumping Act, the Japanese Diet in 2004 enacted a statute
known as the "Special Measures Law." The law, a so-called
"claw-back statute," was designed to allow Japanese companies
such as TKS to recover the damages they had lost to American
competitors in lawsuits under the 1916 Antidumping Act by
suing their competitors in Japanese courts. In 2007, the
U.S. Court of Appeals for the Eighth Circuit denied Goss's
request for an injunction to prevent TKS from suing Goss in
Japan under the Japanese claw-back statute. Shortly
thereafter, TKS initiated a lawsuit under the Japanese
"Special Measures Law" against a Goss subsidiary in Japan,
seeking to recover the $31.6 million it had lost to Goss in
the United States. Goss then petitioned the U.S. Supreme
Court to overturn the Court of Appeals decision denying
Goss's request for an injunction. The Supreme Court
solicited the opinion of the Solicitor General on whether it
should consider the case, and the State Department
participated in that process. The USG brief recommended on
balance that the Supreme Court should not hear the case
because, given its unusual facts, the case would not have
broad significance. The Supreme Court in June 2008 rejected
Goss's petition, effectively allowing the case in Japan under
the Japanese claw-back statute to proceed.

4. (SBU) Now that it has no further possibility of remedy in
U.S. courts, Goss has renewed assertions raised in 2004 that
Japan has violated its obligations under the 1953 U.S.-Japan
Treaty of Friendship, Commerce and Navigation (FCN) because
of the Special Measures Law. Goss alleges violations of
treaty obligations relating to national treatment,
most-favored nation treatment, expropriation, and
unreasonable/discriminatory treatment, and suggested that the
Department consider taking the matter to the International
Court of Justice as permitted (if consultations are
unsuccessful) by the FCN Treaty. In September, L, EEB, and
EAP met with Goss to discuss its FCN claims; L is currently
reviewing the issues. Goss has also urged the Department to
use diplomatic pressure to convince Japan to persuade TKS
into settlement talks with Goss.

5. (SBU) There is Congressional support for Goss. In August,
Assistant Senate Majority Leader Durbin and Senators Sununu,
Collins, and Gregg sent a joint letter to Secretary Rice
supporting Goss's FCN Treaty claims and asking that we keep
them informed of our actions. (Note: Goss's headquarters
are in Illinois, and it has a manufacturing plant in New
Hampshire.) Also, on July 31, 2008 Senators Sununu and Gregg
introduced legislation in the U.S. Senate that would allow
Goss to sue TKS in U.S. courts to recover any damages that
Goss or its subsidiary suffers in Japan under the Japanese
claw-back statute. Prospects for passage of similar
legislation in the next session of Congress are unclear at
this time. More recently, in October Senator Sununu expressed
his strong interest in this case in a telephone conversation
with Under Secretary Jeffery, and requested that the State
Department do more to assist Goss.

--------------
ACTION REQUEST
--------------

6. (SBU) Embassy is requested to deliver a demarche to the
Ministry of Economy, Trade, and Industry (METI) at the
highest appropriate level no earlier than Wednesday, October
22 and no later than Friday, October 24 emphasizing the
following objectives:

-- Stress the seriousness of U.S. Government concerns with
respect to the implications of the on-going case under the
Special Measures Law for Japan's obligations under the 1953
Treaty of Friendship, Commerce and Navigation between the
United States and Japan.

-- Discuss the strong level of Congressional interest in this
issue, noting the potential for further litigation should
legislation similar to S.3394 pass in the U.S. Congress.

-- Emphasize the U.S. Government's interest in avoiding an
international dispute over this matter.

-- Noting Goss's desire to negotiate a settlement with TKS,
request the Government of Japan's assistance in encouraging
TKS to enter into settlement discussions with Goss.

(NOTE: The same message will be delivered by Under Secretary
Jeffery to Japanese Ambassador to the United States Ichiro
Fujisaki in Washington on Tuesday, October 21, 2008.)

7. (SBU) In delivering this message, Ambassador or DCM may
draw from the following talking points (NOTE: Embassy is
requested NOT to leave behind a hard copy of these points
with the Government of Japan; a version of points that may be
delivered in hard copy is provided in para 8):

BACKGROUND POINTS:

-- In 2004, the U.S. Government urged the Japanese government
at senior levels not to proceed with approval of Law No. 162
on Special Measures Concerning the Obligation to Return
Profits Obtained Pursuant to the United States Anti-Dumping
Act of 1916.

-- Nonetheless, the Japanese government enacted the law in
2004. The text of that law, and statements made by the
Japanese government at the time, demonstrate that it was
specifically intended to benefit Japanese firm Tokyo Kikai
Seisakusho (TKS), which was involved in a dispute with its
U.S. competitor, Goss International.

-- TKS is currently pursuing a claim under this law in
Japanese court against Goss International and Goss Japan, a
subsidiary of Goss International. TKS seeks to "claw back,"
under the Special Measures Law, in excess of $30 million that
was awarded to Goss International in 2003 by a U.S. court in
a case against TKS under the 1916 Act.

-- The court proceedings in the United States established
that TKS engaged in dumping of printing press machinery with
the intent of destroying or injuring Goss International. A
jury concluded that TKS had violated the 1916 Act and awarded
damages of $32 million to Goss International. That verdict
was upheld on appeal. Because of the intentional dumping
activity of TKS, which was found to have included a
fraudulent price increase, secret anti-competitive rebates,
and intentional destruction of evidence, Goss International
suffered considerable injury.

-- ONLY IF RAISED: Our concern over the injury suffered by
Goss is in no way diminished by the World Trade Organization
(WTO) ruling in 2000 that the 1916 Act was inconsistent with
certain provisions of the WTO Agreement. The United States
repealed the 1916 Act in 2004, and it is the position of the
U.S. Government that this action brought the United States
into conformity with the recommendations and rulings of the
WTO Dispute Settlement Body in this dispute.

U.S. CONCERNS WITH RESPECT TO JAPAN'S TREATY OBLIGATIONS:

-- The Special Measures Law raises serious concerns under the
1953 Treaty of Friendship, Commerce and Navigation between
the United States and Japan. We hope that the Government of
Japan shares the interest of the U.S. Government in ensuring
that our respective companies receive the protections to
which they are entitled under that agreement. It would be in
our governments' mutual interest to avoid international
dispute settlement regarding this matter.

CONGRESSIONAL ACTION IN RESPONSE TO THE CLAWBACK:

-- Unless this matter is resolved, the U.S. Congress may act.
As you may know, a bill (S.3394) has recently been
introduced in the U.S. Senate that would authorize Goss
International to recover, in U.S. court, damages from TKS in
an amount commensurate with any judgment that might be
rendered against Goss International and Goss Japan under the
Special Measures Law. The result could be more litigation in
U.S. courts. This legislation is motivated by the belief
that it is fundamentally unfair to deprive Goss International
of the damages that it was awarded by a U.S. court for the
injury it suffered because of the intentional acts of TKS.

U.S. SUPPORT FOR PRIVATE SETTLEMENT OF THE DISPUTE:

-- Goss International has advised the U.S. Government that it
continues to be interested in discussing with TKS a
settlement of this matter. We hope that the Government of
Japan shares the view of the United States that settlement of
this matter would be in the best interests of all concerned.
It would spare the time and expense of current and
prospective litigation and would remove an irritant in our
bilateral relations at a sensitive time, as a new U.S.
administration will soon take office.

-- We therefore request the assistance of the Government of
Japan in urging TKS to take action now to engage with Goss
International to discuss these matters. We stand ready to
work with your government to facilitate that process.

8. (SBU) In delivering the demarche, Embassy is requested to
leave behind a copy of the following points as a non-paper:

-- In 2004, the U.S. Government urged the Japanese government
at senior levels not to proceed with approval of Law No. 162
on Special Measures Concerning the Obligation to Return
Profits Obtained Pursuant to the United States Anti-Dumping
Act of 1916.

-- Nonetheless, the Japanese government enacted the law in
2004. The text of that law, and statements made by the
Japanese government at the time, demonstrate that it was
specifically intended to benefit Japanese firm Tokyo Kikai
Seisakusho (TKS), which was involved in a dispute with its
U.S. competitor, Goss International.

-- TKS is currently pursuing a claim under this law in
Japanese court against Goss International and Goss Japan, a
subsidiary of Goss International. TKS seeks to "claw back",
under the Special Measures Law, in excess of $30 million that
was awarded to Goss International in 2003 by a U.S. court in
a case against TKS under the 1916 Act.

-- The court proceedings in the United States established
that TKS engaged in dumping of printing press machinery with
the intent of destroying or injuring Goss International. A
jury concluded that TKS had violated the 1916 Act and awarded
damages of $32 million to Goss International. That verdict
was upheld on appeal.

-- In considering this matter, including equitable
considerations of fairness, it is important to keep certain
factors in mind.

-- In upholding the jury verdict against TKS and denying
TKS's motion for a new trial, the U.S. District Court for the
Northern District of Iowa stated in its decision (copy
attached), among other things, the following regarding the
conduct of TKS:

"The jury further heard evidence at trial that TKS agreed to
a fraudulent price increase and secret $2.2 million rebate to
keep the DMN (Dallas Morning News) from purchasing the two
towers from Goss in 1996."

"The jury was also presented with evidence that TKS and its
counsel engaged in a concerted effort to conceal the secret
rebates."

" . . . Mr. Saito (TKS's counsel) . . . urged TKS (USA) to
falsify its business records . . ."

"There was also evidence presented at trial that TKS and its
counsel attempted to destroy documents to conceal the secret
rebates."

"When TKS employees committed the secret rebate agreement
with the DMN to a signed, written agreement, TKS executives
Mr. Morimoto and Takehiro Fukuyama stated that 'there should
not be such a document' and ordered that copies of the
document 'must be collected and destroyed.'"

-- On the basis of information that was presented during the
trial, the U.S. Department of Commerce reconsidered its prior
administrative review determination of an antidumping duty
order wherein TKS presented false information to the agency.
The Commerce Department presently is reconsidering its prior
"sunset" review determination, which resulted in revocation
of the antidumping duty order.

-- As you may know, the U.S. Supreme Court recently declined
to hear an appeal by Goss International of a ruling by the
U.S. Court of Appeals for the Eighth Circuit that invalidated
an antisuit injunction against TKS that had been issued by
the district court. That injunction prevented TKS from
proceeding with its lawsuit in Japan under the Special
Measures Law.

-- In its amicus curiae brief to the Supreme Court (copy
attached), the U.S. Department of Justice cited numerous
errors by the court of appeals, including the deference that
the court of appeals gave to the Special Measures Law under
principles of comity:
"As a law specifically designed to overturn a final judgment
entered by a court that clearly possessed jurisdiction and
was implementing the law of its nation with respect to
conduct and harm occurring within the territorial
jurisdiction of that nation, the Special Measures Law is
itself in considerable tension with general notions of
international comity, and thus should not have received full
weight in the comity analysis."

-- However, the Justice Department advised the Supreme Court
that, on balance, in light of the unusual facts of the case,
the likelihood that they would never recur, and the absence
of a serious split among the circuits, further review of the
case by the Supreme Court was not warranted.

-- The Government of Japan should not misunderstand the
recommendation made in that brief, however. It does not
signify that the U.S. Government has acquiesced to the
Special Measures Law or the ongoing litigation in Japanese
court against Goss International and its Japanese subsidiary.

-- The Special Measures Law raises serious concerns under the
1953 Treaty of Friendship, Commerce and Navigation between
the United States and Japan, including provisions that
guarantee that the Government of Japan will treat U.S.
investors in a reasonable and non-discriminatory fashion, and
that require that the GOJ refrain from expropriation of the
property of U.S. companies without just compensation. We
hope that the Government of Japan shares the interest of the
U.S. Government in ensuring that our respective companies
receive the protections to which they are entitled under that
agreement. It would be in our governments' mutual interest
to avoid international dispute settlement regarding this
matter.

-- Unless this matter is resolved, the U.S. Congress may act.
As you may know, a bill (S.3394) has recently been
introduced in the U.S. Senate that would authorize Goss
International to seek to recover, in U.S. court, damages from
TKS in an amount commensurate with any judgment that might be
rendered against Goss International and Goss Japan under the
Special Measures Law. The result could be more litigation in
U.S. courts. This legislation is motivated by the belief
that it is fundamentally unfair to deprive Goss International
of the damages that it was awarded by a U.S. court for the
injury it suffered because of the intentional acts of TKS.

-- Goss International has advised the U.S. Government that it
is prepared to discuss with TKS a settlement of this matter.

-- A settlement would be in the best interests of all
concerned. For one thing, we are worried about the
implications of this case for our economic relationship at a
sensitive time for both our governments. As you well know, a
new President will take office in the United States next
year; in order to maximize our bilateral engagement under the
new administration, we would be well served to preemptively
address irritants such as this case. In addition, a
settlement would preclude the need for further litigation in
domestic courts or international tribunals.

-- We therefore request the assistance of the Government of
Japan in urging TKS to take action now to engage with Goss
International to discuss these matters. We stand ready to
work with your government to facilitate that process.

-- The first few months under our new U.S. President will be
crucial in setting the tone for our bilateral economic
engagement in the years ahead. We would like to keep
relations on as positive a trajectory as possible.

9. (U) Embassy is also requested to provide, along with the
non-paper points provided in para 8, the following documents,
which have been sent via unclassified e-mail to Robert
Cekuta, David DiGiovanna, and Chin Han-Quinlan: a) the
District Court's decision in the case of Goss vs. TKS; and b)
the brief of the U.S. Government to the Supreme Court
concerning the case of Goss vs. TKS.

10. (U) Please report back the results of the demarche via
front-channel cable no later than Monday, October 27.

11. (U) Department appreciates Embassy's assistance in this
matter.
RICE

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