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Cablegate: The Japan Economic Scope - Economic News at-A-

VZCZCXRO6145
RR RUEHFK RUEHKSO RUEHNAG RUEHNH
DE RUEHKO #5728/01 2750548
ZNR UUUUU ZZH
R 020548Z OCT 06
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC 6984
RHEHAAA/WHITE HOUSE WASHDC
INFO RUEHFR/AMEMBASSY PARIS 5042
RUEHOK/AMCONSUL OSAKA KOBE 1625
RUEHKSO/AMCONSUL SAPPORO 9343
RUEHNAG/AMCONSUL NAGOYA 7981
RUEHFK/AMCONSUL FUKUOKA 8260
RUEHNH/AMCONSUL NAHA 0808
RUCPDOC/USDOC WASHDC

UNCLAS SECTION 01 OF 06 TOKYO 005728

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E.O. 12958: N/A
TAGS: ETRD ECON JA ZO EAGR
SUBJECT: The Japan Economic Scope - Economic News At-A-
Glance.

Sensitive but unclassified. Please protect accordingly.

1. (SBU) Table of Contents

3 - Abe's Conservative Cabinet
4 - GM Rice Creates Stir with GOJ
5 - Possible Resumption of Civair Negotiations in November
6 - New ANRE Head Bullish on New METI Minister
7 - U.S. Beef a Hot Item
9 - North Korean Supernotes Seized in Western Japan
11 - Governor Kimura questioned over alleged bid-rigging
(dango)in Wakayama Prefecture
13 - More Energy Security Woes
14 - New METI Minister to Continue to Press Iran, China
16 - JETRO Agrees on Need to "Push Hard" on China IPR
Issues
17 - ANRE's Arima looking for Support for IEA Candidate,
Beijing Energy Ministerial
18 - MOFA Works to Improve Economic Relationship with India
19 - Osaka Bay's 4 major ports strive for integration
20 - Central Japan JETRO Incubating New Firms and Coddling
the Old
21 - Central Japan's Economy Surges
22 - APEC Conference on FTAs
24 - Prefectures in the Kansai have high brand value

2. (U) The Japan Economic Scope (JES) is a weekly e-
newsletter produced by Embassy Tokyo's ECON section in
collaboration with other sections and constituent Posts and
published every Friday. It provides a brief overview of
recent economic developments, insights gleaned from
contacts, summaries of the latest cables and a list of
upcoming visitors. This cable contains the September 29,
2006 JES, minus the attachments that accompany many of the
individual stories in the e-mail version. To be added to
the e-mail list, please email ProgarJ@state.gov.

Abe's Conservative Cabinet
--------------------------

3. (SBU) On September 26 newly elected Prime Minister
Shinzo Abe announced his Cabinet. In general, he made
conservative choices and included many politicians with
whom he has close relations as well as those who actively
supported his campaign. For a complete list of Cabinet
Ministers and their biographies please see Tokyo 5600.

GM Rice Creates Stir with GOJ
-----------------------------

4. (U) The Embassy has been working with Japanese
authorities to minimize the damage done after a strain of
GM modified long grain rice was found in the United States.
The problem potentially could have a major effect on U.S.
food exporters who are being asked by the GOJ to prove that
the GM strain is not in their products. For more, please
see Tokyo 5695 (classified).

Possible Resumption of Civair Negotiations in November
--------------------------------------------- ---------

5. (SBU) EMIN met with MLIT Civil Aviation Bureau DDG
Maeda on September 26. Maeda agreed to our proposal to
resume talks on liberalizing the bilateral civil aviation
market during the week of November 6, as long as the
meeting take place in Tokyo. While recognizing the 1998
agreement's commitment to work toward full liberalization,
Maeda warned that a discussion on full liberalization would
immediately and unconstructively be dragged into the Narita
slots morass. As such, he recommended that negotiators
work on issues that both sides can agree to now. Maeda
added that he differed both in terms of content and tactics
with his predecessor's approach at the last session. He
stated he looks forward to working with the U.S. and
offered, as consolation, that his predecessor didn't get
along with any foreigners, having earned his Chinese
counterpart's lasting enmity due to the contemptuous

TOKYO 00005728 002 OF 006


treatment he displayed. Maeda noted that a lot of his time
is spent on Narita privatization which is to happen in
2008. Regarding a September 23 Nikkei article on proposed
limits on foreign investment in the privatized airport,
Maeda acknowledged that caps of 25% or 33% are being
considered on national security grounds. Maeda forecast
that a privatized Narita would not necessarily result in an
increase in flights. Current operations are profitable and
the costs of negotiating with the remaining farmer or with
neighboring communities on the cap on daily flights too
high.

New ANRE Head Bullish on New METI Minister
------------------------------------------

6. (SBU) EMIN paid a courtesy call on new Director General
of the Agency for Natural Resources and Energy (ANRE)
Harufumi Mochizuki during which Mochizuki expressed his
pleasure over the appointment of Akira Amari as head of the
Ministry of Economy, Trade and Industry (METI). Mochizuki,
who is a friend of Amari, said that Amari may have minimal
overseas experience, but he is fair and has a good
international sense. Amari knows METI very well, having
previously served as the head of the LDP's commerce and
industry committee. Mochizuki also took the opportunity to
reiterate Japan's desire to see Nobuo Tanaka become the
next head of the International Energy Agency (IEA).
Mochizuki thought the media had overblown the situation
surrounding the environment permit for Russia's Sakhalin 2
and that the Russian Ambassador had assured then METI
Minister Toshihiro Nikai that Russia had no interest in
halting the project. Mochizuki told EMIN that he had
accompanied then Prime Minister Koizumi on his trip to
Kazakhstan and Uzbekistan and that it was the only time
Koizumi had done anything with METI while prime minister.
Mochizuki also commented on the gross disparity in income
between Kazakhstan and Uzbekistan and said it was
attributable to the different economic policies of their
leaders. Mochizuki's most recent position was as head of
the Small and Medium Enterprise Agency but he said that his
life's work has been energy.

U.S. Beef a Hot Item
--------------------

7. (U) While the image of U.S. beef has benefited from a
series of recent marketing and public relations activities,
the availability of age-verified beef is emerging as the
biggest constraint on sales in Japan. On September 18,
Yoshinoya, a national fast food chain and historically
Japan's biggest importer of U.S. beef, re-launched its
famous beef bowl to crowds of waiting customers.
Ambassador Schieffer received extensive, front page
coverage for his participation in the campaign. In Nagoya,
the Principal Officer waited for almost an hour for the re-
launch at a Yoshinoya restaurant. On September 19, Sakai,
Japan's largest Korean barbecue chain, also announced that
it was again serving U.S. beef.

8. (U) The U.S. Meat Export Federation is in the midst of
its nationwide "Beef Caravan tour aimed at regaining the
trust of the meat trade. The result is that a shift in the
image of U.S. beef appears to have begun and sales are
brisk. However, the limited supply of U.S. cattle 20
months or under is leading the U.S. industry to offer cuts
not traditionally sold in Japan. FAS is forecasting that
2007 beef imports will be about $700 million, or one-third
of the pre-ban level.


North Korean Supernotes Seized in Western Japan
--------------------------------------------- --

9. (SBU) On September 23, Kobe Customs officials and
Tottori Prefectural Police took the unusual measure of
raiding a DPRK-flagged freighter at the port of
Sakaiminato, Tottori Prefecture in Western Japan after two

TOKYO 00005728 003 OF 006


counterfeit super-K 100 USD notes were discovered in an
undeclared cash transaction between the captain and an
ethnic Korean broker. Authorities discount the possibility
that this was a case of deliberate money laundering, and
more likely a case of contaminated money supply. No other
contraband was found on board.

10. (SBU) The episode highlights the problems with Japan's
ad hoc trading system with the DPRK and lack of
governmental control of Japan's ports and harbors. For
Sakaiminato, whose small economy is dependent on DPRK
marine product imports, it is a case of the negative
externalities from the nearby port of Maizuru's refusal to
offload DPRK vessels following the July 5 DPRK missile
launches in the Japan Sea. Maizuru and Sakaiminato are the
top two ports for the Japan-DPRK trade. For more details,
please see Osaka 000526.

Governor Kimura questioned over alleged bid-rigging (dango)
in Wakayama Prefecture
----------------------

11. (SBU) Special Investigations Department of the Osaka
Public Prosecutor's Office is investigating a joint venture
(JV) between Wakayama Prefectural Government and Hazama
Corporation (a major construction company) on suspicion of
bid-rigging on a tunnel renovation public works project.
An Osakan golf course owner close to Governor Kimura and
other high level prefectural officials is alleged to have
received 60 million yen for passing information on the
project to the firm.

12. (SBU) A drop in public works projects has led to a
serious hit in employment and public revenues in local
rural economies in Western Japan where other forms of
economic activity have not recovered from the collapse of
the bubble economy 15 years ago, including Wakayama. As a
result, local construction companies appear to have become
more aggressive in trying to secure public projects by any
necessary means, including malfeasance.

More Energy Security Woes
-------------------------

13. (SBU) The Japanese press reported Friday that
Indonesia, Japan's main source for liquefied natural gas
(LNG), has decided to significantly reduce LNG exports to
Japan. Japanese companies such as Tokyo Gas and Kansai
Electric Power have a number of long-term contracts that
will expire between 2010 and 2011 and the companies have
been unable to secure new contracts for similar amounts of
gas. Japan faces a reduction of more than 10 percent of
its overall LNG imports. Japan has long been the world's
largest importer of LNG but China, South Korea, India and
Indonesia have all increased consumption on the back of
economic growth. Japan is faced with losing not only its
Indonesian LNG supply but possibly its Russian supply as
well as uncertainty continues to swirl around whether
Russian authorities will halt the Sakhalin2 project over
environmental violations.

New METI Minister To Continue to Press Iran, China
--------------------------------------------- -----

14. (SBU) Newly appointed Minister of Economy, Trade and
Industry Akira Amari told a group of reporters on Tuesday,
September 27, that it was vital for Tehran to accept United
Nations calls to stop its uranium enrichment. In the
meantime, the September 30 deadline looms for negotiations
between Japan and Iran over the Iranian oil field Azadegan,
but Amari said he thought discussions should continue and
that he believed Iran also intended to continue the talks
past the end of September.

15. (SBU) On a related note, Amari said he would continue
to urge China to agree to joint development of oil and
natural gas in the East China Sea. He lamented, however,

TOKYO 00005728 004 OF 006


that the negotiations would be extremely tough because
China's proffered area for joint development differed from
Japan's.

JETRO Agrees on Need to "Push Hard" on China IPR Issues
--------------------------------------------- ----------

16. (SBU) In a courtesy call by Embassy EMIN, Japan
External Trade Organization (JETRO) chairman Osamu Watanabe
said he supports strong efforts to push China to clean up
its IPR situation. Among Japanese government entities,
JETRO probably is most familiar with the Chinese IPR
situation and recently provided detailed information on
Chinese counterfeiters to U.S. Customs. Watanabe said
JETRO has a multi-prong approach to the issue, including
aggressive identification of violators, "daily"
interaction with China's Directorate General of Customs and
an active program of education and capacity building of
China's IPR enforcement agencies. Watanabe said he has
noticed an increasing positive reaction to Japan's
complaints from China's officialdom when he has met with
senior Ministry of Commerce and Customs officials. He
thought this was, in part, because Chinese companies
themselves were starting to be hurt by IPR infringement.
Watanabe responded positively to EMIN's suggestion that the
U.S. was considering bringing a WTO case against China
noting, "China has been in WTO for five years now, they
have to learn to play by the rules." He stopped short,
however, of saying he thought Japan's should join a U.S.-
led WTO case.

ANRE's Arima looking for Support for IEA Candidate, Beijing
Energy Ministerial
------------------

17. (SBU) Newly appointed Director of the International
Affairs Division at the Agency for Natural Resources and
Energy (ANRE) Jun Arima reiterated the GOJ's request that
USG support the appointment of Nobuo Tanaka as the new head
of the International Energy Agency (IEA) in Paris. Arima
was anxious to see the Beijing Energy Ministerial,
scheduled for October, be followed by substantive working-
level meetings. He is also concerned about Russia's
increasing power from energy sales. For a complete readout
of this meeting please see the attached cable.

MOFA Works to Improve Economic Relationship with India
--------------------------------------------- ---------

18. (SBU) Tokyo 5574 (classified) reports on recent GOJ
efforts to upgrade its bilateral economic relationship with
India, including a joint study group's June recommendation
that the two countries launch negotiations for an Economic
Partnership Agreement and an August reorganization of the
Ministry of Foreign Affairs (MOFA) to devote more working-
level and senior attention to Southwest Asia. India's
status as a top recipient of Japanese aid, as well as its
increasingly vibrant trade relations with China, have set
the stage for the diplomatic efforts.

Osaka Bay's 4 major ports strive for integration
--------------------------------------------- ---

19. (U) The Osaka Bay Port Promotion Council was
established on September 4 to try to integrate the 4 major
ports of Osaka Bay into a single port. These ports are the
Port of Osaka, managed by Osaka City, the Port of Kobe,
managed by Kobe City, Sakai Semboku Port, managed by Osaka
Prefecture, and the Port of Nishinomiya Ashiya, managed by
Hyogo Prefecture. Currently, ships making multiple stops
in Osaka Bay have to pay tonnage and other taxes to each
port, but the Council is aiming to change to a single fee
system in 2007. If successful, it will be the second case
in Japan, following Keihin Port, which was created from the
separate ports of Tokyo and Yokohama. The Council consists
of Osaka City Port and Harbor Bureau, Kobe City Port and
Harbor Bureau, Kinki Regional Development Bureau, and the

TOKYO 00005728 005 OF 006


Harbor Bureau from MLIT. The Kansai economy has a higher
ratio of trading business than the Japanese average, so
Kansai business leaders are strongly in favor of swift
integration.

Central Japan JETRO Incubating New Firms and Coddling the
Old
---

20. (SBU) At a September 21 courtesy call on Nagoya PO,
newly arrived JETRO Nagoya Chief Director Hiroki Matsumoto
described his three top priorities as inbound FDI,
promoting exports from regional small and medium-sized
firms in "traditional" industries, and venture capital firm
incubation. Matsumoto explained that JETRO's three
incubation centers in Boston, Chicago, and San Francisco
contract with American consultants to provide free space
and advice to small Japanese firms hoping to develop
products and attract capital, primarily in the IT and
biotech sectors. At the same time as promoting tomorrow's
potential winners, JETRO is also working to support today's
losers, helping regional firms in traditional but shrinking
sectors like ceramics and textiles find new markets.
Despite the booming regional economy in other fields such
as autos and aerospace, firms in "traditional" sectors in
Central Japan, as in the rest of the country, continue to
struggle.

Central Japan's Economy Surges
------------------------------

21. (U) The Central Japan economy continues to hum along,
although there is some concern that regional labor
shortages and a possible rise in the yen could dampen
future growth. That is what chiefs of the Nagoya branches
of the Bank of Japan and METI told the Principal Officer on
September 20. For more on their discussions, please see
attached cable.

APEC Conference on FTAs
-----------------------

22. (U) A Conference we attended at Aoyama Gakuin
University September 27 on regional architecture was
largely a review of where Japan and the region are to date
with all the bilateral and multilateral FTAs being
negotiated. In general, no one thought that regional
economic integration was going to advance quickly, because
economies were not going to make concessions on a regional
basis that they would not make in the WTO. Some of the
highlights included Chairman Kitashiro of the Japan
Association of Corporate Executives (Keizai Doyukai) saying
good things about the need for further reform domestically
in Japan, including in the agricultural sector, but also
pushing hard for an ASEAN+3 FTA. Simon Tay of the
Singapore Institute of International Affairs basically
chastized the Japanese for failing to take real leadership
of the regional integration process.

23. (U) Andrew Elek of Australian National University said
that the structure of current FTAs in the region -- in
particular, restrictive rules of origin -- prohibited their
easy combination into a larger pan-East Asia or pan-APEC
agreement. He said sensitive trade issues are better
discussed in the context of the WTO. Kim Heungchong of the
Korea Institute for International Economic Policy called
the latest rounds of KORUS negotiations "disappointing" and
highlighted the growing domestic opposition in Korea to the
proposed FTA. Ruan Zongze of the Chinese Foreign
Ministry's Institute of International Relations said a big
reason for APEC's declining popularity in the region was
the excessive emphasis of the United States on security
issues. APEC needed to get back to its trade and
investment roots.

Prefectures in the Kansai have high brand value
--------------------------------------------- --

TOKYO 00005728 006 OF 006

24. (U) According to Nikkei Research, 4 of the Kansai's
prefectures (Kyoto, Osaka, Hyogo, and Nara) are ranked in
the top 10 prefectures for high commercial brand value
among Japan's 47 prefectures. The study was made based on
the value of local commercial products, popularity, local
services both for local residents and tourists, and how the
place names can be utilized for business. Nara Chamber of
Commerce and Industry, visited recently by ConGen econoff,
commented that it shows that the Kansai needs to contribute
more to the GOJ "Visit Japan" campaign and to consider
tourism a core industry, and that business leaders and
heads of local governments in Kansai have to work harder to
coordinate plans for regional tourism development.

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