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Cablegate: The Japan Economic Scope Q- Economic News At-

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RR RUEHFK RUEHKSO RUEHNAG RUEHNH
DE RUEHKO #6294/01 3032245
ZNR UUUUU ZZH
R 302245Z OCT 06
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC 7888
RHEHAAA/WHITE HOUSE WASHDC
INFO RUEHFR/AMEMBASSY PARIS 5095
RUEHOK/AMCONSUL OSAKA KOBE 2017
RUEHKSO/AMCONSUL SAPPORO 9684
RUEHNAG/AMCONSUL NAGOYA 8294
RUEHFK/AMCONSUL FUKUOKA 8627
RUEHNH/AMCONSUL NAHA 1150
RUCPDOC/USDOC WASHDC

UNCLAS SECTION 01 OF 07 TOKYO 006294

SIPDIS

SIPDIS

SENSITIVE

DEPT PASS USTR

PARIS PLEASE PASS USOECD

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

Sensitive but unclassified. Please protect
accordingly.

1. (SBU) Table of Contents

3. Keidanran Signals Renewed Opposition to Foreign
Triangular Merger
4. Japan Ag: More Talk About Reform?
5. Unblocking Beef in Japan's Pipeline
6. Japan's Annual Southern Bluefin Tuna Catch Halved
7. Azadegan: EMIN Calls on METI, MOFA to Discuss
Contract Change
8. Sakhalin 2 Partner Confident Project Will Not Be
Canceled
9. Kyushu Making Biomass Environmental Friendly Ahead
of New Restrictions
10. Mutual Recognition Agreement Talks Resume in Tokyo
11. Wal-Mart Makes A Go Of It In Japan (U)
12. Motion Picture Association Chairman Dan Glickman
Visits Japan (SBU)
13. Labor Legislation Slated for 2007 Diet Despite
Little Progress in Negotiations (SBU)
14. A380 Unlikely to Have Large Impact on Japanese
Airports (SBU)
15. Shimizu Port: 7th Largest in Japan, and Shizuoka
Airport Plans (U)

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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 October 27, 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.

3. (SBU) Keidanran Signals Renewed Opposition to
Foreign Triangular Merger
-------------------------

According to recent media reports, Keidanren is
gearing up to oppose GOJ plans to finalize rules
allowing foreign triangular mergers.

In an October 20 Yomiuri article, Keidanren VP
Miyahara is quoted as saying the Federation is urging
the GOJ to adopt "stricter" regulations of mergers
using foreign stock, specifically asking that stocks
used must be listed on Japanese exchanges.

METI officials responsible for promoting investment
met with Embassy officials on October 23 to express
their concerns about this development and urge us to
lobby Diet members and LDP officials more actively.

METI met separately with EU diplomats and U.S. and
European business groups to deliver the same message.

Embassy is coordinating with the American Chamber of
Commerce Japan (ACCJ) and EU colleagues on an advocacy
strategy emphasizing the damage to Japan's FDI climate
if Keidanren's proposal is accepted.

We will also raise this as our top agenda item at the
next bilateral Investment Working Group meeting set
for October 31.

ACCJ and the European Business Council issued a
strongly worded joint press statement on October 27
opposing Keidanren's position (see:
http://www.accj.or.jp/).

4. (U) Japan Ag: More Talk About Reform
---------------------------------------

TOKYO 00006294 002 OF 007

According to press reports, some members of Prime
Minister Abe's Council on Economic and Fiscal Policy
(CEFP) are clamoring to break up elements of Japan
Agriculture (JA), the pillar of the country's
protectionist farm sector.

An unidentified Council member told reporters that he
would favor breaking off JA's banking and insurance
businesses from its other more traditional agriculture
cooperative services, including marketing of
agriculture products and sales to farmers of material
and equipment.

The banking and insurance businesses make money for JA
and in effect cross-subsidize some of its other
activities.

There has been talk of such reform in the past, but
little progress to show for it. Restructuring JA
would be touching a third rail for LDP politicians --
many of whom have made careers out of pandering to
farm sector interests.

When asked by reporters about the anonymous suggestion
to restructure JA, new Agriculture Minister Toshikatsu
Matsukoka showed little stomach for pushing sweeping
reforms, claiming to be more interested in
"streamlining" JA's inefficient distribution system.

The success of the ruling coalition last year in
passing land mark postal privatization reform,
however, may have prompted the CEFP member's apparent
trial balloon on JA restructuring at this time. A
CEFP member EMIN talked to October 20 underscored his
desire to see the Council play an active role
continuing to push a reform agenda.

5. (U) Unblocking Beef in Japan's Pipeline
------------------------------------------

After getting the green light from the ruling Liberal
Democratic Party in the Diet, the GOJ is set to resume
import processing of the U.S. beef held up in the
import pipeline since January.

Agriculture Minister Toshikatsu Matsuoka declared last
week that the U.S. beef in question, over 900 tons,
will be processed beginning October 27 and take
several weeks to complete.

The Embassy has worked extensively with GOJ
authorities to free up the shipments.

According to terms of the decision to allow the beef
in, all boxes will be opened to see that no specified
risk material -- banned under the bilateral agreement
-- are included.

A U.S. exporter told us on October 22 he welcomed the
decision, which he suggested could help raise consumer
confidence.

Also see: MAFF's Japanese press release on this
subject

6. (U) Japan's Annual Southern Bluefin Tuna Catch
Halved
------

At the 13th meeting of the Commission for the
Conservation of Southern Bluefin Tuna held October 10-
13, Japan accepted a reduction in its annual fishing
quota of southern bluefin tuna due to the Commission's
conclusion that Japan had been overfishing the tuna
for years.

The Panel is said to have estimated the total

TOKYO 00006294 003 OF 007


overcatch at 178,000 MT over the past 20 odd years.

The new annual quota for Japan will be down by half to
3,000 metric tons and will be applied for five years
from 2007.

A longer report will be available on the FAS website.

7. (SBU) Azadegan: EMIN Calls on METI, MOFA to
Discuss Contract Change
-----------------------

EMIN met with METI Agency for Natural Resources and
Energy Director General Harufumi Mochizuki and MOFA
Deputy Director General for Middle Eastern Affairs
Hideki Ito on October 13 and October 20 respectively
to discuss the change in status of Japan's oil major
Inpex vis-`-vis the Iranian oil field Azadegan.

For a complete readout of these two meetings, see
Tokyo Cables 6074 and 6160.

8. (SBU) Sakhalin 2 Partner Confident Project Will Not
Be Canceled
-----------

Former Japanese Ambassador to Russia Takehiro Togo,
currently senior counselor at Mitsui and Co., which is
part of the Sakhalin 2 consortium, told Econoff on
October 17 that the Russian government had no desire
to pull the plug on the Sakhalin 2 project despite
environmental concerns surrounding it.

The Russian government was currently pursuing a number
of natural resource investigations, not just Sakhalin
2. Togo suggested that talks between Royal Dutch
Shell and Russian oil major Gazprom over swapping
shares in different projects were not going well and
that may have played a role.

He strongly suggested that the inclusion of Gazprom in
the consortium would benefit all concerned while
noting Russian government concern over the ballooning
cost of the project.

Togo also highlighted the mutually beneficial
relationship of Russia and Japan in the energy field.

For a complete readout of this meeting, see Tokyo
6163.

9. (U) Kyushu Making Biomass Environmental Friendly
Ahead of New Restrictions
-------------------------

The southern Kyushu prefectures of Miyazaki and
Kagoshima are among Japan's top three producers of
cattle, pigs, poultry, and shochu (a distilled spirit
made out of sweet potato, rice or barley). For years,
the resultant livestock and shochu waste was left
untreated and disposed of to the point where it began
to contaminate local ground water sources. In an
effort to reduce these industries' environmental
impact and take advantage of financial incentives for
recycling, various local companies began converting
the biomass waste into energy and animal feed.

Two Miyazaki facilities generate electric power from
poultry manure produced in the prefecture. A small
portion of this electric power is used to operate the
plants, and the surplus is bought by Kyushu Electric
Power Company.

In addition, a consortium of industry, academia and
government agencies in Miyakonojo City is developing
an incinerator that will use pig excrement and waste
wood to generate heat for the drying of locally
harvested timber. This pilot program is not expected

TOKYO 00006294 004 OF 007


to become operational for at least two years, and
there are currently no plans for recycling waste from
cattle.

The local shochu industry, 90 percent of which is
produced from sweet potato, has traditionally
discharged shochu lees directly into the ocean or
sprayed the waste as fertilizer for farming
Approximately 90 percent of Japan's shochu distillery
waste is generated in southern Kyushu, and Kagoshima
prefecture, the country's largest shochu producer,
continues to release one-third of its shochu waste
directly into the ocean.

Although Japan has yet to become a party to the London
Convention, starting April 1, 2007, the Ministry of
Environment will prohibit the discharge of shochu lees
and other waste into the ocean as preparation for
possible future accession to the protocol.

In response to the Ministry of Environment's pending
restrictions as well as the increased amount of waste
generated due to the "Shochu Boom," several
manufacturers are now recycling waste products derived
from fermenting shochu.

Miyazaki's largest shochu producer, Kirishima Shuzo
Co., is utilizing sweet potato shochu waste to produce
dry livestock feed. In addition, Mitsui Engineering &
Shipbuilding of Tokyo recently announced plans to
build a plant in Miyazaki prefecture for the recycling
of shochu lees into animal feed and ethanol fuel.
Upon completion of the plant next March, the company
expects to receive orders worth 1.2 billion yen from a
cooperative of five local shochu distillers.

10. (U) Mutual Recognition Agreement Talks Resume in
Tokyo
-----

After an almost one-year pause, talks on a Mutual
Recognition Agreement on testing of telecommunications
equipment restarted in Tokyo on October 19. While few
substantive issues remain, the negotiating team, lead
by Deputy Assistant U.S. Trade Representative Jonathan
McHale, expects it will still take some time to
finalize an agreed text. Both sides anticipate that
they will need to follow up this week's meetings with
videoconferences.

Director of the Foreign Ministry's 2nd North American
Division, Koichi Mizushima stated at the start of the
talks that the GOJ would like to have the agreement
signed before the end of the year and submitted to the
Diet before the end of their fiscal year in March
2007. Before the agreement can be signed, the GOJ
needs to translate the agreed text into Japanese,
which will become the official text for the GOJ. The
Cabinet legislative office also needs to go over the
agreed text to ensure consistency with previous
conventions and treaties. In turn, the State
Department will have to take the official Japanese
text, translate it back into English, and certify the
text. On the U.S. side, the agreement will take
effect after an exchange of letters.

11. (U) Wal-Mart Makes A Go Of It In Japan
------------------------------------------

In August 2006, Wal-Mart's Japanese subsidiary
announced an operating loss of US$465 million for the
first six months of 2006, a fivefold jump over first
half 2005. The company attributed the losses to one-
time write-offs for assets and cited same-store sales
increases of 1.4 percent as proof it will succeed in
the market long-term.

The largest retailer in the world (its retail sales

TOKYO 00006294 005 OF 007


compared on a GDP basis would rank it #21 behind
Sweden and ahead of Saudi Arabia), Wal-Mart entered
Japan in 2002 when it purchased a 42 percent stake in
Japanese retailer Seiyu. It has since increased its
share to 53 percent.

Despite the losses, Wal-Mart continues to invest in
the market and recently opened a Distribution Center
(DC) that combines Wal-Mart know-how with Japanese
technology to address business and logistical
challenges particular to Japan. Built on three
stories and consisting of 514 thousand square feet,
the DC is one-of-a-kind in the Wal-Mart system.
Company officials showcased the distribution center
for EMIN during his recent tour.

It remains to be seen, however, whether the facility
will help Wal-Mart Japan to realize the efficiencies
needed to achieve its "Every Day Low Price" strategy.

For more information, see Tokyo 06175.

12. (SBU) Motion Picture Association Chairman Dan
Glickman Visits Japan
---------------------

Motion Picture Association (MPA) Chairman Dan Glickman
told an anti-piracy seminar this week that losses due
to piracy in Japan reach hundreds of millions of
dollars mainly from peer-to-peer (P2P) piracy and
illegal file exchange over broadband internet sites.

There are also increasing numbers of cases of
criminals camcording movies inside theaters in Japan,
copies of which are then illegally distributed through
internet file exchange networks or sold in open-air
markets as pirated DVDs.

MPA submitted a statement to the GOJ asking for
changes in copyright laws to make camcording in
theatres illegal.

Glickman and other seminar participants also called
for changes in Japanese laws which make uploading but
not downloading copyrighted materials a crime and
allow an exception for "personal use."

Nonetheless, Glickman told the Ambassador that
problems in Japan pale compared to the situation
elsewhere in Asia.

He praised METI and JETRO funding for IPR enforcement
training for Chinese officials and would like the
Japanese to continue and expand its' training programs
to other countries.

Glickman lauded Japanese solidarity with the USG and
Switzerland in its Article 63 request to China at WTO
in 2005.

Glickman criticized USTR for plans to pursue a narrow
a case against China at the WTO and called for a more
comprehensive approach.

Glickman told Ambassador Schieffer that Japan is #2
market in the world (after the U.S.) for box office
receipts and #4 if DVDs and videos are included.

This is remarkable considering that Japan has only
about 3000 screens (compared to 37,000 in the U.S.)
and people attend only 1 movie a year on average in
Japan (vs. 5 in the U.S.) and underscores that the
price of admission is very high here (usually 1800
yen).

Of over 16 billion dollars in gross box office
receipts in Japan in 2005, about 60% came from foreign
films, predominantly American movies.

TOKYO 00006294 006 OF 007

13. (SBU) Labor Legislation Slated for 2007 Diet
Despite Little Progress in Negotiations
---------------------------------------

Current efforts to foster labor mobility in Japan are
centered around two pieces of legislation: a new Labor
Contracts Law and a revised Labor Standards Law.

An advisory committee to the Ministry of Health,
Labor, and Welfare continues to prepare the
legislation with the goal of submitting it to the
regular 2007 Diet, but a contact on the committee told
us that the labor and employer positions on key
provisions -- including creating a white-collar
exemption from overtime and a provision for monetary
compensation in lieu of re-instating employees who
have disputed dismissal -- remain distant and
entrenched.

Tokyo 6250 (classified) gives a detailed readout of
the situation and its political context.

14. (SBU) A380 Unlikely to Have Large Impact on
Japanese Airports
-----------------

U.S. Government Accountability Office (GAO) Physical
Infrastructure specialists visited Tokyo October 4-6
to discuss various topics related to the introduction
of the Airbus 380 operations.

Officials from the Japan Civil Aviation Bureau's
(JCAB) Construction, Airworthiness, Air Traffic
Control, International Air Transport, and General
Affairs Divisions discussed their role in regulating
and certifying the new aircraft, as well as in
modifying airport infrastructure and flight
operations.

JCAB officials stated that airports such as Tokyo
Narita, Nagoya Central Japan (Chubu), and Osaka Kansai
anticipate receiving the A380.

As far as airport infrastructure is concerned, runways
at these airports meet ICAO standards, but some
taxiways must be expanded to accommodate the aircraft.

JCAB admitted that while certain operational
restrictions would be imposed on the ground, they do
not anticipate significant impact on airspace
utilization or capacity at major Japanese airports.

JCAB airports would adhere to the interim flight
separation standards set forth by the ICAO.

They believe that initial impact would seem to be
minimal, since no Japanese air carriers intend to
purchase the A380 in the foreseeable future.

However, officials from Japan Airlines (JAL) told the
GAO that they feared the A380 would have a negative
impact on JAL's business.

Specifically, they were concerned that the increased
time for interim flight separations will cause flight
delays and could even affect flight slots.

The officials also wondered if already high airport
user and landing fees would be hiked even higher to
cover the costs of airport modifications.

JAL said they had not and will not voice these
concerns with JCAB as there is no forum to do so and
as JCAB has sole decision-making authority.

15. (U) Shimizu Port: 7th Largest in Japan, and
Shizuoka Airport Plans

TOKYO 00006294 007 OF 007


----------------------

At the invitation of local officials, Econ Officer
visited the Port of Shimizu in Shizuoka Prefecture,
located an hour southwest of Tokyo by Shinkansen, on
October 13 to receive briefings on the port, view its
container operations, and get a general pitch on doing
business in Shizuoka prefecture.

Officials from the Chinese, Indian, Philippine,
Vietnamese, Canadian, and Burmese embassies or trade
offices were part of the tour as were representatives
from the Japanese offices of the states of Kansas,
Mississippi, and West Virginia.

Shimizu port is the 7th largest in Japan by TEU
container volume shipping, some 500,000+ TEUs a year,
and it has plans to expand its container capacity.
Port officials said it handles on average 5-6
container ships a day. It also has bulk loading and
LNG wharfs.

Exports are shipped to 50 ports around the world in
Asia, Europe, and North America while South Korea is
its leading source of imported containers.

It was the first Japanese port to offer 24 hour
service, operates 364 days a year, has lower port fees
than the 5 major Japanese ports, is conveniently
located mid-way between Nagoya and Tokyo, and is fully
compliant with the SOLAS treaty. Japanese customs
uses a large X-ray inspection system to inspect
containers without opening them.

Shimizu Port was designated a Foreign Access Zone in
1996 and put into operation a facility in 1998 for
handling, storing and distributing imported goods.

Major clients who have moved to the area to take
advantage of the good distribution network include:
Office Depot, Lands End, Herman Miller (MI, USA,
office furniture), Porsche, Peugeot, and Molten
(rubber products).

Port officials only raised one major problem during
the visit: more containers are being exported than
imported. Port officials are looking for ways to
increase imports to address the imbalance.

In Q&A, local officials discussed plans for the
Shizuoka airport, scheduled for opening in March 2009.
The officials hope to use the single 2,500m runway to
connect to airports in Japan, China, Korea, SE Asia,
Guam, Saipan, and Honolulu.

The Shinkansen line passes under the airport and the
Prefectural government intends to build a station
making it the only airport in Japan with a direct
connection to the train.

See also: Port of Shimizu website; Shizuoka airport
website; and Shizuoka Prefecture website.
SCHIEFFER

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