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Cablegate: Daily Summary of Japanese Press 12/13/06

DE RUEHKO #6953/01 3470741
P 130741Z DEC 06





E.O. 12958: N/A

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(1) "Team Abe" fails to function in handling road construction tax
revenue issue

(2) Editorial: The way to reallocate special-purpose road
construction revenues for more general usage is casting a pall over
Abe reform

(3) Editorial: Questions remain about the bill revising the Basic
Education Law

(4) Editorial: North Korea must honestly abandon nuclear ambitions

(5) Editorial: Strengthening relations with India strategically
important for Japan

(6) Triangular merger: Chief Cabinet Secretary Shiozaki demands
reconsideration; Keidanren opposing proposal as resurrecting old

(7) Kasumigaseki confidential: Special advisors to the Prime
Minister are "losers"


(1) "Team Abe" fails to function in handling road construction tax
revenue issue

NIHON KEIZAI (Page 2) (Full)
December 9, 2006

Can the Abe government establish top-down leadership under the
Kantei (Prime Minister's Official Residence)? The test of that was
draft proposal that the cabinet adopted on Dec. 8 to use road
construction tax revenues for general purposes. However, the actual
decision was ultimately delayed to next year or later. Neither Prime
Minister Shinzo Abe showed any signs of assuming leadership, nor did
the so-called "Team Abe" installed in the Kantei and parts of the
ruling Liberal Democratic Party (LDP) functioned as it was supposed
to. We probe into the 10 days of wavering back and forth on the
road-construction revenue issue.

Economic and Fiscal Policy Minister Ota urges Abe to state clearly

At the prime minister's office on the evening of Nov. 30, Abe held a
meeting with Hiroko Ota, state minister in charge of economic and
fiscal policy. Two days ago, Abe directed the state minister to
draft a concrete plan to shift the tax revenues for road projects to
general revenues. Attention was focused on what he would say at an
advisory council meeting. Ota told Abe, "You should make a clear
statement." He then said at an advisory panel meeting held soon
after, "We will review (the road construction tax revenue system)
including the gasoline tax revenues."

Abe's remarks seemed unexpected, but he and his aides have long been
mulling over the plan since the September party presidential race.
Abe had two aims: one was to play up his government's stance of
placing emphasis on reforms by delving deep into reforming the
gasoline tax revenue system, on which even former Prime Minister
Junichiro Koizumi was unable to get going; and the other was to pave
the way for a hike in the consumption tax rate.

TOKYO 00006953 002 OF 009

If the gasoline tax revenues, which account for about 80% of the
road construction tax revenues, are used for the general purposes, a
hike in the consumption tax would be small. The plan will meet the
economic policy goal of the Abe administration, which places more
priority on economic growth than fiscal reconstruction. A senior
economic agency official pointed out, "The idea originally came from
former Internal Affairs and Communications Minister Heizo Takenaka."
Straight talk from Ota, who is regarded as close to Takenaka, has
given rise to much speculation in the government and ruling

Nobuteru Ishihara quits being punching bag

In their meeting on Dec. 1, LDP Policy Research Council Chairman
Shoichi Nakagawa and his deputy, Nobuteru Ishihara, who chairs the
Highways Research Commission, expressed displeasure with Chief
Cabinet Secretary Yasuhisa Shiozaki's aggressive remarks calling for
moving the road construction tax revenues to the general revenue
account in disregard of the LDP's views. Shiozaki and Ishihara are
old friends. More they get higher posts, more they sense a rivalry.

Complicated feelings of politicians toward the road tax revenue
issue became a tangled situation. On the night of Dec. 3 at the ANA
Hotel in Akasaka, Ishihara gave Shiozaki his advice that he "should
listen to the views of the LDP." Although attention was on which
person Shiozaki or Ishihara would become the punching bag, Ishihara
in effect drop out of the skirmish.

Secretary General Nakagawa keeps silent


Secretary General Hidenao Nakagawa, who is regarded as Abe's backer,

kept his silence on the road tax revenue issue. He visited Mexico to
attend the inauguration ceremony for the new Mexican president from
Nov. 30 through Dec. 4. He received reports from Shiozaki, but just
replied, "I understand."

Relations between Nakagawa and senior LDP Upper House members,
including Chairman Mikio Aoki, have become delicate since Nakagawa
handled the issue of reinstating postal rebels. If he again locks
horns with Aoki, who is reluctant to use the gasoline tax revenues
for general purposes, it could adversely effect Abe's ability to
manage his government. Nakagawa's silence indicates the weakness of
Abe's political base in the LDP.

Abe proudly told reporters on the evening of Dec. 8: "It was good
that the government and ruling parties reached an agreement on the
matter in line with the principles that I had stated."

But the picture given was one of Team Abe, with the exception of
Shiozaki, failing to function properly during the process of
coordinating views between the government and the ruling coalition.

The ruling parties have now laid down arms, having reached a
conclusion to put off the hard decision to next year. At the last
stage, however, they seem to have exercised self-restraint with next
summer's Upper House election in mind, thinking that further
skirmishes would hurt the Abe government. As seen in the road
construction tax revenue issue, the Kantei's leadership has moved
down one more notch.

(2) Editorial: The way to reallocate special-purpose road
construction revenues for more general usage is casting a pall over
Abe reform

TOKYO 00006953 003 OF 009

NIHON KEIZAI (Page 2) (Full)
December 9, 2006

The issue of reallocating special-purpose road construction revenues
for wider use, the first touchstone for the Abe administration,
which has inherited the reform policy from the previous Koizumi
administration, has been settled in an ambiguous way. We have called
on Prime Minister Abe to clearly set a direction for shifting the
use of road-related taxes, including the gasoline tax, for wider
purposes, displaying leadership. However, there is an undeniable
impression that the issue has been settled with the ruling camp
steamrollering its way in pursuit of road improvement funds, with
the prime minister having no visible policy impact.

The government and the ruling camp agreed to make legislative
changes during the regular Diet session in 2008. The agreement did
not mention that the gasoline tax, revenues from which account for
more than 80% of the government's road funds, be subject to an
amendment due to strong opposition from the ruling parties. It is
also unconvincing that road construction revenues from local taxes,
such as the light oil transaction tax, which amount to approximately
2.2 trillion yen, were not made subject to an amendment.

Though the agreement included a policy of reallocating a portion of
money exceeding road improvement expenditures for more general
usage, it also included a plan to draft a mid-term road construction
program within the next fiscal year. This mid-term plan as requested
by the ruling camp is tricky, because it could become a major
justified cause for constructing roads. Road improvement
expenditures appear to include portions for expanded road-related
usage. For this reason, there is concern that the size of road
improvement expenditures will expand. As such, the amount of money
available as funds for general use is at present unclear.

Reallocation of revenues in the next fiscal year from the automobile
weight tax, whose usage is not regulated by law, has also been put
on the back burner. Approximately 570 billion yen from these
revenues is allocated for road improvement. On the other hand,
special-purpose road construction revenues have been used to repay
debts held by the former Honshu-Shikoku Bridge Authority, and the
repayment of the debts will be completed this fiscal year. As such,
about 600 billion yen in a road-construction fund equivalent to
revenues from the automobile weight tax is estimated to become
surplus this fiscal year. An amount of money at least equivalent to
revenues from the automobile weight tax should be used for purposes
other than road construction. When road construction was boosted as
a measure to stimulate the economy in the past, the government
issued government bonds to cover the revenue shortfall. It may be an
idea to use road funds to reduce the outstanding balance of
government bonds.

The prime minister expressed his desire to reallocate road funds for
more general usage in his policy speech delivered right after his
assumption of office. During the meeting of the Council on Economic
and Fiscal Policy at the end of last month, he categorically said,
"I will make revenues from the gasoline tax subject to an
amendment." Chief Cabinet Secretary Yasuhisa Shiozaki during an LDP
meeting made a pitch, saying, "Taking a second look at the usage of
revenues from the gasoline tax is a touchstone for the government's
reform drive." However, faced with an insurmountable objection from
the LDP, his statement resulted in exposing the Kantei's weakness in
coordination power.

TOKYO 00006953 004 OF 009

The Kantei wanted to use the issue of reallocating road funds for
wider usage as a tool to give the impression that the structural
reform drive is making headway so that the declined cabinet support
rate following the reinstatement of postal rebels to the LDP can be
restored. But it turned out badly. It seemed to the ruling camp that
the Kantei is getting impatient. The ruling camp shrewdly succeeded
in securing funds for road construction. The settlement this time is
bound to cast a pall over the prime minister's structural reform
policy. All the prime minister can do is to steadily bring results
in the compilation of the fiscal 2007 budget and other areas so that
the distribution of forces in which the party is strong and the
Kantei is weak will not take root.

(3) Editorial: Questions remain about the bill revising the Basic
Education Law

ASAHI (Page 3) (Full)
December 13, 2006

Upper House deliberations on a bill revising the Basic Education Law
are now at the final stage. The government and the ruling coalition
eye the bill's enactment before the end of this week.

The Basic Education Law is important legislation specifying visions
and principles necessary for nurturing children who will shape the
country's future. In the effort to rewrite the entire text, all
articles must be thoroughly examined and discussed. But there still
remain many questions.

Both the current law that took effect in 1947 and the revision bill
are packed with such words as "formation of character" and
"components of the state and society" under "purposes of education."
The only difference is that the bill with amendments contains "goals
of education" composed of 20 items, including "patriotism" and
"respects for tradition and culture."

Loving the nation is only natural. The amendment contains the words
"respect for other countries," as well. We have pointed out that a
provision in the law might end up uniformly teaching children to
love the nation in a certain way.

We are particularly wary of forcing teachers to evaluate children's
level of patriotism. In the previous Diet session, former Prime
Minister Junichiro Koizumi rejected the need to evaluate children's
level of patriotism. Prime Minister Shinzo Abe has indicated that
students' attitudes toward learning Japanese traditions and culture
would be evaluated. This might end up forcing students to vie to be
patriotic in the classroom.

What to teach is also a major question. Education Minister Bunmei
Ibuki cited how predecessors dealt with such events as the 13th
century Mongol invasion attempts against Japan. The state might end
up using historical facts in the name of teaching patriotism to its

The second point of contention is the interpretation of the phrase
"education would be conducted without giving in to improper
control." In the current law, this part is followed by "directly for
all the people in a responsible manner." Educators and teachers
unions have identified this provision as the shield against
administrative intervention in education.

TOKYO 00006953 005 OF 009

"Without giving in to improper control" is intact in the amendment.
But the subsequent part was altered into "to be conducted based on
this law and other legislation."

Ibuki explained that the change was made to eliminate intervention
by political associations and that legislation and the ministry's
official guidelines for school teaching do not constitute "improper
control," as they represent national wishes.

Ibuki's explanation alludes to a mentality that anything is possible
as long as the law and the legislation and the guidelines stipulate
matters. This evokes an uneasiness.

The new basic educational promotion plan poses some questions, as
well. It might be significant if it would lead to securing necessary
educational funds. But according to it, local districts are required
to formulate plans independently by using the state's plans as
references. The basic plan might become a tool constraining regional
education, depending on how it is used.

Above all, the basic plan does not provide answers to fundamental
questions. Is the current Basic Education Law to blame for such
serious problems as declining academic standards, truancy, and
bullying? Will those problems go away if the law is revised? Answers
to those questions have not been presented in Upper House

(4) Editorial: North Korea must honestly abandon nuclear ambitions

MAINICHI (Page 5) (Full)
December 13, 2006

The six-party talks to discuss the North Korean nuclear issue are
set to reopen on Dec. 18 in Beijing. This will be the first session
in 13 months and also since the North conducted a nuclear test in

The six-party talks are the sole venue that can realize a
denuclearized Korean Peninsula through diplomatic efforts. They can
also provide a good opportunity for the North to end its
international isolation. We hope the North will steadily move toward
nuclear dismantlement.

The six-party talks that started in 2003 managed to adopt a joint
statement in September 2005 obligating North Korea to abandon all
nuclear weapons and existing nuclear programs. But disagreement
between Washington and Pyongyang on establishing a working group to
discuss the nuclear disarmament process forced the talks to recess
in November 2005.

The US has subsequently imposed financial sanctions on North Korea
in reaction to Pyongyang's counterfeiting operations, and the North
has rejected returning to the negotiating table by citing absurd
reasons. On top of America's financial sanctions, the international
community has placed financial sanctions on North Korea based on a
UN Security Council resolution that followed Pyongyang's ballistic
missile tests in July and a nuclear test in October.

At long last, Pyongyang in late October expressed its willingness to
rejoin the multilateral talks. The reason may have been growing
financial sanctions by the UN, Japan, the US, and other countries
that have dealt a serious blow to the North's efforts to earn
foreign currency and exacerbated its economic condition.

TOKYO 00006953 006 OF 009

The North is demanding that it be treated as a nuclear power on the
grounds that it has declared itself a nuclear-weapons possessing
state. It also demands that the financial and economic sanctions be
lifted. Its demands are unreasonable. In adopting the joint
statement, the North promised nuclear dismantlement, which is
essential for realizing a nuclear-free Korean Peninsula, as
specified in the Japan-DPRK Pyongyang Declaration and the
South-North Joint Declaration of the Denuclearization of the Korean

China, the chair of the six-party talks, also defines the six-party
talks that will begin Dec. 18 as part of the continuing process
leading up to the implementation of the joint statement. The US and
North Korea have conducted informal bilateral talks brokered by
China. Short-term objectives include establishing working groups on
such themes as financial sanctions, normalization of US-DPRK and
Japan-DPRK relations, food and energy aid, in tandem with freezing
the North's nuclear activities and having Pyongyang report its
current situation.

Economic cooperation and assistance by neighboring countries,
centering on Japan, is also essential at the final stage of
resolving the nuclear issue. The North has repeatedly demanded that
Japan be removed from the multilateral framework by citing the
abduction issue. Pyongyang must realize that such an attitude would
prompt Japanese public opinion to harden.

Some think that America's diplomatic power has weakened due to its
having run into a cul-de-sac in its Iraq policies. Unity among
Japan, the US, and South Korea and cooperation with China and Russia
are particularly important under such circumstances. US Assistant
Secretary of State Christopher Hill, America's chief delegate to the

six-party talks, is expected to arrive in Beijing as early as this
weekend to undertake coordination in advance of the upcoming talks.
The Japanese government is also urged to actively intensify
cooperation with other countries on the diplomatic front.

Once the talks open, North Korea might try to buy time or demand
more of compensation while disregarding nuclear dismantlement. Such
an approach no longer works. Chances are also slim that the United
Nations will lift its sanctions. We would like to see North Korea
return to its starting point - its promise in September 2005 to
abandon all nuclear weapons and existing nuclear programs -- and
take sincere action.

(5) Editorial: Strengthening relations with India strategically
important for Japan

SANKEI (Page 2) (Full)
December 13, 2006

Indian Prime Minister Singh will visit Japan as an official guest
from Dec. 13 through the 16th. Since Prime Minister Vajpayee came to
Japan in 2001, no Indian prime minister has visited Japan.

A meeting between Singh and Prime Minister Shinzo Abe has been set
for Dec. 15. Besides, the Indian prime minister is scheduled to meet
with the Emperor and Empress, as well as to deliver a speech at the
Diet. The Japanese government intends to roll out the red carpet for

Different from China, India shares common fundamental values with

TOKYO 00006953 007 OF 009

Japan, for instance, democracy, the rule of law, and freedom of
speech. India is pro-Japanese, and its economy has remarkably grown
recently. In order to counter China's hegemonic expansion, too, it
is important for Japan to deepen and expand relations with India.

In the planned summit, the two leaders are expected to agree on
plans to initiate negotiations on concluding an economic partnership
agreement (EPA) early next year, to revise the aviation pact to
significantly increase the number of regular flights, and to hold an
annual summit.

India's gross domestic product (GDP) ranks third in Asia, following
Japan and China. In 2005, it registered a robust 8.4% economic
growth rate. Although the value of trade between Japan and India has
been on the rise since 2003, their trade value was not placed on the
top-20 list, far smaller than that between Japan and China (ranks

In this sense, it is significant for Japan and India to conclude an
EPA, centering on a free trade agreement (FTA). The Association of
Southeast Asian Nations (ASEAN), China, South Korea, and the
European Union (EU) have already started negotiations or have agreed
to start negotiations on concluding an FTA with India.

The Indian economy contains a number of problems, including the
delay in infrastructure construction such as roads, port facilities
and railways, as well as a lack of programs to deal with poverty.
India is the top recipient of Japan's official development
assistance (ODA) funds. The ODA program should be utilized more

However, optimism may not be warranted. China and India has pursued
a multilateral diplomacy since the end of the Cold War period.
Chinese President Hu Jintao visited India in late November, prior to
the Japan-India summit. They confirmed the maintenance of the
China-India partnership and agreed to expand bilateral trade. The
border dispute is also moving toward a settlement. The United States
also is rapidly approaching India by concluding an atomic power

Japan worked to induce India and Australia into the East Asia summit
conference. An initiative has now emerged of forming a forum for
four-nation strategic dialogue among Japan, the US, Australia, and
India, which share common values. The upcoming Japan-India summit
should be utilized as a good opportunity for Japan to reconfirm the
importance of relations with India. This year marks a year to deepen
friendship between China and India. Next year will be a year to
promote exchanges between Japan and India.

(6) Triangular merger: Chief Cabinet Secretary Shiozaki demands
reconsideration; Keidanren opposing proposal as resurrecting old

SANKEI (Page 9) (Excerpts)
December 12, 2006

It was learned yesterday that regarding the planned triangular
merger scheme, which is intended to make it easy for foreign
companies to merge and acquire Japanese companies, Chief Cabinet
Secretary Shiozaki asked the Finance Minister and the Ministry of

Economy, Trade and Industry to ease the system so that foreign
companies will find it easier to merge with acquire Japanese
companies. Since the ruling parties have already firmed up a policy

TOKYO 00006953 008 OF 009

of toughening measures to prevent the abuse of the triangular merger
scheme, the Japan Business Federation is opposing the proposal as
resurrecting the old argument. The unusual announcement of a view by
Shiozaki is creating a stir.

Triangular mergers are to be legalized next May. Shiozaki during a
news conference yesterday noted, "I made that statement because I
thought that in order to maintain vitality in our low-birth-rate
society it is necessary to revitalize Japan, by bringing in economic
growth abroad. I have already conveyed my view that an amendment to
the tax system should reflect that principle."

The LDP Tax System Research Council intends to adopt measures to
prevent the abuse of triangular mergers using paper companies for
the purpose of dodging taxation. Shiozaki called on the panel to
adjust its plan to the government policy, noting, "I hear various
discussions are being pursued in the party."

In response, Nippon Keidanren Chairman Fujio Mitarai touched on the
tax system concerning triangular mergers during a press conference
yesterday and supported the tax panel's policy, saying, "In Japan
deferred taxation is not allowed for a merger involving a paper
company. If it were applied to mergers involving foreign companies
as an exception, it would collapse the tax system. It is

The US government and the American Chamber of Commerce have been
opposing regulating mergers through paper companies. Responding to a
question about whether the US has applied pressure on the Japanese
government, Shiozaki ruled out such a possibility, saying, "There
has been no such approach at all."

The position of the LDP tax panel is that it is not possible to
impede what has been introduced under the corporate law with the tax
system." A senior member of the panel said, "It is not appropriate
to adopt the system only with a notification from the National Tax
Agency. It is necessary to make the system clear under a government
ordinance and a ministry ordinance in order to prevent its abuse."

(7) Kasumigaseki confidential: Special advisors to the Prime
Minister are "losers"

BUNGEI SHUNJU (Page 234) (Full)
January 2007

Two months have passed since the cabinet of Prime Minister Shinzo
Abe came into being. Bureaucrats were horrified by the lineup of the
cabinet members, who are antagonistic toward the bureaucracy.

Administrative Vice Foreign Minister Shotaro Yachi and his followers
are enjoyed the peak of their bureaucratic power. They made Abe's
visits to China and South Korea in October a success. In a bid to
avoid the confusion that is going on still in the United States
after the Republican Party was defeated in the mid-term
(congressional) elections, Abe plans to go to Europe in January and
he will then make his first trip to the US as prime minister during
the next Golden Week holiday period, which runs from late April to
early May. This is a plan crafted by Yachi and his team. Abe has
distanced himself from administrative vice-ministers. The only
exception to that is Yachi, who still wields considerable power. It
is certain that Yachi will be serving in his current post until
January 2008. There is no doubt that he will continue to have power
for at least one year.

TOKYO 00006953 009 OF 009

In the meantime, special advisors to the prime minister, who were
appointed with great fanfare, have not done anything remarkable in
their jobs. Although Special Advisor on National Security Yuriko
Koike, former environment minister, debuted spectacularly with her
meeting with US National Security Adviser Stephen Hadley, she has
been playing a low-keyed role since. She added chairs in her office,
expecting many guests, but they have not been used for a long time.

The framework of a Japanese version of the US National Security
Council (NSC) is supposed to be firmed up in February 2007, but the
likelihood is that the Japanese version of the NSC will be modeled
after that of Britain, which has a parliamentary system like Japan,
and not the US' NSC, which is quite powerful. In short, a system
that would allow special advisors to make decisions through
discussions will not be created. Although Koike built a
communication channel to Hadley, Chief Cabinet Secretary Yasuhisa
Shiozaki, who has undertaken all security affairs, serves as
Hadley's counterpart. Koike will have to start again from the

The main job of Special Advisor on Public Relations Hiroshige Seko,
who was enthusiastic about briefing summit talks, is now talking to
local correspondents of countries where the prime minister visits.

At the Asia-Pacific Economic Cooperation conference in November,
Seko was a messenger to tell media people, "The briefing by the
deputy chief cabinet secretary will soon start."

People close to the Kantei have agreed that Yachi and his team, and
Shiozaki are "winners" and special advisors are "losers."


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