Cablegate: The Japan Economic Scope--July 19, 2007 Part 1

DE RUEHKO #3321/01 2010448
R 200448Z JUL 07





E.O. 12958: N/A
SUBJECT: The Japan Economic Scope--July 19, 2007 Part 1

Sensitive but unclassified. Please protect accordingly.

1. (U) This cable contains the part one of the Japan Economic
Scope from July 19, 2007.

2.(SBU) Table of Contents

3. Reaction to Doha Draft Texts
4. Japan Agriculture: Doha Draft Text Triggers Customary
Hyperbolic Response
5. Battered Agriculture Minister Faces Press
6. FSA Creates Special Unit to Supervise Postal Savings and
Insurance after JP Privatization
7. Japan Hosts Regional FAA Seminar
8. Aviation Liberalization in LDP Manifesto
9. KIX Welcomes Expansion of Haneda Service
10. KIAC, Osaka need 24-hour KIX Customs
11. Third Meeting of KIX Study Group
12. Haneda adds Shanghai Charter flight slots
13. New Directors at Civil Aviation Bureau
14. Star Flyer to fly PR Charter to KIX on Aug. 2
15. GM on Japan Auto Fuel Cell Efforts
16. ACCJ Business White Paper
17. Performance-paid Bonuses: Tops and Drops

3. (SBU) Reaction to Doha Draft Texts

The draft texts for the Doha Round agriculture and non-
agriculture market access (NAMA) negotiations have been released
in Geneva and affected ministries in the Japanese government are
crafting a joint statement as the Scope goes to press.

GOJ contacts have emphasized that while Japan has concerns about
the texts, they are at least a basis for further discussion as
the chairs put in considerable effort to reflect the broad
concerns of the WTO membership. On the agriculture text, the GOJ
welcomes the fact that the draft does not mention tariff caps. A
major concern the GOJ has about the agriculture draft text is the
focus on "dutiable lines," rather than "all" lines. GOJ contacts
say that that emphasis will penalize countries which already have
a high percentage of duty free products entering the country. A
quarter of Japan's agricultural imports already enter duty free.
If Japan applied a one percent tariff, these products would be
included in the calculation for determining the number of
sensitive items, giving Japan's greater latitude, GOJ contacts

Meanwhile, the Ministry of Economy, Trade, and Industry (METI),
according to press reports, is not content that the draft text
for the NAMA negotiations is lenient toward developing countries.
METI argues that the ceiling for tariffs on industrial goods is
insufficient to provide "real" access to developing country

Press commentary has been mixed. The Yomiuri and Mainichi
newspapers underscored that WTO members will find it difficult to
gain agreement on a Doha deal before the end of the year. The
newspapers express concern about the lack of leadership in the
talks since the G-4 negotiations broke down in June. Adding to
the gloom, the Mainichi notes that Trade Promotion Authority in
the United States has expired.

Nikkei's reaction is more optimistic, saying that the agriculture
draft could offer a way for Japan to maintain its high tariffs on
rice because there is no mention of tariff caps. The Yomiuri
notes that the United States may have to compromise on domestic
supports, lowering its levels below its current offer of $17
billion. (ECON: Nicholas Hill/Ryoko Nakano)

4. (SBU) Japan Agriculture: Doha Draft Text Triggers Customary
Hyperbolic Response

The draft text for the Doha Round agriculture negotiations as
written would "devastate" the farming sectors in big food
importing countries, according to Japan Agriculture (JA) Chair
Isami Miyata based on a July 18 report in the Japan Agricultural

According to the press report, Miyata, did, however, welcome that
WTO agricultural negotiations chair Falconer did not include any

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JA, which is the lobbying arms of Japan's most protectionist-
minded farmers, has been making its opposition to a trade-
liberalizing agricultural Doha deal well known. JA has organized
a number of public demonstrations in recent weeks to air its
views in the lead up to Japan's Upper House Diet elections on
July 29. (ECON: Ryoko Nakano/Nicholas Hill)

5. (SBU) Battered Agriculture Minister Faces Press

Agriculture Minister Akagi turned up at a press conference on
July 17 with big bandages on his face. Reporters kept asking him
how he was, what happened, but the embattled minister deflected
the questions. He told reporters only that he has sensitive skin
that occasionally "flares up."

Agriculture Ministry (MAFF) officials claim ignorance regarding
Akagi's ailment. The only thing that is clear is that when Akagi
arrived back in Japan over the weekend from Geneva, where he met
WTO Director General Pascal Lamy and others to discuss the Doha
Round, he appeared healthy and unblemished. (ECON: Nicholas

6. (U) FSA Creates Special Unit to Supervise Postal Savings and
Insurance after JP Privatization

On July 13, the Financial Services Agency (FSA) announced the
appointment of Yasushi Kanzaki, former Director of the Inspection
Bureau's Evaluation Division and former Director of International
Affairs at the time of the January 2006 Insurance Talks, to the
newly created "Counselor's Office to Supervise Postal Savings and
Insurance," a special unit in FSA's Supervisory Bureau to oversee
postal savings and insurance after Japan Post (JP) privatization.
The special unit was created to cope with the major surge in
workload that will follow privatization. A/EMIN Fantozzi met
Kanzaki on the day of the new appointment. (ECON: Ai Kaneko)

7. (U) Japan Hosts Regional FAA Seminar

Japan Airlines (JAL) and All Nippon Airways (ANA) sponsored an
FAA Safety Training seminar on July 10 and 11 for 190 technicians,
engineers and government authorities from 12 different Pacific
countries and economies.

Mitsuo Kawakami, the Director for Standards and International
Affairs Airworthiness Division of the Japan Civil Aviation Bureau
(JCAB), gave a presentation on Japan's view of potential problems
due to a recent and increasing trend of outsourcing maintenance.
From the view of Japan's civil aviation authorities, the biggest
problem with this trend is the potential lack of oversight, which
they intend to curb by holding airlines and the JCAB inspectors
accountable for maintaining vigilance in maintenance. In the
United States, the 1996 ValuJet aircraft accident was partially
attributed to maintenance failures resulting from improper
oversight of outsourced maintenance.

One presentation by the FAA triggered a particularly animated
discussion about the relationship between profit-seeking and
safety. This inspired much interest among JAL employees whose
company is now $17 billion in debt. (ECON: Charlotte Crouch)

8. (U) Aviation Liberalization in LDP Manifesto

The Liberal Democratic Party (LDP) has included aviation
liberalization among the 155 policy objectives listed in its
manifesto for the July 29 Upper House elections. The manifesto
calls for "establishing flow of people and goods to strengthen
international competitiveness." Under this banner will be the
promotion of aviation liberalization (Asian Open Skies),
international charter flights from regional airports, and
liberalization of route settings to revitalize regions through
tourism enhancement.

It also promotes 24-hour operations, internationalization, and
improved access to Narita, Haneda (HND), Kansai International
Airport (KIX), and Chubu international airports. The manifesto
also states that the party will promote the Prime Minister's

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"Asia Gateway" vision. (ECON: Junko Nagahama)

9. (U) KIX Welcomes Expansion of Haneda Service

The Ministry of Land, Infrastructure and Transportation (MLIT)
announced on July 9 it would add 10 daily slots at Tokyo's Haneda
Airport in September 2007. Kansai International Airport (KIX)
will pick up four slots.

As reported last week, Star Flyer is interested in slots for its
HND-KIX service. According to an international affairs manager
at Kansai International Airport Co. (KIAC), MLIT is going to
allocate the new slots equally among interested carriers, which
could include JAL and ANA.

The Osaka edition of the Asahi Shinbun newspaper on July 12
discounted the idea that the major airlines would increase
profits by adding additional HND-KIX flights, because JAL and ANA
are already stuck at approximately 60 percent load factors, the
lowest level for profitability.

Nonetheless, KIAC welcomes the decision and would like to fill
its 10:00 a.m. -- 3:00 p.m. gap in Tokyo service from Osaka.
(Osaka-Kobe: Phil Cummings/Naomi Shibui)

10. (SBU) KIAC, Osaka need 24-hour KIX Customs

According to an Osaka Prefecture Government official, KIAC and
Osaka Prefecture applied for 24-hour operations at Kansai
International Airport (KIX) Customs as a special zone on July 6.
Under the current law, customs operates from 8:30 a.m. to 5:00
p.m., with extra fees and paperwork required for operations after
5:00 p.m.

A KIAC official commented that around the clock customs
processing is necessary for KIAC to take full advantage of the
new capacity offered by its second runway, particularly for cargo
operations. (Osaka-Kobe: Phil Cummings/ Scott Ravenhill/ Naomi

11. (SBU) Third Meeting of KIX Study Group

The Osaka-Kobe Consulate General joined the third meeting of the
Kansai International Airport (KIX) study group for the promotion
of KIX-U.S. routes on July 13.

KIAC Vice President Tadakuni Hirano believes it is unlikely that
a Japanese airline will restart any KIX--U.S. flights.
Consequently, KIAC is asking other Asian airlines such as Thai
Airways, Korean Airlines, and Vietnamese Airlines to start
flights from their respective countries to the U.S. via KIX.
Vietnamese Airlines is considering opening a flight to Los
Angeles (LAX) through KIX, Incheon, or Shanghai in 2008. Also,
Thai Airways is contemplating resuming its Bangkok-KIX-LAX flight.
Current GOJ restrictions on "passenger beyond" rights mean that
stopovers would be limited to refueling stops, if KIAC is able to
secure special landing permission from MLIT. KIAC continues to
monitor aviation talks between GOJ and its market countries.
The Japan Association of Travel Agents (JATA) Kansai Director
discussed difficulties travel agents have selling U.S. tour
packages departing from KIX. He claimed that United Airlines (UA)
has an excessively restrictive policy on travel agent bookings
for tour groups, which ultimately harms UA's business.
Study group members were also interested in promoting the HND--
KIX--U.S. route upon the expansion of slots at Haneda starting in

Other participants in the meeting included the Kansai Economic
Federation, Osaka Prefectural Government, and the Osaka Chamber
of Commerce and Industry. (Osaka-Kobe: Phil Cummings/Scott
Ravenhill/Naomi Shibui)

12. (U) Haneda adds Shanghai Charter flight slots

MLIT will create 10 additional daily aircraft flight slots at
Tokyo's Haneda Airport starting in September, according to a July
13 announcement. The objective is to provide time for charter
flights between Haneda and Shanghai's Hongqiao Airport, and an

TOKYO 00003321 004 OF 005

expansion of overseas routes from HND via KIX with the enhanced
flight connectivity.

MLIT is increasing slots by improving the high speed exit taxiway.
Currently, 31 slots are available per hour, and the new slots
will be available by adding one more slot per hour over the 10
hours of daily airport operations. This is part of the steady
implementation of the Asian Gateway Vision which includes an
initiative to increase daytime slots at HND.

The 10 new slots were announced by MLIT to be allocated as
follows: four flights for ANA Cargo and ANA International to
operate as a Hongqiao/Haneda charter; Star Flyer with four
flights for HND to improve connections to KIX; and two flights
for regional airports to be given to ANA Corp., Skymark and JAL

The two flights given to regional airports routes will be divided
evenly among the three companies that applied for them. (ECON:
Junko Nagahama)

13. (U) New Directors at Civil Aviation Bureau

MLIT has announced changes in senior level personnel. Hiroshi
Narahara was chosen as the new director of the International Air
Transport Division. Former director, Tadashi Shimura, became the
director of the International Policy Planning Unit on July 10.
Yousuke Kanba, current Special Assistant under the section which
handled aviation related issues during the May U.S.-Japan
regulatory reform talks, will stay in his position.

For the newly established section for air cargo policies, Koji
Tamura has been appointed as director, the first from the private
sector. Tamura previously worked at the Mitsubishi Trading Co.
His deputy director is Hirotoshi Ohtsubo.

Civil Aviation Bureau Director-General Hisayasu Suzuki will
remain in his position, and so will Deputy DG Ryuhei Maeda, the
principal negotiator with the U.S. on civil aviation matters.
(ECON: Junko Nagahama)

14. (U) Star Flyer to fly PR Charter to KIX on Aug. 2

On August 2, the opening day of the second runway at KIX,
Kitakyushu-based airline Star Flyer (SFJ) will conduct a charter
flight from Kitakyushu to KIX. Showcasing its impressive "black"
aircraft, SFJ hopes to increase name recognition in the Kansai
region prior to the start of scheduled HND -- KIX flights.
Following the July 13 MLIT decision to allocate four HND-KIX
slots to SFJ starting in September, the airline announced that it
expects to begin four daily round-trip flights on Sept. 14.
SFJ, modeled after JetBlue Airways, began operations in March
2006, offering 12 (later dropped to 11) regular daily round-trip
flights from Kitakyushu to HND. The average load factor (LF) for
the first year, however, was only 57.5 percent, well below the
company's breakeven point of 62 percent. SFJ believes the new
HND-KIX route will be a key factor in turning its struggling
business around.

Additionally in June 2007, SFJ began code-sharing with ANA on the
Kitakyushu-HND line, significantly improving its June LF to 67.6
percent, up 19.1 percent from the previous year. (Fukuoka: James
Crow/Yuko Nagatomo)

15. (SBU) GM on Japan Auto Fuel Cell Efforts

At an Embassy briefing in early July, a General Motors (GM) fuel
cell representative said the GOJ has spent over $1.55 billion
since 2000 on fuel cell research and development driven by
concerns over CO2 reduction and energy security as well as
industrial policy.

GM monitors developments here not only to help their own fuel
cell efforts, but to avoid as the GM rep. put it, "what happened
with hybrids," i.e., any Japanese commercial surprises.
GM itself has invested over a billion in fuel cell technology in
the past five years. In addition to Japan, GM is active in Korea
and China. Since the petroleum infrastructure is still
underdeveloped in China and centralized planning still has some

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cache, a potential for setting up a hydrogen infrastructure

GM was granted approval in March 2003 for GM HydroGen3 to drive
on public roads in Japan. It is the first liquid fuelled fuel
cell vehicle so licensed and it participates in the JHFC program,
which supports the single liquid hydrogen refueling station in
Japan (Ariake in Tokyo). FedEx has used the vehicle for
deliveries in Tokyo with some success. GM is working with Suzuki
to put a fuel cell in one of their vehicles.

METI, in coordination with MLIT and the Ministry of Environment
(MOE), sets the budget, policies, and strategy on fuel cells.
Haruhiko Ando, the Director of the New and Renewable Energy
Division and also the Director of Fuel Cell and Hydrogen Strategy
Office under METI's Agency of Natural Resources and Energy (ANRE)
recently left his position. Ando played a key role in guiding
Japan's fuel cell research and development during the past four
years, and his departure has left some in industry worried about
the future direction of Japanese fuel cell research and

For more on the meeting see the attached memo from Koichi Uchida
of the DOE Attach's office. The GM representative also left a
20-page PowerPoint presentation on their work. If you would like
a copy, contact Josh Handler. (ECON: Josh Handler).

16. (U) ACCJ Business White Paper

The Business White Paper, entitled "Working Together, Winning
Together," of the American Chamber of Commerce in Japan (ACCJ) is
now available on the ACCJ website. The white paper identifies
structural measures to bolster economic growth and innovation,
and calls on the governments of the U.S. and Japan to reach a
conclusion on a comprehensive bilateral Economic Integration
Agreement. It is also a source for business and economic issues
facing Japan, as well as recommendations on specific issues such
as the financial system, healthcare, information technology,
government reform, and privatization. (ECON: Virsa Hurt).

17. (U) Performance-paid Bonuses: Tops and Drops

For the fifth straight year, summer bonuses rose 2.5 percent in
Japan. Based on a Nikkei survey covering 790 companies, the
average bonus was 837, 036 yen ($6900), with Nintendo Co. paying
its employees the highest bonuses overall. Within sectors, Toyota
led the automotive and auto parts sector and Mitsubishi and Sharp
led the electric machinery sector.

Meanwhile, some companies have had to cut bonuses. Steelmakers
and paper and pulp industry paid the lowest bonuses this summer
due to rising material and fuel costs. Honda, Nissan and Hitachi
cut bonuses due to sluggish performance.

The increased use of performance-based payments of bonuses has
been blamed as the reason for the widening gap in bonus payments
among companies. Until recently bonuses, which make up as much
as 20 percent of more of the annual income of individual Japanese
workers, were based on seniority and economic growth, and were
almost equal across entire industries. Performance-based
payments started to gain popularity with firms in the late 1990s
as more firms looked to raise incentives for their employees by
changing the bonus system.

The same phenomenon can also be seen among workers within the
same company. Some 47 percent of the firms that responded to
Nikkei's survey said that there is a 50 percent or higher gap
between the lowest and highest bonuses for employees who were
hired during the same year. (ECON: Virsa Hurt)

© Scoop Media

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