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Cablegate: The Japan Economic Scope--July 26, 2007

VZCZCXRO3966
RR RUEHFK RUEHNAG RUEHNH
DE RUEHKO #3450/01 2080815
ZNR UUUUU ZZH
R 270815Z JUL 07
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC 5911
RUEAIIA/CIA WASHDC
INFO RUEHFR/AMEMBASSY PARIS 5652
RUEHFK/AMCONSUL FUKUOKA 2269
RUEHNAG/AMCONSUL NAGOYA 1326
RUEHNH/AMCONSUL NAHA 4694
RUEHOK/AMCONSUL OSAKA KOBE 5867
RUCPDOC/USDOC WASHDC

UNCLAS SECTION 01 OF 08 TOKYO 003450

SIPDIS

PARIS PLEASE PASS TO USOECD
STATE PLEASE PASS TO USTR

SIPDIS
SENSITIVE

E.O. 12958: N/A
TAGS: ETRD ECON JA ZO EAGR
SUBJECT: The Japan Economic Scope--July 26, 2007

Sensitive but unclassified. Please protect accordingly.

1. (U) This cable contains the Japan Economic Scope from
July 26, 2007.

2.(SBU) Table of Contents

3. Deputy Secretary Set to Arrive in Tokyo
4. Niigata Earthquake: Damage Toll Mounts
5. Kashiwazaki-Kariwa Shutdown Squeezes Tokyo's Electricity
Supply
6. Earthquake Dents Japan's Auto Industry
7. Tour of Prefectures Indicate LDP is Heading for Defeat
8. Shimane Voters Tired of LDP and Pork Barrel Politics
9. Quality Control Scandals in China Vex Japanese
10. Japan and China to Team Up on Agriculture?
11. Criticism of Japan's Pork Gate Price System
12. Bilateral Beef Talks Resume
13. Kansai Politicians Demand More International Flights from
Itami
14. METI Sees Mitsubishi Regional Jet (MRJ) as a Priority
15. No Boeing-MHI Cooperation on Regional Jet -- Yet
16. Japan Civil Aviation: The Other Reforms
17. Tokyo Civ Air Talks Round Up
18. Kitakyushu Ethanol from Food Waste Pilot Project
19. MOFA's New Maritime Headquarters to Check MLIT?
20. Trade Figures Surge
21. A Japanese Perspective on Steel Partners
22. Big Industrial Fish Lure Smaller Ones in Mie
23. Borg-Warner's Mie Plant Takes on Asia-Wide Role

3. (SBU) Deputy Secretary Set to Arrive in Tokyo
-----------------------------

On his return from the Asian Regional Forum in Manila, Deputy
Secretary Negroponte will stop in Tokyo for bilateral meetings

SIPDIS
August 3.

For the Embassy's scene-setter, please see Tokyo 3399. David
DiGiovanna is the control officer for the visit.

4. (U) Niigata Earthquake: Damage Toll Mounts
-----------------------------

Authorities are still totaling up the damage after an earthquake
hit Japan's Niigata Prefecture on July 16. The prefecture puts
the losses at about 1.5 trillion yen, including 700 million yen
worth of damage to the Kashiwazaki-Kariwa nuclear plants owned by
Tokyo Electric Power Co.

Some 3000 people are still living in shelters in Kashiwazaki,
according to press reports. Some 10,000 homes in the prefecture
have been damaged or destroyed. The Ministry of Land,
Infrastructure, and Transport (MLIT) estimated damage to area
infrastructure at slightly above four billion yen.

The 6.8 magnitude quake killed 11 people and injured over 1000.
"The quake was a typical disaster hitting a midsize city,"
Niigata Governor Hirohiko Izumida told reporters afterward.
(ECON: Nicholas Hill)

5. (U) Kashiwazaki-Kariwa Shutdown Squeezes Tokyo's Electricity
Supply
------

The shutdown of the Kashiwazaki-Kariwa nuclear plant, following
the July 16 earthquake and resulting safety concerns, has taken
offline roughly six million kW of electrical power, according to
a press release by Tokyo Electric Power Company (TEPCO), which
operates the plant and serves customers mainly in the Tokyo
metropolitan area.

While the total capacity of Kashiwazaki-Kariwa's seven reactors
is over eight million kW, three reactors were already scheduled
for temporary shutdown to conduct routine inspection and
maintenance.

TEPCO plans to mitigate the impact of the shutdown with about
three million kW of additional supply by increasing output at
other plants, including fossil fuel plants, and purchasing power
from other utilities. If successful, these measures will bring
TEPCO's supply for the peak summer months to roughly 62 million

TOKYO 00003450 002 OF 008


kW.

TEPCO officials have expressed confidence that they will be able
to meet a forecasted seasonal peak demand of 61 million kW. Two
fossil fuel power plants were already restarted in early July.
Restarting some previously-retired fossil fuel plants, however,
will require "at least a couple of months," according to one
TEPCO representative. Moreover, purchasing additional power from
other utilities may pose challenges.

In a severe heat wave, other Eastern Japan utilities, such as
Tohoku or Hokkaido power companies, may not have spare capacity
available, and transferring power from utilities in Western Japan
is limited by the lack of transmission lines and the different
frequency of the grid (60 hertz vs. TEPCO's 50 hertz).

TEPCO officials acknowledge that exceptionally high summer
temperatures could increase demand above their forecast and are
prepared to undertake demand management measures to curb
customers' electricity usage during peak times. While peak
demand on July 24, 2007, was just 48 million kW, in July 2001
peak demand topped out at over 64 million kW, according to TEPCO
records. (EST: Thomas Wolf/Ayanna Hobbs/DOE: Ronald Cherry/
Koichi Uchida)

6. (SBU) Earthquake Dents Japan's Auto Industry
-------------------------------

By the time the Scope went to press, Japanese automakers had
resumed production on most if not all of the lines shuttered
because of the Niigata earthquake.

The Japanese media estimates that the twelve Japanese car makers
would come up 120,000 vehicles short of their original production
plans. This is three times the production shortfall caused by
the earthquake that leveled Kobe in 1995.

The shutdown, however, is not expected to have a major impact on
the automakers' overall production or bottom lines.

The main shutdown period of roughly July 19-24 spanned a weekend,
and a Honda official reports that they can compensate for the
lost production by boosting production in September.

One of the big investment houses shared their "instant" analysis
with us and it estimates a loss of 20 billion yen per day of
halted production collectively for the top eight auto firms, but
notes this could be made up by the end of the year by increased
production in the second and third quarters.

The Big Three Japanese automakers -- Toyota, Honda and Nissan --
all told the press that the shutdowns would not affect exports.
Although the industry may have dodged a bullet this time, the
quake revealed an unexpected vulnerability to Japanese
manufacturing supply chains and has led to some fretting about
other weak points, where one company has a large market share of
a critical product.

Riken Company's Kashiwazaki plant produced about 50 percent of
piston rings used by the vehicle manufacturers in Japan (as well
as seal rings used in hydraulic systems on vehicles).

Other manufacturers have similarly large market shares, e.g.:
Denso Corp. has 60 percent of the car air conditioner market;
Asmo Co. supplies 53 percent of radiator fans; and Tokai Rika
produces 49.4 percent of the electrical switches.

Consulate Nagoya, however, notes that Japanese automakers also
may keep more inventory on hand than is generally understood,
particularly for strategically important or single-sourced parts.
On the plant floor, the famous just--in--time system may result
in as little as two hours of inventory on hand, but depending on
the part, nearby warehouses owned by the automakers can stock
several days of supplies.

The carmakers expeditious sending of some 700 workers to the
damaged Riken plant, moreover, demonstrated the resiliency of the
production system when confronted by a disaster.
An industry insider explained to us that much of the equipment
used by the automakers to produce engines is similar to the
machinery at Riken. Thus, with the closure of the production
lines, maintenance workers and engineers could be deployed to

TOKYO 00003450 003 OF 008


Riken to repair the damage.

Despite the relative success of the industry's response,
producers are hedging their bets.

Toyota announced it would reexamine its supply network to see if
dominant manufacturers' production can be dispersed.
The Japanese press, in addition, has highlighted other industries
that are vulnerable to a disruption, the effects of which would
not only be felt in Japan, but globally.

The Yomiuri warns that Kobe Steel's Moka plant in Moka and
Furukawa Electric's Nikko plant, both in Tochigi Prefecture, are
the sole world-wide manufactures of a substrate used in the
production of hard disks for personal computers and HD-DVD
players, and Kuraray Company has about 80 percent of the global
market share in polyvinyl alcohol film, which is used for a
liquid crystal displays.

The Yomiuri wrote that the 1995 Kobe earthquake heavily damaged
Kobe Steel's facilities, greatly disrupting the production of
wire rods for valve springs on vehicle engines; with Kobe Steel's
50 percent of the global market share, the production of autos
around the world was affected. (ECON: Josh Handler)
Back to Top

7. (SBU) Tour of Prefectures Indicate LDP is Heading for Defeat
-----------------------------

As voting day approaches, Japanese pundits continue to predict a
major defeat for the Liberal Democratic Party (LDP) in Upper
House elections. Embassy officers visited Yamagata, Tottori,
Shimane, Aomori and other prefectures over the last 10 days to
look at how the campaigns were shaping up throughout the country.
Regional economic conditions appear to be playing a major role;
the pension scandal and growing income gap are most commonly
cited as serious concerns.

In the long-time LDP stronghold of Yamagata, for example, the
loss of public works, the privatization of the postal service,
and a shrinking agricultural base have left the party on the
defensive and the Democratic Party of Japan (DPJ) candidate Yasue
Funayama feeling confident she can defeat her female LDP
counterpart Mieko Shinohara.

Tottori postal rebel Yoshihiro Kawakami is trying to make the
most of his former LDP connections and support among the farming
community while running on the DPJ ticket.
By contrast, the race continues to be tight in Aomori, with the
LDP still maintaining an edge. Divisions in RENGO Aomori are
proving to be very problematic for the DPJ challenger Hirayama.
(ECON: Joan Siegel and other contributors)

8. (SBU) Shimane Voters Tired of LDP and Pork Barrel Politics --
---------------------------

An editor at the Shimane Nichi Nichi Shimbun communicated to the
Osaka-Kobe Consulate General that Shimane voters are "sick of"
Mikio Aoki (head of the Liberal Democratic Party (LDP) in the
upper house) and his old style of pork-barrel politics.

Voters in Shimane view the old style of LDP machine politics as
only benefiting a narrow segment of the population involved in
the construction industry. They are now ready for a change,
thanks to the shock administered by Koizumi and his economic
reforms.

The Nichi Nichi Shimbun editor sees this as an economic
maturation of the public in Shimane. For those further
interested in Aoki's decline in power, a recent article from the
Hokkoku Shimbun is attached below. (Osaka-Kobe: Phil
Cummings/Scott Ravenhill)

9. (SBU) Quality Control Scandals in China Vex Japanese
-----------------------------

While on a trip to China July 25-26, Agriculture Minister Akagi
underscored Japanese concerns about food safety issues. An
Agriculture Ministry (MAFF) official told us that Akagi's meeting
with his Chinese counterpart, Du Qinglin, went well. The two
countries will convene a meeting of experts to exchange
information on food safety issues.

TOKYO 00003450 004 OF 008

The MAFF official told us that this is an approach that the
Health Ministry (MHLW) has advocated and Akagi agreed to convey
during his visit. In addition to meeting Du, Akagi met senior
Chinese quarantine officials.

According to a Nikkei story on July 24, Japan is offering
technological assistance to help China improve product safety
standards. Both countries would investigate suspicious goods,
looking closely at production and distribution problems.
Chinese imports account for two percent of Japan's gross domestic
product. The Japanese media has intensively covered the scandals
over Chinese quality control safeguards, creating a consumer
furor during Japan's Upper House election campaign. (ECON:
Nicholas Hill/Ryoko Nakano)

10. (SBU) Japan and China to Team Up on Agriculture?
-----------------------------

In addition to discussing food safety issues, an Agriculture
Ministry (MAFF) source we spoke to said Japan's Agriculture
Minister Akagi and his Chinese counterpart, Du Qinglin, both
agreed they have problems with Crawford Falconer's draft
modalities text prepared for the Doha Round agriculture
negotiations and released last week.

According to a GOJ press statement issued after the two ministers
met, Akagi repeated concerns about the text being "unbalanced"
against food importing countries. He said that Japan would
continue to ask for modifications to the draft. For his part, Du
Qinglin complained that the text was biased against newly-minted
WTO members.

The two agriculture ministers agreed to collaborate in the future.

In particular, the Chinese are interested in acquiring
agricultural technology from Japan and also know-how on insurance
programs in the farm sector.

In addition to meeting Chinese government counterparts, Akagi was
in China for a July 25 ceremony to promote high-grade Japanese
rice sales in the Chinese market. Trade resumed in June after
some intense bilateral negotiations. (ECON: Nicholas Hill/Ryoko
Nakano)

11. (SBU) Criticism of Japan's Pork Gate Price System
-----------------------------

Some consumer groups and industry sources want to see changes to
the Japanese government's Gate Price System for pork.

The system protects Japan's market from foreign imports and
distorts the market mechanism. Japan is the world's largest pork
importer. U.S. exporters did more than $1 billion dollars in
business in 2006.

For more details, please see Tokyo 3394. (ECON: Nicholas
Hill/FAS: Paul Spencer)

12. (SBU) Bilateral Beef Talks Resume
-----------------------------

A second round of talks at the experts' level is set to resume in
Tokyo August 1--2 to discuss Japan's restrictions on U.S. beef
imports. The United States would like to see Japan adopt a more
science-based approach consistent with World Animal Health
Organization (OIE) standards.

USDA, FDA, USTR, and Embassy representatives will compose the U.S.
delegation. Japan's delegation will be headed by officials from
the Health Ministry (MHLW) and Agriculture Ministry (MAFF) and
also be joined by officials from MOFA.

After the experts meetings, the Japanese government is expected
to craft a recommendation for its independent Food Safety
Commission on whether to ease currently onerous standards that
ban U.S. beef from cows over 20 months old.

The United States would like to see Japan eliminate its age
restrictions all together, a step which would be consistent with
international standards. Japanese officials have not indicated
that they are prepared to go that far, irrespective of what the

TOKYO 00003450 005 OF 008


OIE has recommended. (ECON: Nicholas Hill)

13. (U) Kansai Politicians Demand More International Flights
from Itami
----------

From conversations with Lower House Diet members Koichiro
Ichimura, Democratic Party of Japan (DPJ), and Yasuhide Nakayama,
Liberal Democratic Party (LDP), Osaka-Kobe Consulate General has
learned that both politicians strongly support increasing
international flights out of Itami, an airport located northwest
of Osaka. They have been applying strong political pressure on
the Ministry of Land, Infrastructure and Transportation (MLIT)
and Minister Fuyushiba to support their priorities.

Ichimura, who represents Takarazuka near Itami, told the
Consulate he had the support of the South Korean Embassy to start
Itami-Pusan or Gimpo charters at an undecided date in September.
The Korean Ambassador to Japan suggested a second city linkage
between Pusan and Osaka, and Ichimura responded affirmatively to
this proposal by promising to be on the first flight.

Nakayama was notably unsupportive of Kansai International Airport
(KIX), citing its inconvenience from downtown Osaka. He spoke of
the great demand for air service out of Itami, especially now
that jet engines were quieter.

Nakayama is running a small benkyokai with Hankyu-Hanshin Rail,
JR and academics on plans to make a Shinkansen stop in JR Osaka
and/or Umeda Station so that business travelers would have a
choice of Shin-Osaka or Osaka/Umeda.

He said this is made possible by Japanese land rights extending
only a certain amount of meters below the surface, which opens up
development of deep rail stations, similar to the Oedo Line in
Tokyo. (Osaka-Kobe: Phil Cummings/Scott Ravenhill)

14. (SBU) METI Sees Mitsubishi Regional Jet (MRJ) as a Priority
-----------------------------

METI officials told us this week that the MRJ project is a
priority for them, but that Mitsubishi would decide next spring
about moving toward production of the aircraft and METI has not
yet decided they would support the project. Press reports
statements about 30 percent funding by the GOJ were unfounded,
since it may be more or less than that, according to the
officials.

The METI officials implied that if a decision to support the
project was made it would become apparent in the development of
next year's budget which would be submitted to the Diet early
next year.

Currently METI is supporting an ongoing R&D project for the MRJ
through the New Energy and Industrial Technology Development
Organization (NEDO).

METI was encouraged by the news that Boeing would provide some
assistance to the project.

When asked what is METI's vision for the future of Japan's
aircraft industry, the officials replied that full-scale
production of a whole aircraft is necessary; there is a need to
move beyond the production of just parts or sections of an
aircraft. (ECON: Junko Nagahama/Josh Handler)

15. (SBU) No Boeing-MHI Cooperation on Regional Jet -- Yet
-----------------------------

At a July 19 luncheon meeting with Nagoya PO, Boeing Japan
President Nicole Piasecki and Mitsubishi Heavy Industry (MHI)
Nagoya Aerospace Systems General Manager Yoji Yamada both denied
Japanese press reports from the June Paris Air Show that Boeing
and Mitsubishi had reached an agreement for Boeing to provide
investment, marketing or production support for Mitsubishi's
regional jet (MRJ) program.

In Paris, Mitsubishi debuted a mock-up of the composite
materials-based, 70 to 90 seat MRJ, planned to start production
in 2012. Given the long history of cooperation between Boeing
and MHI and the fact that the MRJ would not compete with any
Boeing products, but rather with planes from Bombardier, Embraer

TOKYO 00003450 006 OF 008


and others, many observers have speculated that MHI's project is
ripe for participation by Boeing. Piasecki and Yamada both
strongly emphasized that any Boeing role remained entirely
speculative at this point.

Pointing to the successful Boeing--MHI cooperation on production
of composite materials wings for the 787 Dreamliner, however,
Piasecki said it was not unrealistic to expect that Boeing and
MHI would look closely at whether future cooperation on the MRJ
was warranted in the regional jet sector of the market (in which
Boeing currently does not participate). (Nagoya: Dan Rochman)

16. (SBU) Japan Civil Aviation: The Other Reforms
-----------------------------

While the battle over expanding capacity at Tokyo's Narita and
Haneda airports has grabbed most of the attention of the press
and policy-makers since last September when Prime Minister Abe
first proposed reform of Japan's aviation policy in his Asia
Gateway Initiative, equally important for aviation reform are
efforts to revise airport governance, airport fees, and airfares,
which are still controlled or heavily influenced by the
government.

Tokyo 3313, July 19, 2007, covers the Council for the Promotion
of Regulatory Reform (CPRR) and the Japan Fair Trade Commission
(JFTC)'s differences with the Ministry of Land, Infrastructure
and Transport (MLIT) on these issues. (ECON: Josh Handler)

17. (SBU) Tokyo Civ Air Talks Round Up
-----------------------------

Tokyo 3377, July 25, 2007, provides more information on State
Transportation DAS John Byerly and DOT International Aviation
Paul Gretch's civil aviation discussions with their Japanese
counterparts, delves into the Japanese and U.S. political
calendars' impact on the next few years of negotiations, gives
some insights into Japan Airlines (JAL) financial situation, and
supplies more background on the JFTC's work on anti-trust
immunity for aviation agreements. (ECON: Josh Handler)

18. (U) Kitakyushu Ethanol from Food Waste Pilot Project
-----------------------------

In June Nippon Steel Engineering launched a pilot project to
process food waste into ethanol at Kitakyushu Eco Town in
Kitakyushu City. Commissioned by the New Energy and Industrial
Technology Development Organization (NEDO), the project is
scheduled to last until March 2010. One of seven NEDO "Local
Biomass Energy Systematization Projects," it is the first in
Japan to produce ethanol from food waste.

Kitakyushu City established the system to collect and sort food
waste with technologies developed by waste management company
Nishihara Co.

Leftover food is collected primarily from supermarkets,
restaurants, schools and hospitals. It is estimated that 10 tons
of this food waste produces 400 liters of ethanol per day. The
ethanol is then processed into three percent ethanol blend
gasoline (E3 gasoline) and will be used as fuel for vehicles
owned by Kitakyushu City and Nippon Steel.

To minimize costs, the ethanol production plant uses excess waste
heat from a nearby incineration facility and the residue left
after ethanol recovery is then burned in the same incinerator.
Kitakyushu City officials stated that the most challenging aspect
of this project has been the development of an efficient means of
collecting and transporting food waste to the plant. (Fukuoka:
Yuriko Funakoshi/James Crow)

19. (SBU) MOFA's New Maritime Headquarters to Check MLIT?
-----------------------------

On July 20, the Ministry of Foreign Affairs (MOFA) established a
Headquarters for Foreign Policy concerning Maritime Affairs
headed by Shotaro Yachi, Vice-Minister for Foreign Affairs the
same day the new Basic Maritime Law came into effect.

One of the provisions of this law is the establishment of a
General Maritime Policy Headquarters, with the Ministry of Land,
Infrastructure and Transport (MLIT) holding the highest position

TOKYO 00003450 007 OF 008


among the member ministries. A July 24 Nikkei article says
MOFA's move was not a coincidence and speculates that MOFA
established its office to check MLIT's power in maritime affairs.
According to MOFA's Senior Planning Officer for Ocean Affairs,
Ryotaro Suzuki, the new MOFA-initiated headquarters' (HQ) members
are from MOFA only. Its Secretariat Chief is the Director-
General (DG) of the Economic Affairs Bureau, and it consists of
some 20 DG-level members from different bureaus.

A MOFA press release says that the new MOFA HQ will serve to
conduct faster and more effective comprehensive planning,
coordination and policy-making regarding the overall foreign
policy on maritime affairs.

As for the General Maritime Policy Headquarters, while the Prime
Minister is nominal head, the Chief Cabinet Secretary and MLIT
Minister are Deputy Chiefs, and the Foreign Minister joins the
office as a member, a status lower than the Deputy Chief.
Hiroshi Terashima, Executive Director for the Ocean Policy
Research Foundation (OPRF) and a former Assistant Vice Minister
of Transport, told us, that based on his experience as a key
figure in establishing the Basic Maritime Law, that Nikkei
probably came to its conclusion because MLIT had taken the
initiative in making the law. MLIT finalized the law, and MLIT
Minister Tetsuzo Fuyushiba became the first Maritime Minister
while serving concurrently with his other duties. Terashima
speculated that MOFA may be trying to regain some ground it has
lost to MLIT.

Fuyushiba said in a July 24 press conference that he only learned
of the MOFA HQ from the press report and had never heard about it
directly from MOFA. He stated that he thinks that in principle
the General HQ will lead maritime policy, but that does not mean
it prohibits other GOJ offices from conducting established policy.

For more background, see Tokyo 2552. (EST: Keiko Kandachi/Bart
Cobbs)

20. (U) Trade Figures Surge
----------------------------

If a growing current account surplus were the key to success in
Japanese election politics, PM Abe would be sitting comfortably.
According to preliminary government trade figures reported widely
in the press on July 25 for the first six months of 2007, exports
jumped 12.8 percent to just over 40 trillion yen, while imports
grew 8.2 percent to just over 35 trillion yen.

According to the Nikkei, Japan's trade surplus with Asia surged
37.6 percent to 3.89 trillion yen, while its surplus with the
United States declined 2.6 percent to 4.11 trillion yen. Exports
fueled a decline in Japan's deficit with China of 17.6 percent.
Japan's total trade with China was greater than its total trade
with the United States for the second six month period in a row.
The Nikkei cited Finance Ministry data that Japan's trade surplus
in June expanded 53.4 from the same period in 2006, an eighth
straight month of growth. (ECON: Nicholas Hill)

21. (SBU) A Japanese Perspective on Steel Partners
-----------------------------

The chairman of office equipment maker Brother Industries, the
target of two activist shareholder proposals by U.S.-based
investment fund Steel Partners, told Nagoya PO that he
fundamentally disagreed with Steel Partners' (Brother's largest
shareholder) objectives in seeking sharply increased dividends,
but he did not believe Steel Partners had any malicious intent.
This differs with press characterizations of Steel Partners as a
greenmailer, largely due to its dispute with the Bull-Dog Sauce
Company. Foreign investment (virtually all by U.S. investment
funds) in Brother has risen dramatically from less than 10
percent six years ago to nearly 40 percent today, and the firm's
management says almost all foreign investors other than Steel
Partners agree with its financial strategy. (Nagoya: Dan Rochman)

22. (SBU) Big Industrial Fish Lure Smaller Ones in Mie
-----------------------------

Kanetaka Nakao, Director General for Agriculture, Commerce and
Industry in Central Japan's Mie Prefecture, explained Mie's
successful high tech investment promotion activities to visiting
Nagoya PO on July 24.

TOKYO 00003450 008 OF 008

Spurred by Sharp and Fujitsu's mega-investments in LCD television
production and Toshiba/Sandisk's in integrated circuit production,
Mie's "Crystal Valley" and "Silicon Valley" projects have
accumulated 78 firms in the flat panel display sector and 47
firms in the semiconductor sector, respectively.

Although a top selling point for Mie is its proximity to Nagoya
and easy access to Osaka, the prefecture also offers some of the
richest investment incentives in Japan, topping out at a nine
billion yen package ($73 million) of incentives paid out to a
single manufacturer over 15 years.

In part, as a result of the spurt of high-tech investment, Mie's
per capita manufacturing output is over twice the national
average, and grew in 2005 at 7.6 percent, nearly double the
national rate.

Nevertheless, Mie suffers from the same regional disparities that
plague Japan as a whole. While there are about 200 jobs for
every 100 job-seekers in the northern part of the prefecture,
there are only about 50 jobs per 100 applicants in the south.
(Nagoya: Dan Rochman)

23. (SBU) Borg-Warner's Mie Plant Takes on Asia-Wide Role
-----------------------------

BorgWarner Morse Transmission and Engine Components (TEC) Japan
Managing Director Mark Boshart explained the expanding regional
role of BorgWarner's Nabari plant, Mie Prefecture, during a July
23 visit by Nagoya PO.

The Nabari plant was established 23 years ago to produce 4WD
transfer chains (a market dominated by BorgWarner , with a 90-95
percent global market share) engine timing systems, and other
parts for Japanese automakers but now also serves as a "mother
plant" for expanding BorgWarner operations in China and India.
Boshart noted that, owing to intellectual property concerns for
products assembled in China, BorgWarner had maintained production
of key components in Japan and had "dumbed down" some of its
manufacturing assembly machines to be used in China.

With regards to the environment, Boshart said that when
constructing its Ningbo, China plant, BorgWarner was required to
build on a minimum of 90 percent of its land, compared a maximum
area of 65-70 percent in Japan, which mandates green space on
industrial plots.

Separately, Boshart said that one of the reasons he was sent to
Nabari, succeeding a Japanese managing director, was to make sure
BorgWarner's accounting and auditing procedures in Japan were
Sarbanes-Oxley compliant. (Nagoya: Dan Rochman)
SCHIEFFER

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