Cablegate: Daily Summary of Japanese Press 10/30/07

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P 300752Z OCT 07
FM AMEMBASSY TOKYO
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UNCLAS SECTION 01 OF 08 TOKYO 005043

SIPDIS

SIPDIS

DEPT FOR E, P, EB, EAP/J, EAP/P, EAP/PD, PA;
WHITE HOUSE/NSC/NEC; JUSTICE FOR STU CHEMTOB IN ANTI-TRUST DIVISION;
TREASURY/OASIA/IMI/JAPAN; DEPT PASS USTR/PUBLIC AFFAIRS OFFICE;
SECDEF FOR JCS-J-5/JAPAN,
DASD/ISA/EAPR/JAPAN; DEPT PASS ELECTRONICALLY TO USDA
FAS/ITP FOR SCHROETER; PACOM HONOLULU FOR PUBLIC DIPLOMACY ADVISOR;
CINCPAC FLT/PA/ COMNAVFORJAPAN/PA.

E.O. 12958: N/A
TAGS: OIIP KMDR KPAO PGOV PINR ECON ELAB JA

SUBJECT: DAILY SUMMARY OF JAPANESE PRESS 10/30/07

Index:

(1) Meeting between Prime Minister Fukuda, DPJ President Ozawa on
new antiterrorism bill ends without any agreement (Nikkei)

(2) Japanese system involving trading firms in procuring defense
equipment a breeding ground for collusion (Asahi)

(3) Editorial: Moriya's Diet testimony has further deepened
suspicions (Nikkei)

(4) Former Defense Minister Kyuma to be hospitalized today
(Mainichi)

(5) EU, 11 states of US and Canada agree to form unified market for
trading in greenhouse gas credits (Asahi)

(6) JBIC to support China's environment policy (Sankei)

(7) TOP HEADLINES

(8) EDITORIALS

ARTICLES:

(1) Meeting between Prime Minister Fukuda, DPJ President Ozawa on
new antiterrorism bill ends without any agreement

Nikkei Net (Full)
October 30, 2007

Prime Minister Yasuo Fukuda and Democratic Party of Japan (DPJ or
Minshuto) President Ichiro Ozawa held their first meeting as party
heads this morning in the Diet. The prime minister sought his
cooperation on passing the new bill that will allow continued
refueling services in the Indian Ocean by the Maritime Self-Defense
Force (MSDF), but Ozawa would not accept his view, and the talks
ended along divergent lines. However, Ozawa agreed to the prime
minister's suggestion that they talk again on Nov. 2.

Talks between the prime minister and President Ozawa lasted one hour
and twenty minutes. Only at the start of the meeting were the
secretaries general and Diet steering committee chairmen of the two

SIPDIS
parties present. For the rest of the session, only the two party
leaders parleyed. Referring to the MSDF's refueling operation, the
prime minister in seeking Ozawa understanding toward passage of the
new bill, stressed, "For domestic and international reasons, I would
like your cooperation in some way." Ozawa rejected the request,
saying: "Dispatching the Self-Defense Forces overseas must be based
on proper principles. It can only be allowed under the framework of
being a United Nations activity."

With no agreement in their views, the prime minister proposed
holding talks again on Nov. 2, saying, "I would like to have another
frank discussion with you." President Ozawa replied that he would do
everything possible to oblige. With that in mind, the two decided to
postpone the party-head debate scheduled for the Diet on Oct. 31.

(2) Japanese system involving trading firms in procuring defense
equipment a breeding ground for collusion

ASAHI (Page 3) (Abridged)

TOKYO 00005043 002 OF 008

October 30, 2007

The Defense Ministry heavily relies on major defense equipment from
Western countries that are of high performance and inexpensive. A
procurement system in which trading firms take care of complex
contract procedures is unique to Japan. Serving not only as a
go-between with overseas makers but also collecting and providing
military information, the presence of Japanese trading houses is
indispensable, according to a senior Defense Ministry official. Why
is the presence of traders essential in procuring defense equipment?
What problems lie there?

Monopolistic deliveries

The Self-Defense Forces annually procure equipment ranging from
fighters to tanks to clothing that is worth about 2 trillion yen. Of
that, 7 PERCENT of imports involve trading houses. The total volume
of contracts in FY2005 came to 152.5 billion yen. Fierce competition
exists among over 100 companies registered with the Defense
Ministry.

Defense equipment is procured through open biddings in principle, as
is the case with other government agencies. However, because the
limited number of makers producing equipment involving highly
classified military secrets and special military specifications, the
ministry in many cases ended up concluding discretionary contracts.
This trend is more pronounced when military equipment is imported.

Why do trading firms stand between equipment manufacturers and the
Defense Ministry? A ministry procurement official explained it this
way: "Simply put, they can take care of complex business procedures
and deliver products on time without fail."

Importing a large number of equipment takes several years. Under
Japan's accounting system that is on a single-year basis, the
ministry in principle makes payments at the end of each fiscal year.
Some overseas producers, on the other hand, ask for advance or
piecework payments in the middle of a fiscal year. In such a case, a
trading house might borrow large sums of money from financial
institutions.

Importing equipment requires expertise in customs clearance and
settling trade accounts, in addition to differences in business
practices and languages. The Defense Ministry procurement department
has neither secured enough personnel nor developed sufficient human
resources. Many procurement officials agree that procurement
operations will collapse without traders. Trading houses' other role
is to collect information.

A defense department official at a major trading firm commented: "We
have been providing the latest and current defense information, such
as what would be needed for the next generation, by checking the
trends of the global arms markets five to 10 years from now."

By collecting information and doing market research for the Defense
Ministry and SDF, trading houses also intend to have a handle on the
demand of their trading partners in the hope of new business
opportunities.

The reward of such work would be the monopolistic delivery of
equipment as an agent of a foreign manufacturer. For instance, once
a contract is concluded on aircraft parts that would be used for the

TOKYO 00005043 003 OF 008

next 20 years, a company would automatically be able to deliver
parts until the fuselages are scrapped.

Moreover, unlike fierce competition for prices and quality among
domestic makers in bidding, a company can in many cases win
discretionally contracts when there are no competitors. In the case
of Yamada Yoko Corp., over 90 PERCENT of its defense equipment
contracts are discretionary contracts.

Cautious views in the ministry

It is a standard practice for procurement organizations of other
countries to do business directly with Western military
manufacturers that are mostly equipped with exporting functions. The
involvement of trading firms is reportedly limited to the
procurement of components. Military journalist Shinichi Kiyotani,
who is knowledgeable about military procurement of other countries,
takes a critical view of the Japanese system, saying: "In the case
of Japan, everything -- from market research to negotiations to
collecting information -- is left to trading houses. Leaving
everything to them is too much to tolerate."

Defense Minister Shigeru Ishiba has announced a plan to review the
present procurement system involving traders. Ishiba's plan comes
from a sense of alarm that excessive reliance on trading houses
would result in a decline in the information-gathering capability.
But there are highly cautious views in the Defense Ministry. A
senior official well-versed in procurement transactions said: "The
traders' role is to bridge gaps in accounting and contract systems
between Japan and other countries. Reexamining the Japanese system
would be difficult unless fundamental institutional reform is
entailed."

Procurement organizations of other countries are diverse, ranging
from government organizations to national enterprises, though they
are all large in scale. In the United States, procurement is done by
the Defense Logistics Agency and the Defense Contract Audit Agency,
which employ a total of 70,000 personnel. Britain has also nearly
30,000 personnel for procurement. In contrast, in Japan's Defense
Ministry, the Equipment Procurement and Construction Office has only
600 personnel.

Kiyotani proposes a national defense equipment procurement company
without establishing a large government organization. Kiyotani said:
"There would be no problem to establish a stand-alone entity
composed of personnel from the Foreign and Defense Ministries, who
would all be held responsible for procuring defense equipment."

Meanwhile, military analyst Keiichi Nogi noted: "The procurement of
arms overseas is ridden with irregularities, as well. It would be
more pragmatic to increase the transparency of the current system
and strengthen the checking functions."

Scandals involving trading firms in the past

In the Lockheed scandal and the Douglas-Grumman scandal that came to
light in the 1970s, the aircraft makers' maneuverings for the
selection by Japan of the P3C patrol aircraft and the E2C
early-warning aircraft, respectively, were suspected. In both cases,
the truths were not uncovered as the investigators were not allowed
to tap into defense secrets, a sanctuary.

TOKYO 00005043 004 OF 008

To prevent a recurrence, the then Defense Agency has switched to a
system to directly conclude contracts between governments. But the
system is prone to cause troubles, such as delayed deliveries. As a
result, imports via trading firms are again on the rise.

There has been no change in the system that produces collusive ties
between foreign makers and trading firms that are strong in
collecting information on what the user is likely to select in the
future.

Although traders have been refraining from treating retired Defense
Ministry officials to free golf and wining and dining since the SDF
code of ethics took effect in 2000, such practice has not
disappeared altogether.

(3) Editorial: Moriya's Diet testimony has further deepened
suspicions

NIKKEI (Page 2) (Full)
October 30, 2007

Why was a person like Takemasa Moriya, who lacks a sense of ethics,
able to hold on to the administrative vice minister's post for more
than four years?

A collusive relationship between former Administrative Defense
Minister Takemasa Moriya and Nihon Mirise Corp. President Motonobu
Miyazaki, a former executive of defense equipment trader Yamada Yoko
Corp. was more than we had envisioned. Moriya, however, said that he
had provided no favors to Miyazaki. The Diet needs to continue
working to shed light on the allegation of inappropriate relations
between the two.

In his testimony yesterday before the House of Representatives
Special Committee on Terrorism Prevention and Assistance for Iraq,
Moriya revealed that he had played golf more than 200 times in about
11 years with Miyazaki, who always footed Moriya's bill. Miyazaki
also paid for golf outings in Hokkaido, Kyushu and Shikoku regions
with Moriya and twice gave Moriya and his wife golf clubs as gifts.
When traveling overseas, he bought bags for Moriya's wife as
souvenirs. Moriya yesterday apologized for his cozy ties with
Miyazaki, saying, "My conduct was unwise and inappropriate."

Moriya denied, however, allegations that he had helped Nihon Mirise
conclude a discretionary contract with the ministry for the engine
of the CX next-generation transport aircraft. He probably considers
that Miyazaki entertained him because they were friends, and he had
no other intention. We wonder a senior defense equipment trading
house executive, who wanted to sell defense equipment to the
ministry, spent such a large amount of money to entertain a senior
bureaucrat just because they were friends.

It is impossible in common-sense terms to entertain for a decade
without seeking any rewards. Moriya revealed in his testimony that
some politicians joined the entertainment on occasion. Although he
avoided mentioning the names of politicians, he stated that former
Defense Agency chiefs were included.

How much the politicians were involved in the cozy relations between
Moriya and Miyazaki will be uncovered. The reason for Moriya having
served in the vice minister's post for such a long time is that he
had close relations with LDP lawmakers with vested interests in

TOKYO 00005043 005 OF 008

defense affairs. It is natural for the politicians in question to
come forward if they have nothing to hide.

"I feel deeply sorry for the public and for Defense Ministry
officials," Moriya said. "I as administrative vice minister feel
greatly responsible for causing problems that have delayed
deliberations on the antiterrorism measures bill." If what he said
is true, he has to honestly cooperate with continued efforts to shed
light on the issues.

He did not give any clear testimony for the correction of the amount
of fuel the MSDF supplied to a US ship, which was also a focus of
attention along with the Moriya scandal in his Diet testimony. The
Diet has to shed light on this issue as well.

(4) Former Defense Minister Kyuma to be hospitalized today

MAINICHI (Page 3) (Full)
October 30, 2007

Former Defense Minister Fumio Kyuma, a member of the ruling Liberal
Democratic Party (LDP), revealed in a meeting yesterday of LDP House
of Representatives members held in the city of Yokkaichi, Mie
Prefecture that he will be admitted to a hospital today to undergo a
dissecting aortic aneurysm surgery. He said: "If I don't have
surgery as quickly as possible, I will become like Yujiro Ishihara
(actor who died for the same illness). My doctor threatened me to
rebuild the aorta with a synthetic graft." He therefore reportedly
cancelled the planned overseas trip starting today.

It has just been revealed that he was wined and dined in Tokyo by a
former executive of defense equipment trader Yamada Corp.

(5) EU, 11 states of US and Canada agree to form unified market for
trading in greenhouse gas credits

ASAHI (Page 9) (Excerpts)
October 30, 2007

(Kishi, Kunimatsu, Lisbon)

The European Union (EU) and 11 states of the United States and
Canada, including California and New York, agreed on Oct. 29 to aim
to form a unified market for trading of greenhouse gas credits and
signed a political declaration in Lisbon. They will play a leading
role in creating an international emissions market in the form of
major US and Canadian states joining hands with the EU, which has
taken the lead in emissions trading. Once preparations for a new
unified market advance quickly under the cooperation between the US
and Europe, it will inevitably have some impact on Japan, which has
been halfhearted about emissions trading, as well as on negotiations
on nation-specific emission-cut plans beyond the 2012 timeframe
under the Kyoto Protocol.

Japan might be left behind

The agreement designed to unify the EU Emissions Trading Scheme
(EUETS) and a planned US market is a great step toward forming a
global market for carbon dioxide (CO2) that involves the US. If the
international market begins to play a main role to reduce greenhouse
gas emissions in the future, Japan, which has yet to set up a
trading system, could be left behind. Japan is now being pressed to

TOKYO 00005043 006 OF 008

determine whether to introduce a cap-and-trade system.

The US has not joined the Kyoto Protocol. So even if states in the
eastern and western parts of the US introduce the planned system, it
will be considerable difficult to connect the US system free from
any Kyoto requirements to the EUETS, which is based on the targets
set in the Kyoto Protocol.

The condition for two markets to be integrated smoothly is that both
have the same reduction targets under an international treaty. Given
this, the agreement reached this time may back up negotiations to
work out a post-Kyoto framework that is also acceptable for the US.

The agreement reached between the EU and the US states and Canada,
even though no system has been prepared in the US, can be taken as a
message urging the US Bush administration and the international
community to introduce obligatory reduction requirements, prior to
the start of negotiations on post-Kyoto framework in an
international conference in Indonesia in December.

Japan has yet to introduce a cap-and-trade system due to opposition
from industrial circles, which hate emission quotas. But once a
global market is formed, the prices of greenhouse gas credits set on
the market will be applied in projects designed to reduce CO2
emissions across the world. If only Japanese firms cannot use the
system freely, its companies will find it difficult to effectively
cut gas emissions. Meanwhile, if Japan fails to meet its target set
in the Kyoto Protocol, Japan will have to buy emission quotas on
this international market.

Japan is urged to discuss the issue of introducing a cap-and trade
system. If Japan wishes to join the global market, it should start
taking part in the process of forming a system.

(6) JBIC to support China's environment policy

SANKEI (Page 2) (Excerpts)
October 30, 2007

The Japan Bank for International Cooperation (JBIC) has agreed with
China's State Environment Protection Administration (SEPA) as of
Oct. 29 to assist its measures to protect the environment. Saddled
with such serious environmental problems as air and water pollution,
as well as desertification, China has suffered grave environmental
damage. It is estimated that the annual amount of damage accounts
for 5.8 PERCENT of its gross domestic product (GDP). Most of the
projects that Japan has carried out in China with its official
development assistance (ODA) funds over the past several years are
related to environmental protection. Given this, the JBIC decided to
offer cooperation in projects to be carried out by the SEPA to
improve the environment.

Specifically, the JBIC intends to help China develop human resources
and to give advice on how to enhance the effectiveness of measures
to protect the environment and contain global warming based on
ex-post-fact evaluation of policies. The bank is also expected to
play a mediatory role between the SEPA and Japan's Environment
Ministry on environment-protection regulations.

In its 11th five-year program, China sets the goal of enhancing
energy efficiency to 20 PERCENT of the nation's GDP by 2011. As
seen from this, China is now eager to reduce greenhouse gas

TOKYO 00005043 007 OF 008

emissions, reflecting the occurrence of serious health hazards
caused by air and water pollution and desertification.

In China, although a legal system, such as penalties for
environmental contamination, has been arranged, an administrative
system to urge people to abide by laws has yet to be prepared. Not
only administrative organizations tasked with implementing laws but
even people are not keenly aware of the importance of protecting the
environment. In local areas, particularly, there are many cases in
which plants are not observing the regulations that set the maximum
levels of smoke and water discharges.

The SEPA asked Japan to cooperate in improving the effectiveness of
its projects to improve the environment. Since FY2006 Japan has
provided China with new yen loans totaling 62.3 billion yen. All of
these loans were allocated to project to improve the environment.

(7) TOP HEADLINES

Asahi, Yomiuri, Tokyo Shimbun & Akahata:
Moriya admits playing golf more than 200 times with former defense
equipment trading house executive, says former Defense Agency chief
present when wined and dined with former executive

Mainichi:
Fukuda in meeting today to ask Ozawa to support new antiterrorism
legislation

Nikkei:
Fuji Heavy Industries, Daihatsu eye tie-up on passenger cars

Sankei:
Fukuda, Ozawa to hold talks today

(8) EDITORIALS

Asahi:
(1) Moriya's Diet testimony: What did Moriya give defense equipment
firm executive in return for wining and dining?
(2) Expressway tolls: It is too early to introduce tolls based on
travel distance

Mainichi:
(1) Testimony by Moriya: Why was such a person appointed vice
defense minister?
(2) Japan-ROK environment award: Environmental pollution not an
issue of the past

Yomiuri:
(1) Moriya case irrelevant to new antiterrorism bill
(2) Suspension of new station construction is one good model to
review public works projects

Nikkei:
(1) Moriya's testimony has deepened suspicions further
(2) Can Minamata disease be resolved with political settlement?

Sankei:
(1) Moriya's Diet Testimony: Conditions met for discussing main
issue
(2) Chinese yuan: Greater reform efforts necessary for developed
economy

TOKYO 00005043 008 OF 008

Tokyo Shimbun:
(1) What is Moriya trying to defend?
(2) Idea of establishing tourism agency might run counter to
administrative reform

Akahata:
(1) Moriya's Diet testimony has deepened suspicions

SCHIEFFER

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