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Cablegate: The Japan Economic Scope--December 13, 2007

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RR RUEHFK RUEHNAG RUEHNH
DE RUEHKO #5570/01 3480824
ZNR UUUUU ZZH
R 140824Z DEC 07
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC 0317
RUEAIIA/CIA WASHDC
INFO RUEHFR/AMEMBASSY PARIS 5881
RUEHFK/AMCONSUL FUKUOKA 4968
RUEHNAG/AMCONSUL NAGOYA 3692
RUEHNH/AMCONSUL NAHA 7364
RUEHOK/AMCONSUL OSAKA KOBE 8630
RUCPDOC/USDOC WASHDC

UNCLAS SECTION 01 OF 08 TOKYO 005570

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PARIS PLEASE PASS TO USOECD
STATE PLEASE PASS TO USTR

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SENSITIVE

E.O. 12958: N/A
TAGS: ETRD ECON JA ZO EAGR
SUBJECT: The Japan Economic Scope--December 13, 2007

1. (U) This cable contains the Japan Economic Scope from
December 13, 2007.

2. (SBU) Table of Contents

Japan Post, Privatization
3. Japan Post Insurance Submits New Product Applications
4. Bill to "Review" Postal Privatization Passes Upper House
5. Japan Post Insurance Contract Sales Down 74%

Beef, Agriculture
6. U.S. Beef: GOJ on Train That Says 30 months?
7. Where are the U.S. Apples?
8. Daily Yomiuri Puts Spotlight on Japan's Declining
Agriculture Sector

China Relations
9. Missing Text Sours Japan-China Econ Dialogue Outcomes

Trade Policy
10. Japan's EPA Agenda (SBU)
11. Brief Summary of the EPA Sub Committee Conclusions (U)

Business, Foreign Investment
12. Wal-Mart's Stake in Seiyu Over 95 Percent After Its Tender
Offer
13. JFTC Whacks International Hose Cartel
14. Government Seeks to Extend Capital Gains Tax

Aviation
15. International Airfare Liberalization in Japan?
16. Itami Airport--MLIT Considers More Financial
Responsibility by Local Government

The Environment
17. IWC Chairman Vists Tokyo

The Regions
18. FDI: Costco Sapporo on Schedule for January 2008 Opening
19. Largely Dropped Public Works in Osaka
20. "Kansai Science City" Third Sector Project of Kyoto
Prefecture Bankrupted 21. The Year in Kanji: "Itsuwari"
Deception/Lies/Deceit
Sports
22. Cubs Swallow Dragon
23. .Ambassador of Beef to Padres
24. This Week's Cables (SBU)

-------------------------
JAPAN POST, PRIVATIZATION
-------------------------

3. (SBU) Japan Post Insurance Submits New Product Applications

In its first application for new or altered products since
postal privatization began October 1, Japan Post Insurance
(Kampo) submitted plans for two products to the Financial
Services Agency (FSA) Commissioner and the Minister of Internal
Affairs and Communications. The plans, which will also have to
be reviewed by the Postal Services Privatization Committee,
were submitted November 26.

According to government and industry officials, Kampo's new
plans are (1) to distribute insurance products, starting in
June 2008, targeting the business succession plans small and
medium size companies' executives, and (2) to expand
hospitalization coverage under certain medical riders attached
to existing Kampo products.

Despite the insurance industry's long-held fears about Kampo's
move into new or altered products, U.S. industry officials have
not criticized the action, noting that in the corporate market,
Kampo has chosen to offer the products of eight private sector
companies' (including, we hear, those of an AIG affiliate).

Regarding the expansion of medical riders, one U.S. company
executive described the scope of Kampo's plans as "relatively
modest."

While assuring us they will continue to press for transparency
and a level playing field, American Chamber of Commerce of
Japan (ACCJ) officials have told us they are unlikely to submit

TOKYO 00005570 002 OF 008


a public comment on this round of product applications, given
Kampo's decision to open its network to private sector
companies. (ECON: Marc Dillard)

4. (SBU) Bill to "Review" Postal Privatization Passes Upper
House

On December 12, the Diet's Upper House passed a bill to
"review" postal privatization. The bill is now in the Lower
House, where media and government contacts believe it will
either remain unaddressed (and thus fail at the end of the
current session) or be voted down by the ruling Liberal
Democratic Party (LDP).

The bill, which proposes that postal privatization be halted
while it is under review, is sponsored jointly by the
Democratic Party of Japan (DPJ), the Social Democratic Party
(SDP), and the People's New Party (PNP). (ECON: Marc Dillard)

5. (SBU) Japan Post Insurance Contract Sales Down 74%

Japan Post Insurance's (Kampo) October contract sales were down
74 percent relative to its sales in October 2006, according to
media reports. October's sales were the company's first since
postal privatization commenced.

Some newspaper reporting attributed the decline to Kampo's no
longer being able to offer a government guarantee on its
products--one of the key conditions of privatization.

Industry officials, however, have stressed to us that
solicitation requirements not previously required of Kampo's
sales agents (as the requirements came into effect October 1
when the Financial Services Agency became Kampo's regulator)
were likely responsible for the unusually large drop in sales.

Sales figures over the next several months will shed more light
on the cause(s) of the decline. (ECON: Marc Dillard)

-----------------
BEEF, AGRICULTURE
-----------------

6. (SBU) U.S. Beef: GOJ on Train That Says 30 months?

Under Secretary of Agriculture Keenum told a press conference
in Tokyo December 7 that the United States disagreed with
Japan's desire to ease restrictions on U.S. beef to allow beef
from cattle up to 30 months old -- a policy at variance with
the preferred U.S. approach, which would be for Japan to adopt
OIE guidelines and allow U.S. beef imports without age
restrictions.

In part in reaction to the Keenum comments, Japanese
authorities, including Chief Cabinet Secretary Machimura, have
done more to explain the Japanese position, which has appeared
in the press in recent weeks but in vague terms by officials
speaking off the record. Machimura told reporters after
Keenum's comments that authorities are considering the
"possibility" of recommending that age restriction on U.S. beef
be raised from 20 to 30 months. (See attachment for
Machimura's complete comments.)

Japan's largest circulation daily, Yomiuri, had an editorial
December 11 suggesting that moving to a 30-month age
restriction on U.S. beef was appropriate. The editorial added,
however, that it was too early to eliminate age restrictions in
accordance with OIE standards. Yomiuri generally represents a
fairly mainstream view of Japanese public opinion, and in the
past has taken an even more anti-U.S. position over the beef
issue. (ECON: Nicholas Hill)

7. (SBU) Where are the U.S. Apples?

Two years ago the United States won a WTO ruling against Japan
over U.S. apples, essentially opening the way for their import
into the Japanese market. Despite the ruling, in 2006 Japan
did not import a single apple.

According to a December 10 USDA GAIN Report, Japanese apple
growers face no competition due to phytosanitary restrictions
and high tariffs. Meanwhile, exports -- mostly to Taiwan --

TOKYO 00005570 003 OF 008


have expanded by 10 percent, to 18,800 metric tons.
For more please see attached report. (ECON: Nicholas Hill)

8. (U) Daily Yomiuri Puts Spotlight on Japan's Declining
Agriculture Sector

Japan continues to struggle with a declining farm sector.
Despite steep barriers to imports and generous support programs
for farmers, agricultural production continues on a downward
trajectory.

Hiroyuki Ueba describes the decline in a page one feature
article in the December 8 English language Daily Yomiuri.
Between 1990 and 2005, agricultural output plunged from 7.84 to
4.81 trillion yen. Japan's self-sufficiency rate declined from
78 percent in 1961 to 39 percent in 2006.

The government's handling of the farm sector has been mixed,
with an assortment of political barriers to introducing
necessary reforms. Some blame attempts to consolidate farms
and boost efficiency as one reason the Abe government suffered
heavy losses in last summer's Upper House parliamentary
elections.

Ueba's Daily Yomiuri article is a serious attempt to look at

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Japan's overall farm sector difficulties. What is interesting,
an agriculture economist who was quoted extensively by Ueba
told us later, is that the article never appeared in the
Japanese language press.

The Daily Yomiuri's circulation is about 40,000 readers,
compared to the Yomiuri's 10 million, the largest daily in the
world. (ECON: Nicholas Hill)

---------------
CHINA RELATIONS
---------------

9. (U) Missing Text Sours Japan-China Econ Dialogue Outcomes

Japanese media revealed December 7 the Chinese version of the
press communique from the December 1-2 Japan-China High-level
Economic Dialogue HED) was missing language regarding the
Japanese side's call for faster appreciation of the Chinese
currency.

A portion referring to Japan's desire for China to participate
in the Energy Charter Treaty was also dropped in the Chinese
text. Chief Cabinet Secretary Machimura called the omissions
in the Chinese text of the communique "unthinkable from the
viewpoint of international practices."

Nevertheless, Machimura indicated the dispute over the missing
text would not affect plans for PM Fukuda to visit China. The
Chinese government's explanation was that the document was not
a formal "joint communique"--therefore, differences in the
texts were to be expected.

Tokyo 5532 provides more GOJ commentary and analysis on this
incident. (ECON: Chris Wurzel)

------------
TRADE POLICY
------------

10. (SBU) Japan's EPA Agenda

Japan's has a mixed record in ongoing EPA negotiations with an
assortment of partners. That was what recently published
minutes of the Economic Partnership Agreement (EPA) Agriculture
Sub Committee of the Council for Economic and Fiscal Policy
(CEFP) reflected.

A senior official familiar with the work of the Sub Committee
told us that the Fukuda government remained committed to a
reform agenda, including on EPAs, but there was a greater
element of "realism" than under the previous Prime Minister.
The official noted in particular that there was more conflict
in the Diet over agriculture reform, which is critical to
stimulating progress on EPA negotiations. (ECON: Nicholas
Hill/Ryoko Nakano)


TOKYO 00005570 004 OF 008


11. (U) Brief Summary of the EPA Sub Committee Conclusions

A brief summary of the sub committee conclusions as they appear
on the CEFP website follows:

Australia EPA - Negotiations are proving difficult, although
there is some progress to show concerning energy and natural
resources. On Agriculture, the two countries have focused on
exchanging information on sensitive items. To ensure stable
natural resource supplies, Japan is asking Australia to
prohibit export duties and guarantee that exports will not be
banned. Australia's response to this latter point is
affirmative but cautious.

Philippines EPA - the deal was signed last year and ratified in
Japan and pending ratification in the Philippines. As of
November (when the CEFP minutes were first published), an Upper
House Committee did not have the required two-thirds to pass
the agreement.

Vietnam EPA - Talks are ongoing. The two sides have met five
times since their launch in January 2007. Being one of the
least developed countries in Asia, Vietnam is highly
protectionist. This raises concern on how much Vietnam is
willing to liberalize its market.

GCC EPA - The sides have not been able to hold talks since
January. The meetings set for April and July were also
cancelled.

India EPA - Negotiators have held four meetings since January.
India is resisting tariff reductions.
Switzerland EPA - It is the first EPA negotiation to be carried
out with a developed country in Europe and progress is being
made.
EPA with U.S. and EU - MOFA is currently asking interested
parties and related ministries on their views toward such an
EPA and hope to make it a future issue. (ECON: Ryoko Nakano)

----------------------------
BUSINESS, FOREIGN INVESTMENT
----------------------------

12. (U) Wal-Mart's Stake in Seiyu Over 95 Percent After Its
Tender Offer

Wal-Mart Stores Inc. has raised its stake in Seiyu, the fifth-
biggest retailer in Japan, from 50.9 to 95.1 percent after
submitting its tender offer on December 4.

Although money-losing Seiyu had been performing better since
Wal-Mart entered the market in 2002, there were rumors that
Wal-Mart would exit the Japanese market after it sold its
operations in Germany and South Korea.

Wal-Mart Senior Director of International Corporate Affairs,
Beth Keck, visited EMIN in late October to dispel these rumors.
Wal-Mart has made the commitment to stay in Japan and wished to
show its intention by expanding its ownership of Seiyu.

Wal-Mart will now proceed with additional steps to acquire all
of the remaining shares, which will result in the delisting of
Seiyu shares from the Tokyo Stock Exchange.

Seiyu's Executive Director and Senior Vice President of
Corporate Communications, Ryo Kanayama, confirmed to us that
Wal-Mart's tender offer was intended to give general confidence
to its business partners about Wal-Mart's commitment.(ECON:
Junko Nagahama)

13. (SBU) JFTC Whacks International Hose Cartel

Japanese media December 8 reported the Japan Fair Trade
Commission (JFTC) will punish Bridgestone Corp., Yokohama
Rubber, and four European firms over an international price
cartel in the sale of marine hoses used for transferring oil,
according to sources.

A JFTC official confirmed the punishment will be the first the
JFTC has imposed on foreign companies and is likely to include
imposition of punitive surcharges on the non-Japanese
participants in the cartel.

TOKYO 00005570 005 OF 008

The four foreign firms are Britain's Dunlop Oil & Marine Ltd.,
France's Trelleborg Industrial AVS, and Italy's Parker ITR
S.R.L. SpA, and Manuli Rubber Industries SpA.

The six companies account for about 90 percent of the market
and, according to the press, have been under investigation by
authorities in Japan, Europe and the United States since May.

The U.S. Justice Department has arrested eight executives,
including the then chief of Bridgestone's overseas division for
chemical products. Most of them--but not the Bridgestone
executive--have been indicted. Two executives of the French
manufacturer have admitted to the charges. (ECON: Chris
Wurzel)

14. (U) Government Seeks to Extend Capital Gains Tax

As one element of the expected tax reform package, the LDP and
New Komeito coalition will attempt to grant a two-year
extension of the tax break on capital gains beyond the current
2008 deadline.

At present, the tax cut reduces the 20 percent capital gains
rate by half. Going forward, the ruling coalition's proposal
would apply the lower rate to annual gains of up to JPY 5
million, while the original 20 percent rate would apply for
gains above that amount.

We will have further reporting on the entire tax reform package
--including proposals to share local enterprise tax revenues to
distressed regions--after its official release. (FINATT:
Mateo Ayala)

--------
AVIATION
--------

15. (U) International Airfare Liberalization in Japan?

On December 5, Japan's FTC formally requested the
transportation ministry, MLIT, to review current Aviation Law,
which allows price cartels by the International Air Transport
Association (IATA) to be exempted from antitrust law. The FTC
issued the same request in 1999, but MLIT rejected the request
because other countries are in line with Japan's practice for
IATA pricing to be exempted from respective country's
competition laws.

However, the FTC this time says there is no rationale for the
practice to continue with active movements that are taking
place toward abandoning IATA cartel in the United States,
European Union, and Australia.

According to the Sankei Shimbun, IATA fares are applied to all
first-class tickets and 90 percent of business-class tickets
for flights in and out of Japan. The article suspects that, if
MLIT abolishes the system, discount tickets for first-class
seats or reduced fares for business-class and economy-class
seats will likely appear on the market.

MLIT's Vice Minister Minehisa said the ministry will not rush
into a conclusion. However, there have been comments from MLIT
officials that the current system is working fine and Japan's
decision to abolish the current system might invite confusion
in Asia's aviation market, showing reluctance to change. (ECON:
Junko Nagahama)

16. (U) Itami Airport--MLIT Considers More Financial
Responsibility by Local Government

According to the Asahi Shimbun Osaka Edition this week, MLIT
plans to set the financial responsibility to local governments
for Itami Airport, which is fully managed and funded by the
national government, at 400--500 million yen ($3.6--4.5
million) per year for the next five years.

The national government has been spending three billion yen
($27.2 million) per year for Itami Airport, with the local
government footing one third of the cost. Local authorities
and businesses have resisted changes to this funding scheme in
the past.

TOKYO 00005570 006 OF 008

A manager of the Osaka Prefectural Government Airport Promotion
Section told ConGen that the current airport management
legislation is out of line with actual MLIT practices. Osaka
wants Itami to continue to provide international air service
and has expressed dissatisfaction with MLIT's current policy.
One issue is the current structuring of airports into several
categories based on the kind of organization operating the
airport, with varying levels of funding and international
service. Responding to this criticism, MLIT will submit a
revised bill to the Diet session of January. (Osaka-Kobe:
Phil Cummings/Naomi Shibui)

---------------
THE ENVIRONMENT
---------------

17. (U) IWC Chairman Vists Tokyo (U)
William Hogarth, current Chairman of the International Whaling
Commission (IWC) and U.S. Commissioner to the IWC, was in Tokyo
for meetings with Japanese officials on December 11. For a
readout of those meetings, please see Tokyo 5536. (ECON: Bart
Cobbs)

-----------
THE REGIONS
-----------

18. (U) FDI: Costco Sapporo on Schedule for January 2008
Opening

During a December visit to ConGen Sapporo, Costco Japan's
assistant director of marketing confirmed that the company is
on track to open its sixth Japan store here on January 25, 2008.

Costco CEO James Sinegal, who attends all Costco openings
worldwide, will travel to Sapporo for the festivities. Costco
Japan is pleased with the location it selected in Sapporo,
which allowed it to build a large facility to almost 100
percent American specifications, including a 700-car parking
garage with excellent access to the adjoining highway.

The company is also happy with local excitement about the store
coming to Hokkaido. A pre-opening Costco membership drive in
Sapporo has already set new records for first-time signups in
Japan.

In addition, the pool of qualified applicants for new jobs is
strong. Costco Sapporo has already hired nearly 200 workers,
and the company has plans to hire an additional 100. (Sapporo:
Ian Hillman/Yumi Baba)

19. (SBU) Largely Dropped Public Works in Osaka

A recent study by Asahi Shimbun showed that cases of "bid
failure" for public works projects in major cities are on the
increase. There were 80 such cases in Osaka City last year,
7.3 times the rate in 2005.

Bid failures quadrupled in Tokyo and Nagoya. Contractors said
that recent projects put forward by municipalities were
unfeasible at initial bid levels.

A manager of MLIT Kinki Regional Development Bureau said that
recent large scale bid-rigging scandals in Osaka, which have
led to heightened scrutiny by the Osaka District Public
Prosecutors Office, is one factor behind the declining contract
bid prices. The trend is especially pronounced in Osaka.

On the other hand, several prefectures in rural areas still
depend on public works as an employment tool. Tokushima
Prefecture has not seen any cases of bid failure in its public
works (possibly a sign of bid-rigging).

Construction companies in Tokushima claim there are few private
sector alternatives to local government projects to keep
themselves employed(Osaka-Kobe: Phil Cummings/Naomi Shibui)

20. (SBU) "Kansai Science City" Third Sector Project of Kyoto
Prefecture Bankrupted

Keihanna Interaction Plaza Inc, the core company managing

TOKYO 00005570 007 OF 008


Kansai Science City, which is a public/private partnership by
the three prefectures of Kyoto, Osaka, and Nara, filed for
bankruptcy on November 30.

Its debt totaled 10.9 billion yen ($99 million). Kyoto was the
most heavily invested in the project. This is the first
bankruptcy of a so-called "third sector" project for Kyoto
Prefecture. The largest stockholder of Keihanna Interaction
Plaza is the Development Bank of Japan (DBJ).

DBJ is working on a revitalization plan, and has asked for
financial support by local businesses.

Kansai Economic Federation Chairman Hiroshi Shimozuma, who is
the Chair of Keihanna, said that he would support the
revitalization of Keihanna and would ask the Kansai business
community for restructuring assistance.

Keihanna President Yoshio Tateishi, who is the head of both
Omron and the Kyoto Chamber of Commerce, apologized. Kansai
Science City was established in 1989 amid the bubble economy.
Observers likened the firm's collapse to a decade-long sinking
of the Titanic, one of perhaps many to face the Kansai in the
near future. (Osaka-Kobe: Phil Cummings/Naomi Shibui)

21. (U) The Year in Kanji: "Itsuwari" Deception/Lies/Deceit

Food for thought: The head priest of Kiyomizudera temple in
Kyoto announced that the Chinese character best summing up the
current year was "itsuwari," literally "deception, lies, deceit,
etc."

The annual selection, culled from surveys of the Japanese
public, surprised few here. A spate of food-business scandals
involving falsified "best by" dates and ingredient labels, and
recycled food products being sold as new, has damaged consumer
trust of the food industry.

Newspaper editorials also claimed the selection of this
character was a reflection of voters' distrust of politicians
over the pension scandal at the Social Insurance Agency that
emerged over the summer.

Officials at the Kanji Testing Association in Kyoto said that
the public clearly expressed its choice of characters this year
(18 percent), in contrast to previous years. (Osaka-Kobe:
Phil Cummings)

------
SPORTS
------

22. (U) Cubs Swallow Dragon

The Chicago Cubs made a big splash in the sweepstakes for
Japanese players this week. They reportedly signed former
Chunichi Dragons outfielder Kosuke Fukudome to a four-year
contract worth $48 million.

Fukudome has a career .305 batting average over nine seasons
with the Chunichi Dragons. His production was down in 2007 due
to bone chips in his right elbow. His contract with the Cubs
is conditional on passing a physical next week when he visits
Chicago.

According to ESPN, Cubs manager Lou Pinella told reporters that
Fukudome is a cross between Hideki Matsui and Ichiro Suzuki.
Fukudome reportedly spurned an offer with the San Diego Padres
to go to the Cubs. The Padres offered Fukudome a three year
deal in excess of $10 million per season. (ECON: Nicholas
Hill)

23. (U) Ambassador of Beef to Padres

On the rebound after Kosuke Fukudome signed with the Cubs, the
San Diego Padres signed Tadahito Iguchi to a one-year contract
to play second base.

Iguchi, who played for the Chicago White Sox and Philadelphia
Phillies in 2007, is a big fan of U.S. beef and made no bones
about eating the stuff with the Japanese public -- becoming
something of an Ambassador of Beef for the Tokyo media last

TOKYO 00005570 008 OF 008


year. (ECON: Nicholas Hill)

24. (SBU) THIS WEEK'S CABLES
5540 Secure Freight Initiative
5538 METI DG Ishige on Climate Change, Trade Issues
5539 Kyrgyz President visits Japan
5536 Whaling
5535 Demarche on UN Budget Issues
5534 Bamako Consultations Demarche on Cuba
5533 Country Specific HR Resolutions
5532 China-Japan Econ Dialogue Outcomes
5519 Preventing Iranian Proliferation
5512 Former SDF Col Sato Discusses Anti-Terrorism Law, Diet
Extension
5511 Paris Donors Conference
5503 Diet Extension, OEF Bill
5491 Rood's Nonproliferation Meetings

25. (U) This SENSITIVE BUT UNCLASSIFIED e-newsletter from U.S.
Embassy Tokyo's Economic Section, with contributions from the
consulates, is for internal USG use only. Please do not
forward in whole or in part outside of the government. The
Scope is edited this week by Charlotte Crouch
(CrouchCA@state.gov) and Joy Progar (ProgarJ@state.gov).
Please visit the Tokyo Econ Intranet webpage for back issues of
the Scope. Apologies, this option is only available to State
users. Please contact Joy Progar if you are from a different
agency and are interested in a back issue.
SCHIEFFER

© Scoop Media

 
 
 
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