JAPANESE ECONOMIC OFFICERS ON MINISTER NIKAI

C O N F I D E N T I A L SECTION 01 OF 03 BEIJING 004557

SIPDIS

SIPDIS

STATE PASS USTR FOR STRATFORD, WINTER, MCCOY
USDOC FOR DAS LEVINE, ITA/OCEA/MCQUEEN AND CELICO
GENEVA PASS USTR

E.O. 12958: DECL: 03/10/2016
TAGS: ETRD WTRO KIPR PREL EFIN CH JA
SUBJECT: JAPANESE ECONOMIC OFFICERS ON MINISTER NIKAI
VISIT, AUTO PARTS, IPR IN CHINA

REF: A. TOKYO 1010

B. NAHA 43

BEIJING 00004557 001.2 OF 003


Classified By: Minister-Counselor for Economic Affairs
Robert S. Luke, Reasons 1.4 (B) and (D).


1. (C) Summary. EconMinCouns and Econoff met with Japanese
Embassy Economic Counselor Nishimiya and First Secretary
Ishikawa to discuss Trade Minister Nikai,s February 21-23
visit to Beijing (ref A) and other issues. Nikai met with
Premier Wen Jiabao, State Councilor Tang Jiaxuan, Ministry of
Commerce (MOFCOM) Minister Bo Xilai, National Development and
Reform Commission (NDRC) officials and Chinese Communist
Party Central Committee International Department head Wang
Jiarui. Important results included announcement of bilateral
discussions on East China Sea maritime and gas exploration
issues (the meeting had been previously agreed during the
China-Japan Comprehensive Dialogue in early February; the
first discussions were conducted March 6-7 in Beijing);
agreement for METI to host 300 Chinese trainees over three
years; proposal of an annual bilateral conference on energy
conservation and environmental issues; and proposal of a
conference of thinktank researchers to discuss long-term
visions of the bilateral relationship. Bo repeatedly raised
historical issues while pressing Japan to grant market
economy status to China. He said that Japanese interests
would not be served if Japan joined the U.S. and EU
complaints about Chinese tariff treatment of auto parts
imports. The Japanese Embassy officers said that the
probationary period for China to make right its protection
and enforcement of intellectual property rights (IPR) has
passed. They downplayed Japanese banks, interest in
expanding their presence in China. The Japanese Embassy
expects its new Ambassador to take up his post in mid-April.
End summary.

Historical Burdens and Market Economy Status for China


2. (C) Nishimiya and Ishikawa spoke at length about
Minister Nikai,s meeting and lunch with MOFCOM Minister Bo
Xilai. Bo lectured Nikai on historical issues, in a manner
different than when the same issues were raised by Premier
Wen Jiabao. Nishimiya considered Bo,s manner as a tactical
decision, trying to exert pressure on the "pro-China" Nikai
to work harder on Bo,s agenda, in which granting of market
economy status is clearly Bo,s highest priority. (Comment:
Under China,s WTO accession agreement, market economy
status, or MES, makes it more difficult for foreign companies
and countries to seek anti-dumping protections against
inexpensive imports from China. MES would also be a nice
sound bite for Bo at home to show that trading partners are
recognizing progress in China,s transition away from its
past centrally-planned model of economic development. End
comment.) Nikai told Bo that he would look into the MES
matter. Nishimiya said the interpreter used in this meeting
might have been more forthcoming about the speed of looking
into the matter in his translation than Minister Nikai,s
actul words. Nishimiya explained that he saw no paticular
movement in Japan to grant MES to China, and that Nikai needs
to increase his understanding of the issue and discuss the
matter with METI officials.

Annual Conferences on Energy Conservation and Environmental
Issues?


3. (C) Nikai proposed an annual bilateral public-private
conference on energy conservation and environmental issues
with a first session in Japan in May. METI and private
sector representatives would constitute the Japanese
delegation, Nishimiya explained, with representatives from
MOFCOM, the NDRC and Chinese oil companies on the Chinese
side. Energy security is not among the proposed topics,
Nishimiya replied to Econoffs, question. MOFCOM Minister Bo
accepted in principle to visit Japan in May, but underscored
that first he would need approval from central government
higher-ups for such travel. Recounting Bo,s reply,
Nishimiya speculated that this again was a tactical move by
the MOFCOM Minister, wondering whether Bo wished to continue
playing the history card or continue pounding Nikai on the

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MES topic before rendering a final decision on whether to
travel to Japan in May. Nishimiya also recalled the spring
2005 visit to Japan by Vice Premier Wu Yi, who scrapped
planned meetings in Tokyo to return to China after Prime
Minister Koizumi announced that he would continue to visit
the Yasukuni Shrine. Nishimiya further noted that MOFCOM and
the NDRC might vie for leadership of the Chinese delegation
at such a conference, and that those two Chinese agencies had
provided May dates differing by two weeks in suggesting
possible conference times to Nikai. Nishimiya predicted that
MOFCOM,s proposed dates would ultimately prevail and that Bo
would make sure that he is in Japan at the time of the
conference, even if he does not attend the conference.
Nishimiya said that Japanese private sector representatives
had offered ideas about such a conference to Premier Wen
Jiabao during an autumn 2005 meeting and the issue had been
raised again at the end of 2005. Bo probably feels pressure
from the Chinese oil sector to engage in such a conference,
Nishimiya further commented.

That Ploy about Chinese Tariffs on Auto Parts


4. (C) Bo and Nikai discussed Japanese concerns about
China,s use of import tariffs on automobile parts. (Note:
China Customs sometimes charges the higher import duty due on
whole automobiles if it believes that imported automobile
parts are intended to be assembled into complete cars in
China rather than to replace broken or worn-out parts; WTO
rules call for imposition of tariffs at the port of entry
based on the product classification and not based on the
post-importation end use of a product. End note.) According
to Nishimiya, Bo said that the "so-called auto parts tariff
issue" is a scheme developed by the United States and the
European Union to compete with super-competitive Japanese
automobile companies in China. Japan has nothing to gain
from joining in this game, Bo warned Nikai. Bo again alluded
to history and said that it is not in Japan,s interest to go
down the road of bringing anti-dumping cases against Chinese
companies or to maintain tough export controls on sales of
Japanese goods to China. It is very much in Japan,s
interest to loosen its export controls and accept that China
rightly deserves market economy status. Nishimiya commented
that Bo,s statements assumed that because Japan brings few
if any anti-dumping cases against China, Japan does not need
easy recourse to potential anti-dumping actions against
Chinese goods. China has launched more than fifty
anti-dumping actions against Japanese goods in recent years,
Nishimiya claimed.


5. (C) Asked to summarize Japanese auto companies, views
on the Chinese tariff issue, Nishimiya said Bo,s analysis
that most Japanese suppliers to Japanese auto manufacturers
are shifting production to China is largely correct,
particularly with respect to Toyota and its suppliers.
Still, the Government of Japan is considering analyses of the
Chinese practice and views from Japanese companies, and is
presently undecided on whether to participate in a WTO
challenge on this matter. Many in the GOJ believe that a
good case can be made against the Chinese practice.


6. (C) Nishimiya also highlighted that one should not
underestimate the Chinese Government's willingness to address
trade issues. He used China,s tariff classification of
certain photographic films as an example, saying that Japan
and China had been able to reach an accord on that vexatious
issue. Agreement on a guiding principle for the solution had
been the crucial first step, in this case, that China could
continue to impose a specific duty on films - so long as the
ad valorem equivalents of China,s specific duties were the
same as China,s ad valorem tariff bindings in the WTO. Once
that face-saving principle had been agreed, agreements on
which date to use over what time spans, calculation methods
and annual reviews followed quickly. Japan believes it won
the outcome, and China likewise believes it prevailed. The
applied duties on such photograpic film imports from Japan
have fallen to one-tenth their previous values, Nishimiya
said


7. (C) Minister Nikai also proposed to Bo that METI host

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100 trainees from China per year for three years, which Bo
accepted. Bo proposed that Chinese and Japanese think tanks
should engage in discussions of the long-term view of
Sino-Japanese relations, to which Nikai replied that is a
good idea. Nishimiya and Ishikawa said they did not know any
more details about Bo,s proposal.


8. (C) Nishimiya lamented that Bo had grabbed all that
Nikai,s delegation offered, declined all that the delegation
wanted, blasted Japan on history, but Nikai had left Beijing
happy.

Chinese Media Portrayal of Nikai,s Visit


9. (C) Ishikawa recounted that Tokyo and the Nikai
delegation had much interest in how China would report his
visit to Beijing. People's Daily and Xinhua had factually
reported that Premier Wen met earlier that day with the
German Foreign Minister and the Japanese Trade Minister, full
stop. Ishikawa said that this intentional limit to the
content of official media reporting on Nikai,s visit
reflected the sensitive status of bilateral relations while
neatly balancing the reporting with that on another important
high-level visitor.

Intellectual Property Rights and Standards Challenges in -
and from - China


10. (C) Asked about Japanese companies facing IPR
difficulties in China, Nishimiya observed that the IPR
situation could be worse. He recounted stories of
near-identical trademarks being registered easily in Hong
Kong and then marketed in China in competition to genuine
foreign-brand products. However, Panasonic/Matsushita has
its own IPR enforcement unit that works closely with local
law enforcement officials and that company, at least, has
scored some important successes in protecting its IPR in
China. USTR is right, Nishimiya said, the time for China,s
probation to get IPR protection right is over. Nishimiya and
Ishikawa speculated that the Chinese policy of "autonomous
innovation" announced to some fanfare this winter could lead
in several years time to a flood of Chinese patent applicants
at the U.S. Patent and Trademark Office. China is also
increasingly looking at global standards issues, which should
be setting off warning bells, Nishimiya continued. He
predicted lawsuits in overseas jurisdictions by Chinese
persons and entities challenging foreign standards. If
Japan,s technical barriers to trade are thought by China to
lack sound scientific bases, China could be ready to
challenge those Japanese practices before the WTO in another
four or five years.

Japanese Banking Interest in China?


11. (C) EconMinCouns noted China,s WTO accession
commitment to further liberalize financial services in
December 2006 and asked about Japanese banks, interest in
expanding in China. Nishimiya replied that while Tokyo
Mitsubishi Bank has been reported to have an interest in
investing in a Chinese bank, in the view of the Japanese
Embassy most Japanese banks are not interested in markets
outside of Japan. Japanese banks are institutions that do
not reward innovation and are risk averse. To the extent
that Japanese banks have established operations in China to
date, that is a result of following Japanese investors to
China in order to service them. Japanese banks are largely
satisfied with that situation. As Japanese businesses in
China increasingly demand transactions in renminbi, Japanese
banks will move into that service as regulations allow them
to do so.

New Japanese Ambassador Coming to Beijing


12. (SBU) The Japanese Embassy officers said that a new
Japanese Ambassador would arrive in Beijing in mid-April (see
ref B). Regarded as a China hand, the new Ambassador has
previously served as Deputy Chief of Mission in Beijing,
departing that assignment about five years ago.
RANDT