Japan Sees U.S.-Korea FTA As Positive

UNCLAS TOKYO 001084 SIPDIS SENSITIVE SIPDIS DEPT PASS USTR FOR AUSTRS CUTLER AND STRATFORD USDOC FOR ITA-DAS LEVINE AND OFFICE OF JAPAN/NMELCHER E.O. 12958: N/A TAGS: ETRD ECON PREL JA KS CH SUBJECT: Japan Sees U.S.-Korea FTA As Positive Influence on Regional Trade Talks REF: Tokyo 1010 ¶1. (SBU) Summary: Although Japanese business circles believe a U.S.-Korea free trade agreement (FTA) is unlikely to produce much liberalization in sectors of greatest interest to Japan, the Japanese government sees the negotiations between Korea and the United States as a possible catalyst for restarting Japan's own moribund discussions with Seoul. According to a senior official of Japan's Ministry of Economy, Trade, and Industry (METI),a successful U.S.-Korea FTA could serve as an alternate model to the less substantive agreements China has promoted in the region. The official suggested that an update on efforts by both the United States and Japan to pursue FTAs be an agenda item for the next U.S.-Japan sub-cabinet dialogue. End summary. ¶2. (SBU) The Japanese Government has a strong interest in the progress of U.S.-Korea FTA negotiations (i.e. timeline, substance, etc.),METI Trade Policy Bureau Director-General Toshiaki Kitamura told EMIN in a meeting February 24. (Reftel reports Kitamura's read- out of the visit to China by METI Minister Nikai.) In contrast, however, the Japanese business sector has shown little interest in the proposed U.S.-Korea FTA. The main reason, Kitamura thought, was that Japan's business leaders assume that even the US will not be able to conclude the agreement easily because the Koreans are very tough negotiators. The business community doubts that the two sides will reach a comprehensive free trade agreement that liberalizes trade in key sectors of interest to Japanese companies and underestimates the potential impact on key Japanese industries like automobiles and machinery as well as on investment. Kitamura himself, however, believed the U.S.-Korea FTA would be comprehensive and have a strong impact on Japanese industries. ¶3. (SBU) Kitamura said that an ambitious U.S.-Korea FTA could stimulate Japan's own "economic partnership agreement" (EPA) negotiations with Korea because both sets of negotiations would be conducted along similar timelines -- provided that Japan and Korea could resume EPA negotiations shortly. Kitamura even suggested that, if both the United States and Japan conclude FTAs with Korea, the three nations ought to subsequently consider a "triangular" FTA. According to Kitamura, this arrangement could serve as a counterweight to Chinese efforts to serve as the "hub" for a system of bilateral FTAs in East Asia. ¶4. (SBU) Kitamura explained that FTA/EPA negotiations between ASEAN-China, ASEAN-Korea and ASEAN-Japan should be completed in 2007 if all goes smoothly. (In particular, he said the ASEAN-Japan EPA negotiation should be finalized by March 2007.) Kitamura expected that China would endeavor to take the initiative to promote its own standards for FTAs as a model for other agreements in the region. In considering how Japan and the United States could react to such a situation, Kitamura indicated that the U.S.-Korea FTA could be a foundation for the strategic counterbalance to China's efforts. ¶5. (SBU) Kitamura stressed the importance of strengthening bilateral transparency measures to share information regarding FTA/EPA negotiations each side has been conducting. He thought this would make an excellent topic to discuss at the next U.S.-Japan sub- cabinet meeting. Schieffer