JAPAN'S TRADE MINISTER PROPOSES EAST ASIA ECONOMIC

C O N F I D E N T I A L SECTION 01 OF 02 TOKYO 001815 SIPDIS SIPDIS DEPT PASS USTR FOR AUSTR CUTLER GENEVA PASS USTR PARIS FOR USOECD E.O. 12958: DECL: 04/04/2016 TAGS: ETRD ECON PREL PGOV JA SUBJECT: JAPAN'S TRADE MINISTER PROPOSES EAST ASIA ECONOMIC PARTNERSHIP AGREEMENT REF: A. TOKYO 1484 (NOTAL) ¶B. TOKYO 1634 (NOTAL) ¶C. TOKYO 1635 (NOTAL) TOKYO 00001815 001.2 OF 002 Classified By: Ambassador J. Thomas Schieffer. Reason: 1.4 (b,d) ¶1. (C) SUMMARY: METI Minister Nikai appears to be rolling out an ambitious new proposal for a region-wide "comprehensive economic partnership agreement" paired with a new regional policy think tank along the lines of the OECD. As reported by the press, his proposals run counter to recent GOJ decisions to scale back the ambitions of new bilateral trade negotiations. Foreign, Finance and Agriculture Ministry senior bureaucrats had no prior knowledge of this proposal, according to a senior MOFA official. Rather than an effort by METI bureaucrats to retake trade policy initiative from MOFA, this bears the marks of a personal initiative by Nikai to establish a positive regional economic agenda that includes China. END SUMMARY. ¶2. (U) METI Minister Toshihiro Nikai outlined an ambitious new strategy to negotiate a region-wide "economic partnership agreement" (EPA) in East Asia in remarks to the press on April 4. He also has floated the possibility of establishing an economic policy think-tank comparable to the OECD that would be dedicated to supporting East Asian regional integration. ¶3. (SBU) As reported by the press, the new METI proposal for a region-wide EPA would entail launching negotiations in 2008 and targeting 2010 to conclude a single agreement with fifteen other countries: the ten ASEAN members, China, Korea, India, Australia and New Zealand. The agreement would be "comprehensive" in its inclusion of investment rules and services, but Nikai reportedly did not mention agricultural trade. ¶4. (SBU) Nikai first floated the "East Asian OECD" proposal on March 31. While working level METI contacts sought to downplay the implications of Nikai's remarks on the think-tank aspect, his April 4 comments reiterated the goal of an OECD-like organization with a broad mandate ranging from trade and investment to finance, energy and the environment. As a first step, Japan would propose an East Asian Economic Research Center. ¶5. (U) Nikai reportedly plans to pitch this new strategy to the Prime Minister's Council on Economic and Fiscal Policy CEFP on April 7. ¶6. (C) Comment: Nikai's EPA proposal runs counter to recent indications that the GOJ is watering down its ambitions for future bilateral trade negotiations in a MOFA-led effort to accelerate negotiations, a shift that reportedly has the blessing of LDP Policy Research Council Chairman Hidenao Nakagawa and the Cabinet Secretariat. The comprehensive approach described by Nikai explicitly includes areas like investment rules that would be dropped under the "model text" approach described to us by MOFA officials (refs A and B). ¶7. (C) Comment Continued: Nevertheless we do not interpret Nikai's move as an effort by the METI bureaucracy to retake initiative on GOJ trade policy-making. Nikai's statements, according to Foreign Ministry Director General for Economics Ishikawa, were not coordinated with the Foreign, Agriculture, or Finance Ministries in advance. Ishikawa pointed out that Nikai's proposal is simply not workable due to human resource constraints and also political difficulties with China and Korea. Moreover, while the list of proposed partners in Nikai's East Asia EPA reads much like the list of TOKYO 00001815 002.2 OF 002 participants in last December's East Asia Summit (EAS),METI trade policy officials have been cool to the EAS concept in recent conversations (ref C). ¶8. (C) Rather, this has the markings of an initiative by Nikai himself. Known as the cabinet member closest to China, Nikai has nonetheless publicly voiced concern that Japan is falling behind China and Korea in regional economic diplomacy, a view shared by Japanese business leaders. Nikai appears to be coming out with a positive agenda to catch up in a way that would include China, unlike the MOFA-inspired of streamlined bilateral agreements with regional trading partners. MOFA's Ishikawa said that while he doubted Nikai's proposal had "legs," MOFA would have to pay attention since Nikai was a powerful and influential politician, and he obviously wants to accelerate economic integration with Asia. END COMMENT. SCHIEFFER