WHA ASSISTANT SECRETARY SHANNON: YOUR VISIT TO

C O N F I D E N T I A L TOKYO 001894

SIPDIS

SIPDIS

FROM AMBASSADOR SCHIEFFER TO WHA ASSISTANT SECRETARY TOM
SHANNON

E.O. 12958: DECL: 04/06/2021
TAGS: OTRA PREL ETRD ECON LA XK JA
SUBJECT: WHA ASSISTANT SECRETARY SHANNON: YOUR VISIT TO
JAPAN


Classified By: Classified by Ambassador J.T. Schieffer
for Reasons 1.4 (b,d)


1. (C) Embassy Tokyo welcomes your coming visit. You will
arrive in Japan at a time when our relationship is as good or
better than it has ever been; the government is eager to
expand its special relationship with the United States.
Japan and the U.S. share many commonalities in our relations
with Latin America: a long history of immigration, active
participation in development projects, and we are both
signatories to Free Trade Agreements with Latin countries.
Japan welcomes your first visit to Asia as an opportunity to
exchange ideas on how to cooperate on issues of mutual
concern in the Western Hemisphere. We hope you will: 1)
express appreciation for Japan's recent support for elections
in the region; 2) urge Japan to play a more active role in
promoting democracy and good governance; and (3) encourage
cooperation with Japan on mutually selected assistance issues.

Politics and Foreign Policy
--------------


2. (C) Prime Minister Koizumi's Liberal Democratic Party
(LDP),together with its coalition partner New Komeito Party,
controls over two-thirds of the Lower House and enjoys a
simple majority in the Upper House. The recent resignation
of opposition Democratic Party of Japan (DPJ) President Seiji
Maehara has dominated headlines in the past week. While this
is an important development for domestic politics, we do not
expect the change in leadership to affect Japanese political
decision making or U.S. interests. The opposition in Japan
is weak. The DPJ holds less than a quarter of the seats in
the Diet and has minimal say on policies. Of greater
importance is the expected prime ministerial contest this
fall. Koizumi is expected to step down in September, and the
race to succeed him has already begun. Among the contenders
are Chief Cabinet Secretary Abe ) who leads the race at this
point, Foreign Minister Aso, Finance Minister Tanigaki, and
former Chief Cabinet Secretary Fukuda. The election could
have implications for Latin America. If the successor to
Prime Minister Koizumi ) whose cousins and uncles immigrated
to Brazil does not share the same affinity toward the region,
the Prime Minster,s "strategic partnership" announced during
his 2004 visit to Brazil could fall flat.


3. (C) Japan's relations with its neighbors are riddled with
territorial and historical problems. Anger over the North
Korea abductee issue is palpable, and Japan continues to take
a hard line, in cooperation with us, in the Six-Party Talks.
Koizumi's annual visits to Yasukuni Shrine make international
headlines. The shrine memorializes all Japanese war dead,
including 14 convicted class-A war criminals; China and South
Korea oppose these visits because they claim the shrine
glorifies Japan's wartime aggression. In addition,
unresolved disputes over energy rights in the East China Sea
and an ongoing freeze in high-level discussions with China
and South Korea have led Foreign Minister Aso to say that
there is nothing he can do to improve relations.

Economics, Oil, and Trade
--------------


4. (U) The primary focus of Japan,s relationship with Latin
America is economic. Japan first became a significant
player in the region in the 1960s and 1970s as it aimed to
secure a supply of primary materials for its industries.
Large Japanese corporations including Toyota, Mitsubishi,
Mitsui, Honda made important investments in the region and
have played an instrumental role in Latin America and
Caribbean (LAC) development. But between 1990 and the end of
the decade, Japan,s share of total FDI inflows to Latin
America have dropped from more than 20 percent to less than
ten percent; meanwhile Japan,s investment in China and
Southeast Asia grew. After a decade of economic stagnation,
Japan is now in its second year of domestic demand-led
growth. For CY2005 Japan posted a 2.8 percent real GDP
growth rate. However, Japan still faces several challenges
including a debt/GDP ratio that is the largest of the G-8
countries and a rapidly aging population.


5. (SBU) Japanese oil and gas companies do not invest in
Latin America because of the geographic distance to the
region and the relatively higher cost of refining; they
prefer instead the higher quality grade coming from the
Middle East.


6. (SBU) Japanese industry is behind the government,s
recent moves to secure bilateral Free Trade Agreements
(FTAs). Since NAFTA, Japanese firms have pressed their
government to address the disadvantages faced when competing
in markets with multinationals who enjoy preferential access
to foreign markets as a result of other countries, FTAs.
Japan concluded its second Economic Partnership Agreement
(EPA) -- which is similar to an FTA but includes provisions
that provide economic assistance to micro enterprises and
joint research activities -- with Mexico in 2005. This was
the first of its kind between Japan and a LAC country. Both
Mexican Embassy officials and Japanese government officials
publicly have acknowledged that the Japan-Mexico Agreement
facilitates Japanese manufacturers, access to NAFTA markets,
because the agreement reduces duties on parts and components
shipped to Mexico for final assembly at Japanese-invested
plants and sale in the U.S. and Canada. Bilateral trade
between Mexico and Japan from April 1 to September 30, 2005
increased by 24 percent, over the same period in 2004.


7. (SBU) The Japanese government also is moving forward on
trade agreements with other Latin American countries.
According to Japanese government contacts, the first round of
FTA talks with Chile progressed well. This agreement, they
hope, will serve as a gateway to South American markets for
Japanese businesses. While the private sector is anxious to
conclude FTAs with Brazil and Argentina, the Japanese
government has been slow to move. A MOFA official said his
government is waiting to see what type of FTA proposal from
the United States Brazil will accept. The Japanese, then,
would use that agreement as a model in negotiations for a
Brazil-Japan FTA.


8. (SBU) Japan engages multilaterally with Latin America
through Mercosur. But the Japanese find it difficult to deal
with Mercosur on any specific initiatives, complaining that
it,s hard to deal with four countries that can,t get along
themselves. Despite this, the Japanese stay engaged in the

region because they hope, long-term, Mercosur will constitute
a solid group like the EU. Nevertheless, the Japanese hold a
dialogue once yearly with Mercosur countries to discuss
general economic matters, ways to enhance relations and
technical cooperation. Sometime early this year, Japan will
attend the seventh round of the Mercosur Dialogue, headed by
MOFA Deputy Foreign Minister for Economic Affairs Mitoji
Yabunaka.

ODA
---


9. (C) Japanese ODA to Latin America aims to get the biggest
bang for the buck. The percentage of ODA to Latin America
has decreased since the 80s and 90s, from ten percent of
Japan,s entire ODA budget to five percent. Japan sees this
as both good and bad ) good because it reflects a relative
increase in the standard of living in the region (Japan cuts
off its aid when per capita GNI rises above 4,000 USD),but
bad because Latin America still faces a number of development
problems. A budget shortfall has forced Japan to
re-prioritize to: Asia, countries in conflict, and
post-conflict countries in Africa, in that order. Of the aid
going to Latin America, Bolivia is the largest recipient.
Other countries not qualifying for traditional grants receive
technical cooperation assistance and aid for grassroots
projects determined by the Japanese Embassy within the LAC
country. Increasingly, the Japanese government is looking to
fund projects that will affect an entire region, rather than
just one country. Not to be forgotten, remittances from the
approximately 400,000 Latin Americans working in Japan
amounted to three billion dollars in 2003, second only to the
United States as a source of remittances to the LAC region.

Bolivia, Colombia, Cuba, Haiti, Peru and Venezuela
-------------- --------------


10. (C) To the Japanese, the electoral process that
witnessed Morales emerge victorious in Bolivia is a sign that
democracy in the country is advancing. Shortly after Morales
took office, Japan relayed to the new government that it
would tie its aid to implementation of constructive policies.
They believe Morales has a chance if he aligns his country
with Brazil and Argentina ) which support good governance
and democracy -- rather than Venezuela -- which supports
Bolivia,s radicalization policy. Recent Japanese
government actions make clear, however, that there is no real
link between performance and aid. Within the last two
months, the Japanese government gave USD 100,000 to the
Morales government before he had accomplished a single
constructive objective.


11. (C) The Japanese have built a mutually beneficial
relationship with the Colombians. Japan continues to support
the agenda of President Uribe, who they believe will win the
upcoming elections. Currently Japanese aid in Colombia funds
rehabilitation and training centers for demobilized forces.
On trade, Japan exports approximately 700 million USD worth
of goods (car parts, heavy machinery, chemicals, steel, and
electrical machinery) to Colombia each year. It imports
approximately 300 million USD worth of products. Coffee
accounted for half that amount, followed by emeralds, fish

and industrial products. The unstable security situation
prevents greater investment in Colombia.


12. (C) Japan,s policy is to engage with Cuba. They believe
this offers the best way to promote human rights and economic
change in the country. MOFA Latin America DG Sakaba has an
ongoing dialogue with Cuba,s Vice Foreign Minister. They
also maintain high-level dialogue through Japan,s
Parliamentary Friendship Association, which visits Cuba
regularly. In 2004, ex-Prime Minister Hashimoto was a part
of this group; ex-Prime Minister Hata went in 2005. The
Japanese remain grateful to the Cuban regime for its help in
resolving the Japanese Embassy incident in Peru.


13. (C) Cuban Minister of Government for Trade Affairs was in
Japan last week to re-schedule Cuba,s nine billion dollar
debt with the Japanese private sector. The private sector
wants Cuba to speed up its re-payments of loans dating back
to the Soviet era. The Japanese Ministry of Economics and
Trade, together with Nippon Export and Investment Insurance,
handles Cuba,s public debt which amounts to approximately
600 million dollars. 85.5 million dollars is short-term
debt; 514.5 million dollars is long-term debt. Not
surprisingly, the negotiations have not been moving forward.
Trade relations between Cuba and Japan are growing. In 2004,
Japan exported approximately 94 million dollars worth of
products (machinery, electric parts, medical machinery) to
Cuba. Japan imported cigars, coffee, nickel and seafood
from Cuba.


14. (C) The only reason Japan cares about Haiti is because
the United States brings it up at virtually every major
international conference, according to a MOFA official. The
Japanese believe Haiti is so underdeveloped they have no idea
where to start helping. Japan is the fourth largest aid
donor to Haiti, not including the 1,060,000 USD contributions
for the recent elections. Japan further contributes
indirectly through the World Bank and the United Nations.
The Japanese government currently contributes 20 percent of
the financial cost of the United Nations, peacekeeping
operation there, something they plan to continue
indefinitely.


15. (C) Japan,s relations with Peru are on the upswing
following a prolonged period of tension resulting from
ex-President Fujimori,s stay in Japan. Following
Fujimori,s abrupt November 6 departure, the Japanese
government has made attempts to normalize relations. In the
last month, Japan donated 92,250 USD to the Organization of
American States in support of the electoral process there.
Japanese companies are interested in mining, but security
issues have slowed investment.


16. (C) Venezuela is one of the few countries in Latin
America where Japan takes its cues from the OAS and EU
missions, not the United States. Japan,s political agenda
in Venezuela is fairly straightforward and naive ) to
encourage the Chavez government to deepen their understanding
of international affairs so it doesn,t always act in the
context of its bilateral relations, but rather for the
greater good for the international community. The Japanese
have taken the stance that they must deal with Chavez because

he was democratically elected.


17. (C) Japan, however, remains worried that two phenomena
could lead to widespread instability in Venezuela: a drop in
the price of oil and the upcoming December elections. If
crude price falls and Chavez cannot support his social
programs, civil unrest may result. In the lead-up to the
December elections, the Japanese government also is concerned
there will be a backlash from the people,s inability to form
opposition political parties and Chavez,s strict control of
the economic, media and legislative systems. Instability,
they believe, could hurt Chavez, ability to maintain the oil
flow and thus upset world oil prices. That could be
devastating to the Japanese economy which is 100 percent
dependent on energy imports.

The China Factor
--------------


18. (C) The "China factor" is barely a factor at all.
China,s activities in Latin America simply do not play into
Japan,s foreign policy calculations. The Japanese Foreign
Ministry believes the dynamics of the Japan-Latin America and
China-Latin America relationships are fundamentally
different. China has a greater need for natural resources
and Latin America is a logical place to exploit them,
government officials have expressed. Otherwise Latin America
and China are competing for the same developed-country FDI
and the same developed-country markets, a dynamic that helped
Japan win concessions from Mexico during the negotiation of
their trade agreement. By contrast, the Japanese economic
relationship with Latin America is more complementary and
diverse, trading in goods where each country has a
comparative advantage. It,s obvious the Japanese Foreign
Ministry has thought little about the long-term strategic
consequences of China gaining a foothold in that region. And
while GOJ energy officials closely monitor China's energy
diplomacy world-wide, they do not look to the Latin America
region as a hedge against getting cut off from Middle Eastern
oil.

Your Meetings
--------------


19. (C) In order to cover the spectrum of Japan,s
relationship with Latin America, we have requested meetings
with your counterparts in Japan,s Ministry of Foreign
Affairs, and the Ministry of Trade and Industry and
Environment. You will also have a separate meeting with the
MOFA Economic Cooperation Bureau Deputy Director General
Nobuki Sugita to discuss aid. We have arranged roundtable
discussions with academics, journalists, and business leaders
to give you an opportunity to engage non-government officials
on issues related to Latin America. We at Embassy Tokyo look
forward to briefing you further on your arrival and stand
ready to do all we can to make your trip productive.

SCHIEFFER