C O N F I D E N T I A L SECTION 01 OF 03 TOKYO 001982

SIPDIS

SIPDIS

E.O. 12958: DECL: 04/12/2026
TAGS: PREL PARM ECON ETRD EAID ASEAN ID TW IN CH
MG, JA
SUBJECT: EAP A/S HILL'S MEETING WITH ASIAN DG SASAE ON
ASIAN ISSUES

Classified By: Deputy Chief of Mission Joe Donovan. Reasons. 1.4 (b)(d)
.


1. (C) Summary. In an April 11 tour d'horizon of issues
affecting the Asian region, MOFA Asian Affairs DG Sasae told
A/S Hill:

-- Japan is emphasizing relations with Indonesia, Singapore
and Vietnam in its strategic thinking with ASEAN;

-- Japan will not stand in the way of Russia becoming a
member of the EAS, and hopes the U.S. will consider some sort
of participation with the EAS;

-- Japan sees Indonesia as on the right path toward economic
reform and to becoming a leader within ASEAN;

-- With growing Chinese influence, Japan is placing strategic
importance on Burma, Laos and Cambodia, and he urged the U.S.
to consider these countries' strategic regional importance;

-- China needs to be told that its current "undisciplined"
development assistance practices are unhelpful and need more
transparency;

-- MOFA is now reviewing ways to become less restrictive on
trade and economic relations with Taiwan;

-- He sees no fundamental change in relations with China in
the near future, and sees China's development of East China
Sea gas reserves as a potentially volatile issue;

-- Japan's relations with Mongolia are improving;

-- Japan's priority with India now is to develop trade and
investment, while also exploring deeper defense ties; and

-- Japan could eventually support the U.S.-India Civil
Nuclear Cooperation Initiative. End summary.

ASEAN/East Asia Summit
--------------


2. (C) With China in the background, Japan is emphasizing
relations with Indonesia, Singapore and Vietnam in its

strategic thinking with ASEAN neighbors, MOFA Director
General for Asian and Oceanic Affairs Kenichiro Sasae told
A/S Christopher Hill at a April 11 lunch meeting. He agreed
with A/S Hill that all three countries, more than others in
ASEAN, are cautious about China's increasing influence with
ASEAN members. Indonesia and Singapore were also cautious
about Russia's role in the region. While they may oppose
Russian membership in the East Asia Summit, they are likely a
minority, and Russia may become a member of the EAS. If that
were to occur, Japan would not move to oppose it, Sasae said,
though he questioned whether an EAS with India, Russia and
China -- and without the USA -- would be good for Japan's
interests. While he understood the priority the U.S. places
on APEC, Sasae suggested the U.S. keep an eye on the EAS as
it develops. The U.S. would not necessarily have to send the
President or Secretary of State to EAS meetings in order to
take advantage of the gathering to further bilateral
interests. Japan's preference would be for Russia to obtain
observer status in the EAS (vice full-member status), Sasae
stated, and asked whether the United States would want
observer status if Russia were to obtain it. A/S Hill
replied such a decision would have to be made after reviewing
developments and through an inter-agency process.

Indonesia
--------------


3. (C) Indonesia is trying hard to bring about economic
reform Sasae observed. Proud of its democratic government,
Jakarta is also trying to recover its position as a strong
leader among ASEAN members, he said, perhaps supplanting
Thailand. Japan is working toward a Free Trade Agreement
with Indonesia, and is hoping an FTA will allow Japan to
increase its influence in Indonesia at a time when China is
also trying to build relations with Jakarta.

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Southeast Asia
--------------


4. (C) China is increasing its presence in Cambodia, Laos and
Burma, Sasae remarked, adding that Japanese embassies in
those countries are reporting that Japan needs to increase
its activities or risk losing influence to China. Japanese
ambassadors in the three countries were suggesting that Japan
redirect official development assistance from China to the
region in order to combat the effect of China's economic and
military assistance, as well as increased business activity.
While acknowledging that the area may not be of strategic
importance to the U.S., it is for Japan, Sasae stated, as
China seeks a route to the south. He urged the U.S. to
consider the strategic implications of Chinese influence in
the area, noting that North Korea also has some influence on
Burma.

ODA
---


5. (C) China's neglect for transparency and accountability in
distributing development assistance is sending the wrong
message to developing countries, Sasae asserted. When China
extends aid for flashy, superficial projects such as
presidential palaces, combined with military aid that Japan
cannot offer, and then requires no transparency or benchmarks
for democratic progress, recipient countries have no
incentive to change and Japan cannot compete for influence.
China should be told, he said, that its "undisciplined"
method of giving assistance, which does not hold countries to
any measure of accountability for progress on democracy or
human rights, is negligent.

Taiwan
--------------


6. (C) Japan does not intend to change its basic "One China"
policy, no matter how much some Japanese officials may regret
that Japan has missed opportunities to develop regular trade
and economic relations with Taiwan, Sasae said. Japan has to
be sensitive about giving Beijing the impression that it "is
playing the Taiwan card," and will seek to avoid initiatives
with political overtones. MOFA is nonetheless reviewing ways
to become less restrictive in trade and economic relations
with Taiwan. Sasae separately remarked that Taiwan
opposition leader Ma Ying-jeou appears to be gaining in
popularity.

China
--------------


7. (C) Sasae predicted that Japan-China relations will not
fundamentally change in the new future, though he
acknowledged that past problems, such as the Prime Minister's
visits to Yasukuni Shrine, remain as irritants. None of the
most likely successors to PM Koizumi have indicated clearly
whether they would continue to visit Yasukuni. While China
pushes the history issue as the main obstacle to better
relations, Japan believes there are other areas that need to
be addressed, Sasae noted, pointing particularly to China's
development of gas reserves in the East China Sea. Japan is
trying to reach a negotiated settlement with China on East
China Sea gas and hopes to come to an agreement before China
begins production, which could start soon. Should China
start production, it would cause an uproar among those
Japanese who believe that Japan has equal rights to reserves
there, and Japanese companies would no longer feel
constrained about development, which could lead to severe
tensions. He believed Beijing was also hoping for a
settlement in the ongoing negotiations, but noted that no
proposals have come close to an agreement thus far.


8. (C) In response to "terrible" remarks by PRC FM Li
Zhaoxing comparing Japan's handling of WWII to that of
Germany's, and thus insinuating that Japan's army was
comparable to Hitler's Nazis, Japan decided to postpone a
decision on yen loans to China this year, Sasae stated.
Japan hopes to restart yen loans next year, but ultimately

TOKYO 00001982 003 OF 003


Japan will end such loans by 2008, while at the same time
drawing down ODA. Japan would retain some forms of
assistance, such as Japan International Cooperation Agency
(JICA) volunteers/projects and environmental assistance
because China's pollution directly affects Japan, Sasae
observed.

Mongolia
--------------


9. (C) Sasae gave Mongolia high marks for its efforts to
become a democratic country and said that Mongolia has been
helpful in dealing with North Korea. Japan's relations have
improved with Mongolia, he noted, adding that PM Enkhbold had
just visited Tokyo in March, the first overseas trip by him
as prime minister. During the visit Japan agreed to increase
aid to Mongolia, and the two countries agreed that 2006 would
be the Year of Mongolia in Japan and 2007 would be the Year
of Japan in Mongolia.

India
--------------


10. (C) India is receiving more attention as a strategic
priority in Japan, Sasae explained. India is now the largest
recipient of yen loans, having surpassed Indonesia. Japan's
priority is to develop trade and investment with India, and
Japan has asked business associations such as Keidanren to
invest more there. Japan has invited PM Singh to visit Tokyo
and hopes the visit will occur before the summer. Japan is
also exploring deeper defense ties with India, such as joint
exercises in disaster relief, patrolling the seas, and coast
guard-to-coast guard cooperation. "We would like a true
strategic partnership," he said, "not simply a counterbalance
to China." Such a partnership could be helpful in advancing
many of Japan's interests in the region, he suggested.


11. (C) Regarding the U.S.-India Civilian Nuclear Cooperation
Initiative, Sasae said the U.S. and Japan differ in how they
view the issue at this time. In the end, Japan could come
around to supporting it, Sasae opined. Even though MOFA's
Asia Bureau recognizes that India is a de facto nuclear
power, for Japan as a whole to support the initiative,
Japanese political leaders will have to overcome resistance
from various groups within Japan. Japan will closely watch
how the initiative is handled by the U.S. Congress, the
Indian parliament and Indian nuclear safety regulators before
deciding whether to relax export controls. Sasae reiterated
the need for Japan to take domestic opinion into account as
it deals with this issue, and stated that a neutral stance by
Japan should not be interpreted as meaning Japan is not
supportive.


12. (U) Assistant Secretary Hill cleared this message.
SCHIEFFER