WHA A/S SHANNON'S APRIL 11 MEETING WITH JAPANESE

UNCLAS SECTION 01 OF 04 TOKYO 002059

SIPDIS

SENSITIVE
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DEPT PLEASE PASS USTR FOR CUTLER, NEUFFER

E.O. 12958: N/A
TAGS: PREL ETRD ECON EINV APECO XR XK LA CH JA
SUBJECT: WHA A/S SHANNON'S APRIL 11 MEETING WITH JAPANESE
BUSINESS LEADERS

REF: A. TOKYO 2008


B. TOKYO 1960

C. TOKYO 1959


1. (SBU) Summary: Japanese companies see potential for
investment in Latin America, particularly in the areas of
minerals, energy, and food, Japanese business representative
told WHA A/S Shannon on April 11. Noting the success of the
Japan-Mexico free trade agreement, they hoped the Japanese
Government would accelerate its free trade FTA negotiations
with other major Latin American countries. The business
representatives also indicated their desire for good
relations between the United States and Latin American
countries because they see strong relations with the United
States as a bellwether of political stability. End summary.

Japanese Firms Have Cautious Interest in Latin America
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2. (SBU) Japanese business representatives meeting over
lunch on April 11 with Western Hemisphere Affairs Assistant
Secretary Thomas Shannon were generally positive about the

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current trend in Japan's economic relations with Latin
America. Still, they noted that top managers remained
cautious about expanding in the region. According to
Mitsubishi Corporation Advisor for Latin America and the
Caribbean Koji Uchida, Japan lost two decades of business
growth in Latin America, first due to political instability
in the region during the 1980s and then as a result of
Japan's economic woes in the 1990s. Uchida, who was involved
with Japan's free trade agreement negotiations with Mexico
and is also engaged in the current negotiations with Chile,
emphasized that the expanding global demand for commodities
driven by Asia's rapidly growing economies meant that Latin
America has a great potential as a supplier to the Asian
market. Noboru Watanabe, a former Mitsubishi executive and
Inter-American Development Bank official, seconded Uchida's
comments but added that the younger generation of Japanese
business leaders might have a more positive attitude toward
Latin America.


3. (SBU) Yoshihiro Kawamoto, General Manager of the Latin
America Division of Matsushita Electric (aka Panasonic),
noted that a number of Japanese firms took serious losses on
investments in Latin America in the 1980s. This historical
fact continued to color the thinking of many top executives.
Even though the business climate in the region had improved
markedly, Latin America still accounted for only 1.6% percent
of Matsushita's global business, a figure the company was
looking to double in the foreseeable future. Nevertheless,
Kawamoto stressed that Japanese companies remain challenged
by both the geographical and psychological distance from
their Latin American partners. The comfort level of Japanese
companies in dealing with Latin America was far lower than

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with the United States, Europe, or other parts of Asia.
Kawamoto indicated that, at least in the case of Brazil,
Japanese companies took a short-term view regarding their
investments in comparison to their European and American
counterparts. They were unwilling to tolerate current losses
in the hope of future gains. For their part, the Brazilians
remained wedded to a self-sufficiency mentality that
inhibited the country's economic ties with the rest of the
world, Kawamoto asserted.

FTA Benefits Clear but Other Obstacles Linger
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4. (SBU) Mitsubishi's Uchida called the Japan-Mexico FTA a
great success and expressed confidence that the agreement
with Chile would bring similar strong growth in bilateral
trade. Although FTAs among third parties always held the
potential of becoming a threat to Japanese exporters, Uchida
noted, in the Latin American case, the relatively small size
of most individual national economies meant that a regional
FTA create the economies of scale needed to attract Japanese
investment. A free trade agreement could also help to curb
the phenomenon in Latin America of "capricious economic
policymaking," which had been a problem for many Japanese
firms, Uchida noted. He cited institutional instability,
crime, and corruption as ongoing concerns, but indicated that
in the case of Mexico the existence of an FTA with a
consultative mechanism had proven beneficial in conveying
companies' concerns to the authorities.


5. (SBU) Tomizo Nagafuchi, Deputy General Manager of Mitsui
Corporation's Business Planning and Coordination Department,
said that his company -- now chairing the Brazil Committee of
the Japanese Business Federation (Keidanren) -- had pushed
forward a Keidanren recommendation to the Japanese government
to explore a free trade agreement with Brazil and the
MERCOSUR countries. According to Nagafuchi, however, the
South American countries remained more focused on
strengthening their trade ties with the United States and
Europe.


6. (SBU) Matsushita's Kawamoto added that, while an FTA
might reduce import tariffs in the case of Brazil or other
countries, it would not necessarily overcome other problems
such as those related to the protection of intellectual
property rights or the unavoidable mismatch between what the
Japanese want to sell and what local consumers are able to
buy. Kawamoto cited the example of Matsushita's desire to
sell more high-quality flat-screen plasma televisions in
Latin America. It was nonetheless still producing
conventional sets in its local operations because most
consumers in Latin America could not afford the more advanced
product.


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East Asian Architecture and The China Factor
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7. (SBU) Brazil and China have been growing closer
politically, Kawamoto noted, and asked A/S Shannon whether
the United States had any concerns about China's increased
engagement in Latin America. Shannon responded that Latin
American countries, which had been thinking that China might
act as a counterweight to U.S. influence in the region, had
been disappointed by China. The Chinese, Shannon stressed,
appeared to see Latin America as a source of energy,
commodities, and food, and were not interested in challenging
the United States politically in the region or in providing
the countries of Latin America with the long-term,
employment-generating investment they hoped for.


8. (SBU) Nagafuchi asked A/S Shannon for his views on
proposals to develop a new regional architecture for East
Asia based on the East Asian Summit and the ASEAN plus 3
process. Shannon stressed that, from his perspective, APEC
was the more important forum because it linked the Western
Hemisphere countries for which he was responsible to the
dynamic economies of East Asia. That linkage, Shannon hoped,
would convince the often parochial countries of Central and
South America of the importance of interacting with the wider
world. Nagafuchi indicated that, from his perspective, Japan
would like both to sustain APEC and to develop a new,
stronger entity rooted in the East Asian region. EMIN
Zumwalt commented that APEC would inevitably lose its
relevance if the East Asian Summit began to address the same
set of issues as APEC.

U.S. Role in Latin America Good for Japan
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9. (SBU) Uchida expressed concern that a new trend of
anti-Americanism had emerged in parts of Latin America and
stressed that Japan, which had good relations with both the
United States and Latin America, hoped for positive U.S. ties
with the region. A/S Shannon emphasized that the United
States also wanted good relations with all countries in Latin
America. The United States, Shannon said, had put aside old
ideological considerations in its thinking on Latin America
and had centered its policy on support for fundamental
democratic values. What drives our engagement in the region,
Shannon said, was a commitment to democracy, free markets,
and economic integration. We could fashion a positive
relationship with countries that shared this commitment.
Unfortunately, some countries -- notably Venezuela -- were
looking to "pick a fight" with the United States and were
acting in ways that ran counter both to the development of
democracy domestically and to the maintenance of the overall
political stability Latin America needed to foster economic
development. The Japanese businessmen said they considered

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good U.S.-Latin relations to be key indicators of the
region's business climate.


10. (U) Assistant Secretary Shannon cleared this message.
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