S/P DIRECTOR KRASNER'S MAY 10 MEETING WITH METI VM

C O N F I D E N T I A L SECTION 01 OF 04 TOKYO 002639

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E.O. 12958: DECL: 05/14/2026
TAGS: ETRD PREL ASEAN CH KS JA
SUBJECT: S/P DIRECTOR KRASNER'S MAY 10 MEETING WITH METI VM
KUSAKA

REF: A. TOKYO 2609

B. TOKYO 2610

C. TOKYO 2612

D. TOKYO 2637

E. TOKYO 2638

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


1. Summary: The need to deal with China's growing economic
strength and the prospect of ASEAN Plus Three acceptance of a
China-backed initiative for a regional free trade agreement
(FTA) were the factors behind Trade Minister Nikai's recent
proposal for an alternative Asian arrangement, according to
METI International Affairs Vice Minister Kusaka. Meeting May
10 with Policy Planning Staff Director Stephen D. Krasner,
Kusaka expressed frustration at U.S. rebuffs of previous
Japanese initiatives on regional economic architecture. In
addition, Japan sought to support the ASEAN secretariat and,
according to Kusaka, had tried without success to elicit U.S.
interest in doing so jointly with Japan. Kusaka stressed
that ASEAN should form the core of any new regional
architecture and explained that the idea of an "Asian OECD"
included in Minister Nikai's proposal was aimed at
strengthening the ASEAN Secretariat. He affirmed Japan's
support for APEC as a way to generate trans-Pacific ties that
counterbalance China-centered regional integration in East
Asia and welcomed the establishment of FTAs between the
United States and other countries in the region. Kusaka
acknowledged that Japan had not paid much attention to the
Extractive Industries Transparency Initiative but indicated
METI would look into it further. End summary.

Regional FTA Initiative Driven by Need to Deal with China
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2. (C) Dr. Krasner opened his May 10 discussion with
Ministry of Economy, Trade and Industry (METI) Vice Minister
for International Affairs Kazumasa Kusaka by asking how METI
Minister Nikai's recent proposal for an Asian free trade
agreement that would include the members of ASEAN Plus Three
along with India, Australia, and New Zealand would fit into a
broader regional architecture, especially given the
trans-Pacific nature of so much of the region's economic
interaction. Krasner noted that he was puzzled by the
related proposal for a Asian OECD-type organization and that
the idea of a stronger China-Japan-ROK trilateral regional
currency arrangement, which had been floated by the Japanese
Finance Ministry, would be extremely difficult to implement.


3. (C) Kusaka replied that the Japanese were also thinking
about how Nikai's proposal would merge with a broader
architecture. He recounted that nearly two years ago he had
personally advocated to his U.S. interlocutors a three-level
dialogue that would involve strengthening APEC, then the
establishment of a smaller five-party Northeast Asian
regional policy dialogue involving Japan, the United States,
China, South Korea, and Russia (the so-called "Six Minus
One"),and finally a deepening of the U.S.-Japan bilateral
economic agenda. The United States, however, had not
responded to this proposal. In the meantime, Kusaka
stressed, the process of regional integration in the Asian
region, like it or not, was progressing, with China using its
growing economic strength and purchasing power to exercise
ever greater political influence. Japan, according to
Kusaka, still wanted to try to enhance the trans-Pacific axis
of integration through APEC, and he pointed to Japan's
decision to host the forum in 2010 as an example of that
commitment to APEC.


4. (C) Dr. Krasner noted criticisms that APEC currently has
too many members to be effective. Kusaka indicated that the
situation necessitated the creation of a smaller sub-regional
mechanism that could deal more effectively with China. In
Kusaka's analysis, China would accept only a non-binding
forum like APEC, but such a body could still be effective in
influencing the Chinese on issues like intellectual property
protection through international "peer pressure." This
pressure would not need to be expressed through a formal FTA
process but just through acceptance of common guidelines like
those circulating in APEC. For that reason, Kusaka stressed,

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METI had worked to devise initiatives in APEC that the United
States and Japan could cosponsor such as those on IPR and
investment protection.

ASEAN Should Be the Core of East Asian Architecture
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5. (C) In Japan's view, ASEAN would be the focus of Japan's
FTA strategy, Kusaka said. Japan had already concluded an
FTA or was in negotiations with several ASEAN countries.
Minister Nikai's proposal for a regional FTA would not change
this step-by-step approach; Japan's FTA negotiations will
continue at the same pace as they have to date, at least
through 2007 and probably longer as some agreements were
likely to take more time. These bilateral agreements could
then be annexed to a broader Japan-ASEAN FTA.

"Asian OECD" Aims at Strengthening ASEAN Secretariat
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6. (C) With respect to Nishda's idea of an Asian OECD,
Kusaka said the main point of that proposal was to strengthen
the ASEAN Secretariat. ASEAN felt threatened by its "big
northern neighbor" (i.e., China),and such a secretariat
might help to improve ASEAN solidarity in the face of China's
development. S/P Member Evan Feigenbaum noted that the U.S.,
too, was actively working to strengthen the secretariat and
had a variety of efforts to this end underway in Jakarta and
the region. Why not conduct Japan's efforts in coordination
with the United States, he asked? Kusaka replied that Japan
had tried, but failed, to elicit U.S. interest in doing so.
Kusaka noted that Japan had been endeavoring through the APEC
Energy Ministers' meeting to push a Japanese initiative to
assist the ASEAN countries' energy authorities in coping with
the increase in global oil prices, which was tied to a great
extent to the rapid economic growth of both China and India.
If an OECD-type organization existed under the ASEAN
Secretariat, it could be responsible for capacity-building

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work similar to that which Japan was currently undertaking
bilaterally. Kusaka also mused that there might even be a
possibility that such an organization could also engage in
the kind of peer review process that the OECD imposes on its
members but acknowledged that the likelihood of such an
eventuality was slim.

Nikai Proposal Designed to Slow ASEAN Plus Three FTA
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7. (C) Noting again his frustration at the lack of U.S.
response to his broader initiative of two years' earlier,
Kusaka emphasized that the reason Minister Nikai's proposal
had centered on ASEAN Plus Three was that momentum toward a
regional FTA, which former Korean president Kim Dae Jung had
first raised a few years ago, had been building steadily.
When this idea had come up again in last year's meeting of
ASEAN Plus Three economic ministers, the Chinese had
effectively "hijacked" the initiative, Kusaka said. Although
Japan did not like the way in which the ASEAN Plus Three
discussions were progressing, it did not want to reject the
idea out of hand, and thereby isolate itself from the rest of
Asia. The only alternative was to put out a more attractive
alternative proposal for consideration by the ASEAN Plus
Three leaders that might slow progress toward acceptance of
the Chinese-sponsored initiative. According to Kusaka, the
addition of India, Australia and New Zealand to the ASEAN
Plus Three countries as outlined in Minister Nikai's proposal
was aimed not only at bringing democratic countries into the
discussion but, more importantly, at complicating the
negotiations and hampering progress toward a quick agreement
on China's preferred terms.

Japan Welcomes U.S. FTAs in Asia
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8. (C) According to Kusaka, Japan welcomed the U.S. efforts
to negotiate FTAs in East Asia. He added that once Japan and
the United States had concluded their respective bilateral
agreements with South Korea and various ASEAN countries, the
one important missing leg of these "triangles" would be a
U.S.-Japan FTA. Kusaka stressed that none of these

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agreements should be exclusive and could provide valuable
linkages, just as Japan had been able to link into NAFTA
through its FTA with Mexico. He added that Minister Nikai
had explained this point and how his proposal would benefit
the United States when he had spoken to (now former) USTR
Portman.

Asia Not Ready for EU-style Integration
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9. (C) Kusaka acknowledged that some Asian leaders had
called for the establishment of a full "East Asian Community"
that would go beyond economic arrangements and contain
security elements as well. Japan's position, according to
Kusaka, was that East Asia was still too diverse and not yet
ready to explore an EU-style integration. At best,
integration should proceed through a non-political, OECD-like
or NAFTA-like approach based on the various FTA negotiations
being pursued in the region.


10. (C) Dr. Krasner agreed that Japan's FTA agreements
would be better than what the Chinese were likely to achieve
but reiterated the U.S. concern about linking these
agreements into a large framework. Again shifting his focus
to U.S. choices, Kusaka replied that the United States and
others had rejected the proposal for an APEC-wide FTA put
forward by the APEC Business Advisory Council at the leaders
meeting in Santiago, Chile, two years ago. Now the best that
could be achieved would be the interconnection of the various
bilateral initiatives. He emphasized that Japan had no
desire to exclude the United States or other countries in
North America from whatever architecture was emerging in East
Asia (although he hinted that integrating the Latin American
countries would be less desirable). Nonetheless, Japan was
in a position where it would soon need to say "yes" or "no"
to the regional FTA proposal that was being developed in
ASEAN Plus Three, and Japan would find it hard to say "no."
Adding India, in particular, to the mix would probably make
achieving any agreement more difficult, Kusaka said, but it
would also effectively neutralize the present Chinese-backed
initiative.

METI Will Look into EITI
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11. (C) Turning to discussion of the Extractive Industries
Transparency Initiative (EITI),Dr. Krasner noted that Japan
has not been very engaged in the initiative to date. Kusaka
indicated that because Japanese energy firms were not
involved in many upstream activities, Japanese industry did
not believe that the initiative would have much effect on its
business. Krasner noted that the United States was looking
to expand the initiative to more companies and to more
industries (including minerals). Kusaka expressed his
interest in the status of the initiative. Americas Division
Director Akaishi indicated he would follow up either directly
or through the Japanese Embassy in Washington.

Participants
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12. (U) Participants in the meeting included:

United States
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Stephen D. Krasner, Director, Policy Planning Staff
Joe Donovan, Deputy Chief of Mission, Embassy Tokyo
Evan Feigenbaum, S/P Member
David Wolff, Political Officer, Embassy Tokyo
Chris Wurzel, Economic Officer, Embassy Tokyo (notetaker)

METI
--------------

Kazumasa Kusaka, Vice Minister for International Affairs
Yasuo Tanabe, Vice President, Research Institute for Economy,
Trade and Industry
Koichi Akaishi, Director, Americas Division
Tomohiro Kaneko, Deputy Director, Americas Division

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13. (U) S/P Director Krasner cleared this message.

DONOVAN