MOFA'S ISHIKAWA CRITICIZES NIKAI EAST ASIA FTA

C O N F I D E N T I A L SECTION 01 OF 03 TOKYO 003161

SIPDIS

SIPDIS

STATE PASS USTR FOR WCUTLER, JNEUFFER
PARIS FOR USOECD
GENEVA FOR U.S. MISSION TO WTO

E.O. 12958: DECL: 06/07/2016
TAGS: ECON ETRD PREL JA APECO
SUBJECT: MOFA'S ISHIKAWA CRITICIZES NIKAI EAST ASIA FTA
PROPOSAL, ADVOCATES STRONG ASEAN PLUS 1 FTA, CLAIMS TO
SUPPORT APEC, WAITS FOR BRAZIL TO MOVE IN WTO

REF: A. TOKYO 3045

B. TOKYO 2991

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Classified By: DCM Joseph Donovan for reasons 1.4 (b) & (d)


1. (C) SUMMARY: Japan needs WTO negotiations to move forward
while MAFF Minister Nakagawa is still in place, MOFA Economic
Affairs DG Ishikawa told visiting APEC Ambassador Michalak,
but Brazil needs to move first before Nakagawa can play his
hand. Ishikawa cited problems with METI Minister Nikai's
proposal for an East Asian trade agreement, adding that it
faces opposition within the Japanese government and
commenting that Japan would do better to aim for a good
result in its ASEAN plus one trade negotiations, on which he
leads for MOFA. While claiming that MOFA supports APEC,
Ishikawa also confirmed that MOFA's APEC senior official will
continue to divide his time between APEC and MOFA's Latin
America Bureau. Ishikawa remained confident that bilateral
beef trade would resume soon, but not before PM Koizumi
visits the U.S. END SUMMARY


2. (C) U.S. Ambassador for APEC Michael Michalak called on
MOFA Director General for Economic Affairs Kaoru Ishikawa
June 2. Embassy Economic Counselor Fantozzi and Economic
Officer Ries accompanied.

WTO ) now or never, but Japan can't go first
--------------

3. (C) Ishikawa commented that Agriculture Minister
Nakagawa's tenure creates a window of opportunity for Japan
to advance Doha negotiations, but he predicted that the
window will close if Nakagawa moves on as part of a Cabinet
shuffle when PM Koizumi steps down in September. At the same
time, Ishikawa suggested that because on balance Japan will
lose from any possible Doha Development Agenda outcome, Japan
cannot make the first move in WTO negotiations. Those who
will win, such as Brazil, should go first, he asserted, and
then Nakagawa would be in a position to "play the cards he
has in his pocket." In addition to frustration with Brazil,
Ishikawa expressed concern that EU Trade Commissioner
Mandelson needs to visit EU capitals and demonstrate that he
will be able to negotiate successfully the allocation of the
EU's "sensitive" 8% of tariff lines among member states.


4. (C) For Japan's part, Ishikawa expressed more concern for
the social effects of agricultural liberalization than for
agricultural trade interests. Japan has 8.5 million
households deriving income from agriculture, of which the
majority of household heads are over 65 years of age and many
are widows living in remote places, he observed. While
Japanese farmers can develop markets in Shanghai and Bangkok
for high-end produce, Japan needs time so that "these old
ladies can spend their final years in dignity."

Focus on ASEAN plus one, not EAS
--------------

5. (C) Turning to Japan's bilateral and regional trade
negotiations, Ishikawa said Japan is waiting for the air to
clear following Thai elections before trying to set a new
date to sign that agreement. Negotiations with the
Philippines had been set back when the GOP reopened
everything agreed so far. By contrast, Ishikawa
characterized Japan's trade talks with Vietnam and Indonesia
as proceeding on track. Noting that he himself was leading
only on Japan's ASEAN plus one "umbrella" negotiation,
Ishikawa said he believed he had found a solution to the
challenge of establishing legal consistency between that
prospective agreement and Japan's prospective bilateral
agreements with individual ASEAN members.


6. (C) Ishikawa criticized the East Asian Economic
Partnership Agreement concept being advanced by Trade
Minister Nikai as problematic because the only way to make
such an agreement legally consistent with the bilateral and
ASEAN plus one agreements now being negotiated would be to
go to the lowest common denominator. China, he added, lacks
legal stability, does not respect intellectual property, and
has an ambiguous competition policy. Moreover, the zero

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tariff coverage of China's agreement with ASEAN covered only
4.9% of trade, reflecting China's contention that it is a
developing country and therefore not bound by the same WTO
standards as industrialized countries.


7. (C) Asked about GOJ discussion of the Nikai proposal,
Ishikawa remarked that while it is on the agenda of the
Cabinet-level Council for Economic & Fiscal Policy, it also
faces opposition from Agriculture Minister Nakagawa and
Foreign Minister Aso. Ishikawa said the Cabinet Office had
summoned him and his METI and MOF counterparts to a meeting
earlier in the week to discuss the Nikai proposal. In that
venue Ishikawa had urged that priority be given to Japan's
ASEAN plus one negotiations and questioned the need for the
Nikai proposal, which he characterized as motivated by fear
of China. "We should have confidence in ourselves and good
diplomacy with our neighbors," Ishikawa said. (He said his
position resulted in a shouting match with his METI
counterpart.) Ishikawa acknowledged that Minister Nikai must
be allowed to save face, but at the same time he indicated
clearly through body language that he does not expect the
proposal to lead to any concrete result.

Where is MOFA on APEC?
--------------

8. (C) DG Ishikawa sidestepped Ambassador Michalak's
questions as to whether reports were true that Japan had
proposed holding ministerial meetings as part of the East
Asian Summit process at a recent senior level meeting on the
EAS and how this would fit in with Japan's support for the
APEC process (see reftel A). By way of affirming his support
for APEC, Ishikawa asserted that he personally had tabled
Japan's offer to host APEC in 2010. Michalak welcomed
Japan's offer to host in 2010 but he noted that 2010 is still
four years away. Ishikawa listened politely but made no
commitment when Michalak expressed hope that Japan might help
fund U.S.-proposed projects aimed at enhancing cooperation
between APEC and ASEAN.


9. (C) Michalak observed that many in APEC and the U.S. are
puzzled by the fact that MOFA's APEC senior official, Satoru
Sato, spends roughly half of his time in MOFA's Latin America
bureau. Ishikawa defended the arrangement as necessary
because of civil service limits on the number of deputies DGs
in MOFA, and he professed not to have been aware that Sato's
division of duties had created any doubts about MOFA's
commitment to APEC. At the same time he made clear that
Sato's successor, a Mr. Mizukami who is returning to MOFA
from a detail to the Japan International Cooperation Agency
(JICA),would continue to split his time between MOFA's
Economic Affairs and Latin America Bureaus.

Beef Trade Opening Soon
--------------

10. (C) Reprising comments he made to EAP PDAS Stephens
earlier in the week (reftel B),Ishikawa remained optimistic
that bilateral beef trade would resume, but he predicted that
it would not happen by the time Prime Minister Koizumi is
scheduled to meet the President in late June. He said that
the GOJ would not provide a timetable but the USG could
extrapolate one from the list of steps to be undertaken
before the trade resumed. In order to expedite GOJ
inspections of U.S. facilities that must accomplished before
trade can restart, Ishikawa said that efforts were under way
to detail MAFF experts to supplement the four experts at MHLW
so that it would be possible to field more inspection teams.
Ishikawa added that Japanese Ambassador Kato has been meeting
with U.S. members of Congress in an effort to convey the
GOJ's sincerity about reopening beef trade.

No strong incentive for a U.S.-Japan FTA
--------------

11. (C) On U.S.-Japan economic relations, Ishikawa said he
had changed the tone of the Prime Minister's Diet Q&A on a
possible U.S.-Japan FTA to ensure that the GOJ's hands were
not tied, but he opined that the added value of negotiating
such an agreement would be small because the U.S.-Japan
economic relations are already so close.

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SCHIEFFER