C O N F I D E N T I A L TOKYO 003357

SIPDIS

SIPDIS

PLEASE PASS TO AID/ENE DAA LUTEN

E.O. 12958: DECL: 06/14/2026
TAGS: PREL ETRD ECON EAID AADP SENV XH ZL ZS JA
SUBJECT: JAPAN-CENTRAL AND SOUTH EASTERN EUROPE RELATIONS:
FOCUS ON INVESTMENT, ENERGY SECURITY AND FURTHER
INVOLVEMENT IN KOSOVO

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


1. (C) Summary. In a recent review of Japan's relations with
Central Europe, MOFA officials related that ties with Poland,
Czech Republic, Hungary and Slovakia are moving away from
assistance and toward direct investment. Japan's
relationship with Romania and Bulgaria is largely focused on
energy security and reducing dependence on Russian oil. In
the Balkans, Japan's ODA centers on "peace consolidation" and
economic development. Prime Minister Koizumi considers
Ukraine's President Yushchenko a hero, and views Ukraine as a
possible counterweight to Russia. Finally, MOFA officials
said that Japan is coming "more into line" with the United
States and the EU regarding Belarus' human rights situation,
but admitted that Tokyo is waiting for the U.S. and EU to
take the lead. End summary.

Visegrad Four: From ODA to FDI
--------------


2. (C) Japan is in the process of phasing out its Official
Development Assistance (ODA) to the Visegrad Four (Poland,
Czech Republic, Hungary and Slovakia) and projects 2007 as
the end date of all ODA to these countries, MOFA Central and
South Eastern Europe Division Principal Deputy Director
Tatsuya Machida told Embassy Tokyo Political Officer Kathleen
Szpila recently. In contrast, Japan's foreign direct
investment (FDI) is growing rapidly. It has almost doubled
to Poland in the past three years. There are now a total of
63 Japanese companies in Poland, 63 in the Czech Republic and
59 in Hungary. Japan's current plan is to explore further
investment opportunities using organizations such as the
Poland-Japan Economic Committee, which was established to

facilitate better communication and stronger relations
between the business sectors of the two countries. Machida
believes the political relationship between Japan and the
Visegrad Four is strong, commenting that the Four are "more
pro-Japan than the original EU member states."


3. (C) In a separate meeting, MOFA Economic Integration
Division Principal Deputy Director Kaname Araki concurred
that Japan's investment in the Visegrad Four is increasing,
but observed that it remains low compared to that of China.
EU accession and the subsequent harmonization of laws and
regulations have made investment in these countries easier,
Araki observed. He singled out Hungary as actively trying to
attract more FDI from Japan; however, he continued, the lack
of qualified workers with a "Japanese-style work ethic" poses
a constant hurdle for Japanese businesses operating in the
region. Japan also needs to convince the Visegrad Four that
the Japanese market is just as profitable as China and,
contrary to what these countries may think, not
protectionist.

Romania and Bulgaria: Bringing Oil to the Black Sea
-------------- --------------


4. (C) Japan supports Romania's and Bulgaria's EU accession,
Machida noted. Japan hopes both countries will become better
trading partners through the creation of modern legal
frameworks. Much of the focus of Japan's relationship with
the two countries has been on energy security, including USD
180 million in assistance to construct a new container
terminal in Romania's South Constanta Port and USD 1.28
million in assistance to expand the Bulgarian Port of
Bourgas, both located on the Black Sea. Both projects are
intended to facilitate the completion of the pipeline from
the Caspian Sea through the Black Sea in order to reduce
Eastern Europe's dependence on Russian oil. Machida pointed
to the NATO Foreign Ministerial conference as an opportunity
for Japan to coordinate with Romania and Bulgaria on energy
security issues.


5. (C) Japan has also successfully established bilateral MOUs


with Bulgaria and Romania to implement the Clean Development
Mechanism (CDM) to reduce carbon dioxide emissions, explained
Machida. These non-binding MOUs clear the way for Japanese
companies to invest in emissions control equipment in new
Bulgarian and Romanian factories in return for Japan
receiving credit for emissions reduction under the Kyoto
Protocol.

Balkans: The Focus on Kosovo
--------------


6. (C) Japan currently has three embassies in the Balkans -
in Croatia, Slovenia and Serbia - while Japan's missions in
Vienna and Rome cover Macedonia and Albania, respectively.
Total ODA for the Balkan region was close to USD 1.07 billion
in 2004 and focused on "peace consolidation," economic
development and regional cooperation. Kosovo independence is
not a question of "if" it will happen, but of "how" it will
happen, Machida noted. He expressed concern about the rights
and status of minorities within Kosovo and dismay that the
Serbian government's inflexible stance has stalled
negotiations. Japan appears sympathetic to the Albanians,
Machida continued, but its official position is "neutral."
Overall, Japan views Kosovo as a global issue and not
strictly an EU problem. Machida relayed that Japan's
objectives in Kosovo are to be included in contact groups, to
maintain close contact with the UN and, once Kosovo is
stable, to re-double its economic investment efforts.

Ukraine: Possible Counterweight to Russia
--------------


7. (C) Since "Koizumi loves heros," and he views Yushchenko
as the hero of the Orange Revolution, Ukrainian President
Viktor Yushchenko's July 2005 trip to Japan produced a "very
good meeting" that fostered a positive relationship between
Prime Minister Koizumi and Yushchenko, Machida observed. The
creation of the Ministerial-level Japan-Ukraine Cooperation
Committee demonstrates Japan's desire to create a deeper
relationship with Ukraine. Yushchenko follows a middle road
between Russia and EU, claimed Machida, and is not as
EU-centric as he is sometimes portrayed. Machida expressed
concern at possible friction between Ukraine and Russia,
citing the recent disruption of gas supplies to Ukraine as
highlighting the weaknesses in European energy security and
its vulnerability to Russia's whims. Japan views Ukraine as
a possible counter to Russia in the upcoming G-8 summit, and
is currently seeking high-level talks with Ukraine on the
margins of the G-8. Japan's ODA contribution of USD 1.71
million in 2005 targeted the development of Ukraine's
transport infrastructure.

Belarus: Considering Sanctions
--------------


8. (C) Japan is coming "more in line" with the United States
and European Union regarding the human rights situation in
Belarus, Machida stated. After the recent Belarus
presidential elections, Japan issued a press statement urging
the Belarus authorities to pursue democratic principles, and
expressed regret that many undemocratic acts were observed
during the election. Two official "calls of concern" were
placed to the Belarussian Charg in Tokyo that, according to
Machida, signaled a tougher response. The Japanese Embassy
in Minsk declined an invitation to attend President
Aleksander Lukashenko's inauguration. Japan has carefully
been reviewing its options with regards to possible sanctions
against Belarus, confided Machida, but is waiting for the
United States and the EU to take the lead. While official
contact may be dwindling, Japan still operates its
people-to-people exchanges with Belarus; in 2005 a
Belarussian journalist and democracy activist came to Japan
and this year Japan plans to host a Belarussian professor.
SCHIEFFER