Japanese Government, Industry reluctant to back WTO case

UNCLAS SECTION 01 OF 03 TOKYO 003873

SIPDIS

STATE FOR EAP/CM, EAP/J AND EB/IPE, E -FELSING
USTR for China Office, Japan Office, IPR Office,
Commerce for National Coordinator for IPR
Enforcement - Cisrael
LOC for Marla Poor
USPTO for LBoland

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: KIPR ETRD WTRO CH JP
SUBJECT: Japanese Government, Industry reluctant to back WTO case
against China on IPR

REF: TOKYO 2326, TOKYO 1270

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1. (SBU) Summary Japanese officials, particularly in the Trade
Ministry, responded coolly to USTR's request that Japan join the
United States in an IPR case against China in the next few months,
saying that the GOJ was still studying the issue and could not
respond until the fall at the earliest -- probably after the new
government is in place. Foreign Ministry officials advised USTR
that nothing can be done until Trade Minister Nikai leaves, and that
the USG needs to raise its request at the political level.


2. (SBU) Lack of support for a WTO case among Japanese business is
adding to GOJ hesitation. Japanese industry groups told USTR that
most of their members did not support the proposed WTO case because
they prefer a more "cooperative" approach towards China for now --
in other words, they fear a backlash from the Chinese government.
Japanese copyright companies are more concerned about market access
than the black market in China for now.
End Summary.

Background
--------------


3. (SBU) USTR's Chief Negotiator for IPR Enforcement, Stanford McCoy
met with officials of the Ministry of Foreign Affairs (MOFA),the
Ministry of Economy, Trade and Industry (METI),the Intellectual
Property Strategy Headquarters (IPSH),and with private sector
representatives at the Japan External Trade Organization (JETRO) and
the Japan Intellectual Property Association (JIPA) in Tokyo on June
13 and June 14. USTR had held an earlier set of meetings in Tokyo
with GOJ officials in late February 2006. The proposed WTO case
would focus on the fact that thresholds for criminal penalties in
Chinese law are set too high to capture much of the IPR-infringing
commercial activity in China. For McCoy's discussions with the same
officials on a proposed Anti-Counterfeiting Trade Agreement see
Tokyo 2567.

METI stalls
--------------


4. (SBU) Opening a joint METI-MOFA meeting, Shigehiro Tanaka,
Director of METI's WTO Affairs office, stressed that Japan needed
more time to study the issue and gather information from industry,
and could not decide whether to join as a co-complainant before the
fall. They will "decide on basis of what is the most effective way
to proceed." Tanaka added that if the United States initiates WTO
consulations in July, Japan was likely to be a supportive third
party. He said that he did not want to leave the U.S. with false
expectations and that the GOJ was proceeding with an open mind.


5. (SBU) In response to McCoy's question asking whether the
political level had already looked at the issue, Tanaka responded
that the Minister was aware of the situation and that METI needed to
prepare a thorough analysis which would not be ready until the fall.
Tadaatsu Mohri, Principal Deputy Director of MOFA's International
Trade Division, added that MOFA was in the process of preparing a
briefing for FM Aso which would cover both the IPR and auto parts
cases.


6. (SBU) Tanaka noted that Trade Minister Nikai had raised the
thresholds issue in a letter to Chinese Commerce Minister Bo,
pointing out that as currently written the thresholds for criminal
penalties appeared to be inconsistent with WTO rules.


7. (SBU) Tanaka explained that METI sees some progress in its
dealings with the Chinese government. In recent talks with Chinese
Supreme People's Court and the Procuratorate, the GOJ raised the
issue of thresholds and the Chinese acknowledged that the issue is a
problem of IPR enforcement. However, the Chinese officials claimed
that the issue is not just a matter of law, but more a social
problem which needed to be dealt with through public education.
Harsh laws would not work, they said, citing a story about the
failure of an ancient Chinese emperor which was repeated by other
Chinese officials, also. Tanaka pointed out that now the National
People's Congress also wants to insert itself into the discussion

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and has declared that the Chinese government must consult it when
determining the interpretation of its laws.


8. (SBU) Tanaka asked about the EU's position on the case and McCoy
replied that the EU is studying the issue, and that the final
decision will probably be a political decision taken by EU Trade
chief Peter Mandelson.

MOFA more supportive, more candid
--------------


9. (SBU) Before the joint meeting with METI, MOFA's Mohri forewarned
that METI was insisting that nothing could happen with respect to
Japan's participation as a co-complainant until fall, but offered no
explanation to MOFA on why. MOFA concluded that METI would not be
able to make any decision on the proposed WTO case until Trade
Minister Nikai leaves when the new Japanese government is chosen in
September. (Comment: Nikai is considered the Japanese cabinet
minister with the best relationship with China and someone who wants
to keep the warm Japan-China business relationship on an even keel
despite frosty relations in some other areas. End Comment.)


10. (SBU) Mohri also cautioned that selling a WTO case on IPR was
going to be even tougher within the GOJ than the WTO auto parts case
because private industry was not on board and was more concerned
about a Chinese backlash than the issues in the case. (Note: Japan
declined to join the U.S. and EU in an auto parts case against
China, but signed on as a Third Party. End Note.)


11. (SBU) Both METI and MOFA officials underscored that there is
stronger support among Japanese industry for GOJ action on
trademarks and counterfeits, and much less on copyright piracy than
among U.S. industry. Moreover, Japanese industry is less concerned
about criminal thresholds and prefers to focus on administrative
penalties, according to Tanaka. McCoy pointed out that the
threshold problem affects both copyright and trademark industries
and that USTR had hoped that by working together Japan could bolster
a joint U.S.-Japan case with information on both copyright and
trademark infringement in China.

Main obstace is lack of industry support
--------------


12. (SBU) At a follow-up meeting, METI and MOFA attorneys agreed
that the lack of industry support was the main obstacle to Japan
joining the United States in a WTO case. Major Japanese companies
like Toyota and Panasonic deal with whole manufactured products, not
parts, and are not particularly interested in the issue. Smaller
companies don't really understand how the legal issues affect them,
they explained.


13. (SBU) METI attorneys also pointed out that the Japanese
copyright industry was just starting out in China and worried about
getting Chinese government permissions and did not want to rock the
boat. As a result, the GOJ would have to convince the copyright
industry to support a WTO case. Further complicating the situation
is the fact that METI does not cover the copyright industries; the
Agency for Cultural Affairs does. Thus, METI has no Copyright
industry constituency coming to them with complaints.

IPR Industry Group does not back WTO case
--------------


14. (SBU) Japan Intellectual Property Association (JIPA)
representatives stated clearly that they did not support a WTO case
against China. Taisuke Kato, Toshiba's General Manager for
Intellectual Property, told the U.S. delegation that JIPA is working
with Chinese officials to improve their enforcement capacity. e.g.
training Chinese Customs officers to recognize fakes. JIPA, which
is working closely with METI and JETRO on IPR problems in China,
feels that Japan has asked China to take certain measures and now
must wait to see how the Chinese respond. For them, it is not the
right time to take a case against China at WTO, he asserted.


15. (SBU) Kato also launched into a mini-lecture, stating that "Each

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side, each country has to take action in its own way." "The
Japanese style is that is it better to discuss and exchange
information with China," he explained. Kato said that they
"understand that the United States thinks it needs to do something
as soon as possible, but that Japan sees it differently." "Japan is
asking China to live up to its WTO obligations" and that "China has
said they will try to improve." Therefore JIPA and the Japanese
government are JIPA waiting to see what the Chinese response will be
over the next one to two years, according to Kato.

No support from JETRO either
--------------


16. (SBU) JETRO's Director-General for Economic Research Shiro Mori
stated forthrightly that the GOJ and industry do not want to add
more friction to an already difficult political relationship with
China or harm Japan's business interests. Japanese companies worry
most about Chinese government interference and retaliation and don't
want to risk damaging their relationship with the Chinese
government, Mori acknowledged. This is especially true for new
entrants to the Chinese market. As a result, Japan is reluctant to
take actions that might seem confrontational and prefers to look for
ways to cooperate and assist China to improve IPR enforcement, Mori
explained. He admitted that some Japanese companies do want GOJ to
take a harder line, but many others oppose that.


17. (SBU) For Japan's copyright industry, the Chinese market is
still insignificant, Mori added. Their first priority is gaining
market access. Mori said that he had not yet heard any complaints
about the thresholds issue from Japanese industry. JETRO has only
recently started to promote Japanese content into the Chinese market
and is not yet far enough along to be concerned about the black
market.


18. (SBU) Comment: GOJ officials do not want to say no outright to
the U.S., but seem to want to buy time before making a decision on a
WTO case against China. It is possible that the dynamics could
change with a change in government in the fall, with a Trade
Minister less personally invested in relations with China.
High-level U.S. engagement would increase the pressure and could
make a difference. However, given the GOJ's current policy of
engagement with the Chinese government on IPR issues and the lack of
support from Japanese industry, it appears that the GOJ would have a
hard time gathering the support internally and among Japanese
industry for joining the United States anytime soon.


19. (U) This cable has been cleared by Standford McCoy, USTR Chief
Negotiator for IPR Enforcement.
SCHIEFFER