S/P DIRECTOR KRASNER DISCUSSES REGIONAL ISSUES

C O N F I D E N T I A L TOKYO 004823

SIPDIS

SIPDIS

DEPARTMENT FOR S/P

E.O. 12958: DECL: 08/22/2016
TAGS: PREL PGOV ECON IR KN KS CH JA
SUBJECT: S/P DIRECTOR KRASNER DISCUSSES REGIONAL ISSUES
WITH NORTH AMERICAN AFFAIRS DIRECTOR GENERAL KAWAI

REF: TOKYO 4630

Classified By: CHARGE D'AFFAIRES JOSEPH R. DONOVAN FOR REASONS 1.4(B),(
D)


1. (C) Summary. In a meeting on August 9 with S/P Director
Stephen Krasner, MOFA North American Affairs Bureau DG Kawai
expressed appreciation for our efforts in making Prime
Minister Koizumi's recent trip to the United States a
success. Kawai shared his expectation that Koizumi's
successor will focus on improving ties with Japan's regional
neighbors. The impending leadership change in South Korea
and the Hu Administration,s growing confidence and stability
in the PRC should also contribute to better relations. Kawai
suggested a two pillar strategy for discussing China:
restarting a sub-Cabinet level meeting that would include the
Department, USTR and Treasury to focus on China's economy,
and using the Strategic Dialogue between Deputy Foreign
Minister Nishida and U/S Burns to discuss security and
military matters. S/P Director Krasner briefed Kawai on the
Partnership for Democratic Governance, and Kawai agreed that
coordination would be beneficial. They closed the meeting
with a short discussion of the ongoing tensions in the Middle
East, with Kawai promising that Japan will remain firm with
Iran. End Summary.


2. (C) Ministry of Foreign Affairs North American Affairs
Bureau Director General Chikao Kawai hosted a luncheon August
9 for visiting Policy Planning Director Dr. Stephen Krasner.
Kawai opened by expressing appreciation for Prime Minister
Koizumi,s successful visit to the United States. Turning to
regional matters, Kawai noted that Japan will have a new
Prime Minister by early October, and a major issue on his
plate will be better management of Japan,s relations with
Asian countries. Japan-South Korea relations improved
dramatically under Kim Dae-jung when he visited Japan in
1998, delivered a speech to the Diet and avoided talk of
history. Kim, aided by China,s focus on history,
effectively reconfigured the balance of power in East Asia,
placing Japan and South Korea in a team against China.
However, the Roh Administration has changed the balance, and
is siding with China more frequently against Japan.
Following North Korea,s July 5 missile launches and a swing
back in ROK public opinion, Japan is trying to separate
South Korea and China in order to preserve good relations
with South Korea, he explained.


3. (C) First North America Division Director Takeo Mori
added that generational change in South Korea is the "only
chance we see" to soften bilateral relations. The younger
generation was not suppressed by the Japanese military regime
and is interested in Japanese culture. As the younger
generation grows into positions of power that can influence
their elders, Japan and South Korea could see better
relations in five to ten years. Speaking frankly, S/P
Director Krasner wondered if the calculations were too
zero-sum. From the United States, perspective, good,
cooperative relations between Japan and China and Japan and
South Korea would be universally beneficial.

China,s Changing Calculus
--------------


4. (C) U.S. commitment to the region is very important to
both Japan and China, Kawai underscored. In the 1980,s
through the mid-90,s, China supported the U.S. presence
because it prevented Japan from building up its military.
Now, because of Taiwan, China views the U.S.-Japan alliance
with suspicion and is trying to weaken our bond. Chinese
leaders appear content with the status quo, but they remain
cautious about our alliance. China is now sending the
message that it is looking forward to working with Koizumi,s
successor, Kawai continued. As the Hu Administration grows
in stability and confidence, it will be able to take a more
practical approach toward Japan and will not need to rely so
heavily on anti-Japanese sentiment to unify the country.

Business Sentiment Toward China Changing
-------------- --------------


5. (C) Five years ago, Japanese businesses complained that
China was taking unfair advantage of the economic system,
Kawai continued. Two to three years ago, however, their tone
changed because they were making profits in China. However,
the anti-Japan demonstrations in China in April 2005
underscored the "fragile situation" and business leaders are

now more reluctant to invest. Toyota,s CEO told Kawai that
Toyota is fully committed to its investment in the United
States but is hedging its bets in China.


6. (C) In conversations with Diet members, Kawai has
impressed upon them the interdependence of China,s economy.
If Japan wants to strike at China, it does not have to use
military force. Instead, Japan can use economic tools. If
China attacks Taiwan, Japan could cut off trade and
investment. S/P Director Krasner warned against Japan
relying too heavily on the concept because economic sanctions
against China would have serious repercussions on other
countries around the world, including here in Japan. The DCM
added that, unlike North Korea, Taiwan is a highly emotional
issue for China. Kawai acknowledged the point and added that
he is personally very cautious about the idea of entering
into a Free Trade Agreement (FTA) with China. Although it
would be good to take advantage of China,s economy and make
China more dependent on the global economy, Japan should
limit its dependence on China. If Japan or other Asian
countries enter into an FTA with China, any fluctuation in
the Chinese economy would be easily transmitted, Kawai stated.

Bilateral Talks on China: Two Pillars
--------------


7. (C) Reiterating that China will be one of the most
important issues to tackle for Japan,s new administration,
Kawai suggested "a two pillar strategy": using the
sub-Cabinet level meeting that includes the Department, USTR
and Treasury to focus on China's economy and using the
Strategic Dialogue between Deputy Foreign Minister Nishida
and U/S Burns to discuss security and military matters.
Marxist theory holds that the economic structure will
influence a country,s political structure, but China now has
a free market economy and is still holding on to communism,
Kawai commented. Democracy in China will not occur overnight
and, even if democracy does take root, it will not rid China
of nationalist elements. In a new democracy, the
nationalists could become even more dangerous, Kawai warned.

Partnership for Democratic Governance
-------------- ---


8. (C) S/P Krasner briefed Kawai on the Partnership for
Democratic Governance, emphasizing support for the idea in
Washington and other countries he had already visited. He
explained that the United States hoped to convene a meeting
in the fall with core countries and welcomed Japan,s
participation. Depending on the outcome, perhaps another
meeting could be held later this year, possibly for a signing
ceremony. Kawai pointed out that one goal of Japan,s
Official Development Assistance (ODA) program is to support
democracies and agreed that coordination would be beneficial.
For example, one of Japan,s ongoing projects is helping
Vietnam develop a commercial code. This kind of support to
democratic institutions is particularly important in
post-conflict places like Iraq and Afghanistan, Kawai stated.
He predicted that his ODA colleagues would support the idea,
as well. (See reftel for details of S/P Krasner's meeting
with International Cooperation Bureau officials to discuss
the Partnership proposal.)

ASEAN and Chinese Influence
--------------


9. (C) On Southeast Asia, Kawai noted that Indonesia had
been the center of ASEAN until the 1990,s, but leadership of
ASEAN appeared to be moving northward to Thailand. Although
Thailand,s population is smaller than Indonesia,s, its
economy is larger and it is coming under greater Chinese
influence. Japan should use its ODA budget strategically and
offer limited amounts to these smaller countries to counter
China,s influence. If we reconvene the sub-Cabinet level
meetings, perhaps we could use the venue to discuss ODA
strategies, Kawai suggested. On Burma, Japan shares the U.S.
concerns on human rights and democracy but feels compelled to
remain engaged in order to combat Chinese influence.

Japan Will Be Firm with Iran
--------------


10. (C) Kawai and Director Krasner closed the meeting with a
short discussion of the ongoing tensions in the Middle East,
including Lebanon and Iran. Kawai pointed out that Japan has
interests in Iran,s Azadegan oil project but remains

committed to solving the nuclear problem. Kawai was certain
that Koizumi and Foreign Minister Aso would not make any
concessions. Japan does not want to lose its influence in
Iran, and would like to maintain a bilateral link to Iran,
but he promised Japan will be firm on the nuclear issue.


11. (SBU) Participants

U.S.
--------------
Policy Planning Director Stephen D. Krasner
Embassy Tokyo Deputy Chief of Mission Joseph Donovan
Policy Planning Member Philip Levy
Embassy Tokyo Political Officer Tandy Matsuda (notetaker)

Japan
--------------
North American Affairs Bureau Director General Chikao Kawai
First North America Division Director Takeo Mori
First North America Division Officer Yoshitake


12. (U) S/P staff cleared this cable.




DONOVAN