METI VICE MINISTER CITES BUSINESS NETWORKS, CHINA

C O N F I D E N T I A L SECTION 01 OF 03 TOKYO 004990

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DEPARTMENT PASS USTR FOR AUSTR CUTLER
USTR ALSO FOR JNEUFFER, MBEEMAN AND RMEYERS
PARIS FOR USOECD
GENEVA FOR USTR

E.O. 12958: DECL: 08/31/2016
TAGS: ECON ETRD EINV PREL JA APECO
SUBJECT: METI VICE MINISTER CITES BUSINESS NETWORKS, CHINA
COMPETITION AS REASONS FOR FTA INITIATIVE


Classified By: Charge d'Affaires Joe Donovan.
Reason: 1.4 (b,d)


1. (C) Summary: Japan feels a need for legal protections
for its companies' integrated production facilities and
trade flows throughout East Asia. That and Japan's desire
to stop or slow China efforts to assume a leadership role
in the process of regional economic integration had spurred
Japan's own proposal for an ASEAN plus 6 FTA at the recent
ASEAN Economic Ministers' meeting, according to Japanese
Ministry of Economy, Trade, and Industry (METI) Vice
Minister Toshiaki Kitamura. Meeting with U.S. APEC Senior
Official Amb. Michael Michalak on August 29, Kitamura
indicated that APEC's lack of binding decisions and rules
had led to Japan's decision to turn to other forums to
protect its interests. According to Kitamura, what Japan
hoped for most was to be able to buy time in order to craft
a better response to the accelerating process of regional
integration in order to protect its main economic interests
in the region, which center on Japanese integrated
investments, intra-company trade and intellectual property.
End summary.

Doha and China
--------------


2. (C) Amb. Michalak opened by congratulating Kitamura on
his promotion to Vice Minister and asked Kitamura about his
current work priorities. (Until July, Kitamura had been
Director-General of METI's Trade Policy Bureau.) Kitamura
indicated that, in terms of the global economy, the
suspension of the Doha Development Agenda negotiations in
the World Trade Organization (WTO) was a very serious
situation. Michalak cited U.S. Trade Representative
Schwab's recent remarks in Kuala Lumpur where she advocated
restarting the negotiations in the near future. Kitamura
then noted that Amb. Schwab had gone to China following her
visit to Malaysia and had met with Chinese Commerce
Minister Bo Xilai. The television coverage of that
meeting, Kitamura said, indicated that the United States
and China had agreed to collaborate in an effort to restart
the Doha talks. He expressed the concern that Amb.
Schwab's visit represented a U.S. belief that the "Group of
Six" discussions (the United States, the European Union,
Brazil, India, and Japan) had failed as a negotiating forum
and that China would now need to be brought in as a partner
in the effort to restart the stalled talks.

Vision of Regional Architecture
--------------


3. (C) Michalak then asked Kitamura for his vision for
the future of Japan's relations with the international
economy in light of the difficulties at the WTO. Kitamura
said that further economic integration with Asia aimed at
benefiting Japan's growth was the priority goal. That was
the thinking behind the recent proposals for regional
integration presented by METI Minister Toshihiro Nikai at
the ASEAN Economic Minister meeting in Kuala Lumpur during
the week of August 21. Kitamura asked for U.S. support for
this proposal as a friend of Japan. In particular, the
United States could provide "intellectual support" for
Japan with respect to establishing a sound legal framework
for trade and investment in Asia. The United States could
exercise this influence most readily through its
participation in APEC.


4. (C) Michalak indicated his agreement with Kitamura's
comments but added that the United States had recently seen
Japan committing far more resources to non-APEC regional
institutions than to APEC itself. This had led many
observers in Washington to believe that, although Japan was
interested in maintaining a robust security relationship
with the United States, it was less inclined toward greater
economic integration with the U.S. and instead was focusing
on Asia.

Japan's Main Aim to Counter China
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5. (C) Kitamura then responded to Michalak's observation
by noting Japanese concerns regarding China. What Japan
wants from regional integration, he stressed, was different
from what China wants. Japanese investment, Kitamura said,
had helped to fuel greater economic integration in Asia
because Japanese companies located production of various
components throughout the region. China is focused on trade
and its contribution in terms of investment is small.
Japanese companies had created production networks
throughout Southeast Asia. This meant that Japan's
priorities centered on protection of investment, intra-
company trade flows and intellectual property. China had
no interest in those issues, according to Kitamura. As a
result, Japan had felt compelled to launch its own
initiative for greater regional integration for
consideration at the ASEAN Economic Ministers' meeting.


6. (C) When Michalak questioned whether Japan might have
been able to address the same concerns through APEC,
Kitamura replied that the main problem was that APEC's
agreements were non-binding, unlike those that could be
achieved through a free trade agreement (FTA). When
Michalak noted that steps could be taken in APEC to meet
these concerns, Kitamura reposted that Japan had supported
U.S. initiatives with respect to intellectual property
protection and investment issues. Michalak clarified his
view that Japan had not been active on organizational
initiatives such as those aimed at strengthening the APEC
Secretariat, streamlining procedures, and even establishing

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a binding decision-making structure. Kitamura replied that
these ideas were all new and that Japan was still
considering their merit.


7. (C) Michalak commented that Japan's position had, in
fact, seemed quite clear: in APEC, it had taken a
generally reactive posture; but in other forums like the
East Asian Summit and ASEAN Plus Three, it had proactively
sought to strengthen the institution concerned. This
latter type of cooperation from Japan had been noticeably
lacking in APEC. Kitamura seemed surprised by this
conclusion. The United States, Michalak added, had major
economic interests in Asia. U.S. firms as well had
production networks in Asia of the kind Kitamura had
described, and the flows of trade and investment between
the United States and Asia meant that the United States
still had to be considered as an important economic
partner.

FTA Proliferation a Factor in Japanese Proposal
-------------- --


8. (C) Kitamura pointed to the burgeoning development of
free trade agreements in Asia, particularly between the
ASEAN countries and other major regional economies. That,
he stressed, had been the context of the proposal for a
free trade agreement among the 13 ASEAN Plus Three
countries (the ten ASEAN states plus Japan, China, and
South Korea) that China had supported at the Kuala Lumpur
meeting. ASEAN, Kitamura asserted, needed an alternative
to the ASEAN Plus Three proposal. As a result of Japan's
efforts, the ASEAN Economic Ministers had agreed to study
Japan's ASEAN Plus Six (the 13 ASEAN Plus Three countries,
Australia, New Zealand, and India) proposal. Japan's main
goal, according to Kitamura, was to stop the Chinese-backed
ASEAN Plus Three FTA initiative, to halt Chinese dominance
of ASEAN, and to buy time for Japan to craft a response to
the process of regional integration.


9. (C) Michalak again questioned why APEC could not be
the forum for these efforts to counter Chinese influence.
Kitamura posited that Japan's present initiative could be a
building block for a future APEC-wide FTA. Michalak noted
that the FTAs currently existing in Asia tended to have too
many exceptions to allow for economically significant trade
liberalization. He expressed the hope that the Japan-ASEAN
FTA under negotiation would be more ambitious than previous
agreements. If countries like the United, States,
Australia, Singapore, and Japan could work together,
Michalak said, better quality FTAs could be achieved.
APEC, he indicated, would be working on a united response

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to the proliferation of FTAs in Asia but acknowledged that
this effort demanded substantial resources even to assess
the possible benefits of proposed agreements. Kitamura
replied that METI planned to devote substantial resources
to APEC in the foreseeable future.


10. Comment: Kitamura's point about Japan's needing to
protect its companies' integrated networks, which other
METI and Foreign Ministry officials also made to Amb.
Michalak is a new rational for the ASEAN plus Six proposal
that the GOJ had not advanced before. It fits in well with
growing discussion in Japan on the need to increase
productivity through investment abroad as one measure of
keeping Japan prosperous in the face of an aging and
declining population and a cultural antipathy to
immigration. End comment.


11. (U) Ambassador Michalak has cleared this message.
DONOVAN