POSTAL PRIVATIZATION: GOJ RESPONSE TO U.S.

UNCLAS SECTION 01 OF 02 TOKYO 005686 SIPDIS SENSITIVE SIPDIS USTR FOR AUSTR CUTLER AND M. BEEMAN E.O. 12958: N/A TAGS: ECON EFIN JA SUBJECT: POSTAL PRIVATIZATION: GOJ RESPONSE TO U.S. CONCERNS ABOUT IMPLEMENTATION FRAMEWORK REF: BEEMAN-FANTOZZI EMAIL 8/9/06 Summary -------------- ¶1. (SBU) A round of meetings with GOJ officials involved with postal privatization indicates gradual progress toward the goals of greater transparency and a level playing field. Contacts assured us that the Japan Post Corporation (JPC) could not obtain approval for new products through its July submission of a framework implementation plan and that each new product request would be reviewed individually. The officials (except from JPC) voiced support for the need for transparency and a level playing field, but most also balanced this with a perceived need for new products to make JP0pFZhrvices during the privatization. End summary. Demarche Delivered on Japan Post Corp. Plan -------------- ¶2. (U) In response to reference request, ECOUNS delivered talking points regarding the Japan Post Corporation's July release of a framework implementation plan for postal privatization in the following meetings to listed participants. Financial Services Agency (FSA),August 23 Insurance Business Division Director Toshiyuki Yasui Office of the Privatization of Japan Post (OPJP),August 30 Acting Director Masayuki Tokushige Ministry of Internal Affairs and Communications, August 30 Postal Life Insurance Policy Planning Division Deputy Director Yukio Teramura International Affairs Office Principal Deputy Director Atsushi Ozu General Management Office Deputy Director Shingo Okamura Postal Policy Planning Division Operation Systems Manager Yasunari Ueno Postal Service Privatization Committee (PSPC),August 31 Chairman Naoki Tanaka Japan Post Corporation (JPC),September 22 Postal Life Insurance Company Division General Manager Nobuyasu Katou General Affairs Division General Manger Akihito Nishiguchi Postal Life Insurance Company Division official Takao Furusawa General Affairs Division official Yasuto Takano EMIN also highlighted USG concerns for OPJP President Watanabe during an August 21 courtesy call. A detailed memorandum of conversation for each meeting has been emailed to USTR and EAP/J. New Product and Level Playing Field Concerns -------------- ¶3. (SBU) Our interlocutors uniformly said it was not possible for the Japan Post Corporation to use the framework implementation plan to seek implicit or explicit approval for new products, noting that the framework was neither an official document nor binding on ministries. The FSA's Yasui went so far as to say the framework had "nothing to do" with official approval for new product applications. All contacts agreed that new products would still have to be examined, one by one, by the PSPC and MIC, and, for financial products including insurance, by FSA. ¶4. (SBU) Our interlocutors were also familiar with and generally accepting of the idea that no new products should be introduced before a level playing field has been established. Many also expressed in various ways that this objective needed to be balanced against the perceived need for new products to make privatization a success. PSPC Chairman Tanaka, for example, vigorously endorsed the idea that equal footing for companies is important not only for fairness's sake, but that it is essential to preventing the privatization process from distorting resource allocation across the wider Japanese economy. But he also argued that the new postal banking and insurance entities would have to introduce new products before their IPOs. That, he TOKYO 00005686 002 OF 002 explained, would be necessary for the entities to gain experience in the marketplace and show potential investors thei:J}ml]=QQqs. Others interlocutors, like the FSA's Yasui, stressed equal regulatory conditions when conversation turned to level playing field issues. ¶5. (SBU) Tanaka's point that the new postal entities will need to introduce new products to gain experience and show their market potential was echoed in several of the other discussions, often with reference to the principles embedded in the privatization laws (that privatization should not distort the marketplace, but that the new entities' management need the freedom to succeed). The need for the new entities to improve their risk-management capabilities, both to satisfy regulatory requirements and be successful in the marketplace, was also a common theme. (Note: Only one person, Kazuhiko Toyama, a PSPC member to whom we spoke earlier, has recognized that new products could actually lose money and hence hurt the JPC's IPOs.) Cross-subsidization and Transparency -------------- ¶6. (SBU) In response to questions about the potential for cross-subsidization among the new postal entities, our interlocutors generally stressed that regulatory approval and disclosure practices would allow the contracts among the companies to be scrutinized and would ensure arm's-length contracting prevailed. MIC's Teramura, for example, noted that contracts between the new insurance entity and the Public Successor Corporation would have to be disclosed under negotiated terms of the Regulatory Reform Initiative. More proactively, Chairman Tanaka stated that arm's-length transactions were important to keep companies from taking unnecessary risks and that the PSPC would actively monitor transactions to ensure they were market-based. JPC officials agreed that such contracts would be scrutinized by the PSPC, but noted they would be addenda to the Implementation Plan. Express Mail Service (EMS) -------------- ¶7. (SBU) The largest difference of opinions surfaced regarding EMS, ranging from MIC's Ozu claiming that EMS services fell under Japan's postal universal service obligations (and thus are not subject to equal footing concerns) to PSPC Chairman Tanaka's view that EMS is subject to the same equal footing concerns that affect insurance and banking services. Separate discussions suggest Ozu's statement may reflect his personal, rather than the ministry's, view; the Embassy will be following up to determine whether that is the case. Comment -------------- ¶8. (SBU) With the possible exception of EMS, what we heard was broadly supportive of our goals to ensure transparency and a level playing field througout postal privatization. We note in particular that PSPC Chairman Tanaka, in a press conference on the same day of our meeting, announced that the PSPC would formulate guidelines for the introduction of new products, as well as a series of Fall hearings for stakeholders, and that PSPC member Toyama has told us he supports those actions. We take the iterative feedback process Tanaka is proposing as a positive sign0"4"YFXQ_increased transparency and the establishment of a level playing field. We also note that as the privatization law comes more fully into effect, our concerns are being more specifically addressed. While we cannot let our guard down, we are generally in a better position than a year ago. DONOVAN