The Japan Economic Scope Q- Economic News At-

UNCLAS SECTION 01 OF 08 TOKYO 006488 SIPDIS SIPDIS SENSITIVE PARIS PLEASE PASS USOECD E.O. 12958: N/A TAGS: ETRD ECON JA ZO EAGR SUBJECT: The Japan Economic Scope Q- Economic News At- A-Glance. Sensitive but unclassified. Please protect accordingly. ¶1. (SBU) Table of Contents ¶3. Civair Talks: Beginnings of a Deal? ¶4. Canada-Japan FTA Off the Rails ¶5. MAFF Acknowledges Rough Going On Japan-Australia FTA ¶6. Treasury DepSec Talks Iraq Compact ¶7. Allgeier Pushes for Doha Round During DVC with Tokyo ¶8. MOFA Pushes Ahead With Asia Regional Information Sharing Proposal ¶9. Kyoto Chamber to EMIN; Kansai Wants 2008 G-8 Summit, Good Local Economic Situation ¶10. KIX - Record Number Of International Flights In The Winter ¶11. Visa Policy Relaxed; Tourism Up In Osaka ¶12. Wakayama Governor Resigns Over Bid-Rigging ¶13. Local Governments Adopt Competitive Bidding ¶14. Special Zones Reforms ¶15. Hyogo Prefecture No. 1 In Attracting New Businesses In Japan ¶16. Kansai Volume Of Trade Continues To Grow; Chinese Cell Phones Lead Imports ¶17. State Of Idaho Opens An Office In Kobe ¶18. Nichiha invests $68 million in Georgia ¶19. Rokkasho Produces Japan's First Commercially Reprocessed Nuclear Fuel ¶20. Ehime Governor Accepts Pluthermal MOX Fuel for Ikata Nuclear Power Plant ¶21. Japanese Research Whaling Ships Return to Kushiro With Smaller Catch ¶2. (U) The Japan Economic Scope (JES) is a weekly e- newsletter produced by Embassy Tokyo's ECON section in collaboration with other sections and constituent Posts and published every Friday. It provides a brief overview of recent economic developments, insights gleaned from contacts, summaries of the latest cables and a list of upcoming visitors. This cable contains the November 9, 2006, JES, minus the attachments that accompany many of the individual stories in the e-mail version. To be added to the e-mail list, please email ProgarJ@state.gov. ¶3. (SBU) Civair Talks: Beginnings of a Deal? -------------- EB DAS John Byerly and MLIT DDG Maeda agreed in informal talks in Tokyo on November 7 and 8 to hold formal civair negotiations in Washington in the first part of 2007. For the first time in over two years, the United States laid out in some detail our desired liberalization in the areas of all-cargo route rights, pricing, codeshare, and change of gauge without being told by MLIT to "prioritize" our needs by limiting them to cargo rights of use only to UPS. MLIT indicated it would study our country of origin pricing request but linked new cargo rights to "correcting" U.S. airline slot "abuses" at Narita, and found our other requests unnecessary or impossible. Nevertheless, the atmosphere was amicable, and agreeing to hold formal negotiations after a hiatus of two and a half years indicates that MLIT believes a deal acceptable to both sides is possible. 4.(SBU) Canada-Japan FTA Off the Rails -------------- A contact at the Canadian Embassy told us last week that although the Japanese and Canadian governments may be about to wrap up a year-long joint study on a bilateral FTA, the short term prospects for moving ahead on negotiations are very bleak. TOKYO 00006488 002 OF 008 The joint study was launched at a prime ministerial session at the 2005 APEC meeting and is scheduled to be concluded at a similar get-together in Hanoi this month. Already in June 2006, at a senior level officials meeting in Vancouver, GOJ reps told their Canadian colleagues that conditions were not ripe in at least the short term to begin negotiations. The reason: agricultural products make up too high a share of Canadian exports to Japan. Our contact told us that even if the study is concluded on time, he expects the GOJ in Hanoi to again say "no" to the Canadians on trade talks. In the absence of FTA negotiations, the two sides are reportedly at a loss on where to take their bilateral economic relationship next. ¶5. (SBU) MAFF Acknowledges Rough Going On Japan- Australia FTA -------------- A director in MAFF's ministerial secretariat told AgMin and EMIN on November 9 that closure on a study of a bilateral Japan Australia FTA remains very difficult. The official confirmed MAFF's position that the study must state that sensitive agricultural products will not be a subject of possible future negotiations. While willing to show some flexibility on how sensitive products will be treated, the Australian position remains that nothing be excluded prior to the initiation of actual negotiations. Shaking his head in astonishment, the MAFF official said the Australians actually seem intent on liberalizing agricultural trade via an FTA. Local newspapers reported earlier that talks last week in Canberra made some progress towards bridging the gap and that the countries' two prime ministers may yet be able to announce the opening of negotiations when they meet in Manila at the December East Asian Summit. ¶6. (SBU) Treasury DepSec Talks Iraq Compact -------------- In visits with Finance Minister Omi, Foreign Minister Aso, Bank of Japan Governor Fukui, and the senior management of Japan's mega-banks, Treasury Deputy Secretary Robert Kimmitt discussed details of the Iraq SIPDIS Compact, Treasury's measures against the DPRK, and concerns about financial ties with Iran. On the first leg of a Tokyo-Seoul trip in his capacity as Presidential Emissary for the International Compact for Iraq, Deputy Secretary Kimmitt outlined key objectives leading up the Compact's signing at the end of this month, including talking points on debt forgiveness and allaying concerns about Iraq's 2007 CY budget's funding gap. With regard to Treasury measures taken against the DPRK, Deputy Secretary Kimmitt was careful to reinforce the distinction between political sanctions, such as those exemplified by UNSCR 1718, and those steps taken in a law-enforcement context, as seen in last year's freezing of DPRK Banco Delta Asia assets by Macanese authorities. Deputy Secretary Kimmitt further emphasized the financial and reputation risks facing Japanese institutions doing business with Iranian counterparts, while lauding the close cooperation with Japanese authorities evident in all these matters. TOKYO 00006488 003 OF 008 ¶7. (U) Allgeier Pushes for Doha Round During DVC with Tokyo -------------- During a DVC from Geneva with Tokyo press and opinion shapers, U.S. Ambassador to the World Trade Organization, Peter Allgeier, said Washington wants a "Doha right and not Doha light" in the Doha Round of talks. He was pleased with Prime Minister SHINZO Abe's recent words of support for the trade talks, and encouraged the GOJ to take a greater leadership role in the round. He underscored the importance of reaching a successful conclusion, particularly for developing countries, but noted all countries needed to show a high level of ambition. Asked about the mid-term elections in the United States and their effect on the round, Allgeier made no predictions, but pointed to the "enduring interests" of the United States in seeing a successful and open world trading system. The Japanese press picked up on his suggestion that the Congress may agree to extend fast track trade promotion authority if there is an appealingly ambitious deal on the table. Some press reports in Japan have suggested that the talks may not pick up again until 2008 if the Democrats win the mid-term elections. The DVC at the Tokyo American Center was well attended by press, academic, and government officials. ¶8. (U) MOFA Pushes Ahead With Asia Regional Information Sharing Proposal -------------- Co-hosts MOFA and Kyoto University cobbled together a consensus to further explore their "Economic information Sharing Mechanism of the Asia-Pacific Region (EiSMAP)" concept at a November 6-7 meeting in Kyoto attended by representatives of the ADB, IMF, World Bank and more than fifteen regional governments or research institutes. Despite considerable skepticism voiced at the conference regarding the concept's objectives, utility and potential duplication with the work of other organizations, there was general agreement that serious gaps in the quality, reliability and accountability of regional economic data exist. As these gaps may undermine investor confidence and create negative spillover effects in the event of an economic or environmental crisis in the region, participants supported the further development of EiSMAP. MOFA will seek to fund a pilot program -- to begin, a web portal assembling currently available economic data -- and agreed to explore associating the project with APEC. The elephant not in the room was China. Beijing's delegates cancelled their participation on the eve of the conference after MOFA failed to resolve a dispute regarding the presence of researchers from Taiwan. ¶9. (U) Japan's Core Consumer Price Growth Decelerates Slightly to 0.2% in September -------------- Japan's nationwide "core" CPI (excluding perishable food items),rose 0.2 percent in September from the TOKYO 00006488 004 OF 008 year before, having increased 0.3 percent in August, the Ministry of Internal Affairs and Communication (MIC) announced October 27. ¶10. (U) Kyoto Chamber to EMIN; Kansai Wants 2008 G-8 Summit, Good Local Economic Situation -------------- In an introductory meeting with Kyoto Chamber of Commerce and Industry Chairman Jun'ichi Murata, EMIN Hans Klemm heard about Kyoto's strong interest in hosting the next G-8 Summit presided over by Japan in ¶2008. He hoped that the summit would focus on global environment issues and Asian peace and development. Although EMIN noted that the USG had no decision- making power in the matter, Murata emphasized the importance of generating "buzz" for the summit venue and recalled the role played by Amb. Foley before the last Japanese G-8 summit (held in 2000 in Okinawa) in regard to sensitivities over U.S. base issues. Regarding the economic situation in Kyoto, Murata described the city as a place where traditional craft techniques have been successfully applied to high tech industries. Although some Kyoto leading firms (e.g., Kyocera and Nintendo) lack the name recognition of their competitors in Osaka or Nagoya, more than 20 strong SMEs and larger firms manufacture unique products, and Kyoto's 32 universities offer a young and vibrant population of 100,000 students, many of whom are focused on entrepreneurship and venture businesses. Kyoto's national Center of Excellence focuses on nanotechnology. ¶11. (U) KIX - Record Number Of International Flights In The Winter -------------- Kansai International Airport Company (KIAC) announced that the number of international flights planned for the winter will be a record 733 flights a week, a 57 flight increase from winter 2005. Increased China routes following a civil aviation agreement to expand routes between Japan and China makes up for a decline in KIX - U.S. routes. KIX - China routes will have 275 flights a week out of the 733 total. KIAC President Atsushi Murayama said KIAC aims to raise domestic flights and flights to U.S to achieve an MLIT target of 130,000 flights a year in 2007, in order to secure GOJ funding for a 2nd runway. KIAC's manager of international affairs said that the airport would like to halt the continuing shift of U.S. routes to Narita. ¶12. (U) Visa Policy Relaxed; Tourism Up In Osaka -------------- --- According to the Osaka Prefectural Government, attendance at major sightseeing facilities such as Osaka Castle, Osaka Aquarium, and Tsutenkaku Tower in Osaka during the summer increased 9.4 percent from a year earlier. Immigration from overseas to Kansai International Airport in July also increased 10.8 percent from 2005. The director of the Kansai International Public Relations Promotion Office said that the number of regional inbound tourists from Taiwan, Korea, and the PRC has rapidly increased due to the relaxation of Japanese tourist visa policy, and KIX customers from TOKYO 00006488 005 OF 008 the Asian mainland have flocked to Osaka. There has also been an increase in public and private PR spending as part of the GOJ "Visit Japan" campaign. Although local governments didn't recognize tourism as one of the "major industries" of Osaka in the past, now they have begun to embrace tourism. A director of International Affairs at the Osaka Chamber of Commerce and Industry (OCCI) indicated that although OCCI has neglected the tourism industry, it has begun to promote Osaka's tourist resources in earnest. He emphasized that there still is much more to do to grow the tourism field. ¶13. (SBU) Wakayama Governor Resigns Over Bid-Rigging -------------- -------------- Wakayama Governor Kimura announced his resignation over an unfolding public works bid rigging scandal. Rumors are circulating that Kimura's troubles began when he fell out of grace with ex-METI Minister Nikai, a powerful Wakayama Dietman, and alienated vested interests upset with the governor's ambitious economic reform plan. A by-election will be held December 17 and will likely go to a conservative successor. Kimura and his wife had close personal relations with Florida Governor Jeb Bush and his wife. For more details please see Osaka Kobe 00633. ¶14. (SBU) Local Governments Adopt Competitive Bidding -------------- -------------- After the Public Service Reform Law ("Market Testing Law") was passed in May 2006, local governments began to look at competitive bidding as a method to improve their services and to cut costs as part of their administrative reform efforts. According to the Ministry of Internal Affairs and Communications, 26 local governments will adopt market testing by April ¶2010. While the competitive bidding process is aimed at cutting costs for local governments facing fiscal difficulties, it is also aimed at soliciting greater involvement of civil society organizations and the private sector in local policy-making. Saga Prefecture will be the first to review all of its 2,027 services (excluding core public services such as policing) in the coming months in order to decide with civil society and private sector participation who can best provide these services, and to reflect the results of consultations on who can best provide public services in its budget for the next fiscal year. ¶15. (U) Special Zones Reforms -------------- On November 1, Econoff met with representatives from the office of Special Zone Reforms to receive an update on progress made-to-date and plans for Special Zones (SZ) going forward. Special Zones were established in 2003 as a means to revitalize local economies by implementing experimental economic measures at a local level, but with an eye toward using successful measures nationwide when possible. The estimated economic impact of special zones has been significant. TOKYO 00006488 006 OF 008 ¶16. (SBU) Hyogo Prefecture No. 1 In Attracting New Businesses In Japan -------------- In the fierce competition over business promotion subsidies among Japanese prefectures, the gap between successful and unsuccessful prefectures is growing in the Kansai district. Hyogo Prefecture got 57 new business cases, which is the largest number in the first half of 2006 in Japan, and almost half the total number of the region's business starts with 125 cases. Osaka had 19 cases, and Kyoto had 12 cases in the same period. The subsidy race in the Kansai heated up after Osaka- based Sharp Corp. set up a new LCD plant in Kameyama City, Mie Prefecture in 2002. Former Mie Governor Masayasu Kitagawa is said to have been successful in drawing the firm out of Osaka by offering a 9 billion yen subsidy. ¶17. (U) Kansai Volume Of Trade Continues To Grow; Chinese Cell Phones Lead Imports -------------- Osaka Customs announced that the volume of trade in September 2006 for the Kansai hit a record. The export amount is 1.38 trillion yen, up 13.3 percent from the same month last year. There were eight months of continuous double-digit growth in exports. Imports also surged to 1.61 trillion yen, a record 13.8 percent increase. Export of audio and visual appliances, mainly plasma display panels, to the EU and Central America increased 63 percent from the previous year. The largest import item is communication equipment, mainly cellular phones, from China - which doubled from 2005. A METI Kinki Bureau official said that the high demand for cellular phones is still continuing, due to increased competition in the domestic market, and China is rapidly developing its own cell technology. China is trying to shift from labor-intensive manufacturing to advanced technology business, so analysts predict Chinese imports of communication technology to continue for the next year or two. ¶18. (U) State Of Idaho Opens An Office In Kobe -------------- - On October 18, the State of Idaho opened its second Japan office in Kobe, bucking the trend of U.S. State offices is to close or consolidate their Japan operations. Idaho Lieutenant Governor Mark Ricks visited Japan for the opening and emphasized that Idaho was not only an agricultural State, but also a leading location for high-tech industry. Idaho-based Micron Technology, a top firm for semiconductor memory products, purchased its local subsidiary company in Nishiwaki City in Hyogo from Nippon Steel. ¶19. (U) Nichiha invests $68 million in Georgia -------------- - Nikkei Shimbun's Central Japan edition reported November 9 that Nichiha Corporation, Nagoya's leading manufacturer of exterior housing materials (fiber cement products) will invest approx. $68 million in Georgia to build a new plant through its U.S. subsidiary and begin production in October 2007. The company president said he wants to start a new TOKYO 00006488 007 OF 008 business growth model with this new investment in the United States. ¶20. (U) Rokkasho Produces Japan's First Commercially Reprocessed Nuclear Fuel -------------- The Japan Nuclear Fuel Ltd. (JNFL)'s Rokkasho plutonium reprocessing plant in Aomori Prefecture produced its first batch of uranium-plutonium mixed- oxide (MOX) fuel solution in early November during its initial test run. The MOX solution will be reprocessed several times until it reaches a powder form that can then be used as a basic ingredient for nuclear fuel production. JNFL announced that they plan to finish the first batch of MOX powder at Rokkasho by mid-November. The Rokkasho plant began this test run on March 31st with a goal of extracting four tons of plutonium from 430 tons of spent nuclear fuel. When the plant begins regular operations in August 2007, it plans to reprocess 800 tons of spent nuclear fuel to extract eight tons of plutonium a year. It remains to be seen where this large amount of extracted MOX plutonium will be put to use. Japanese electric companies aim to have 16 to 18 reactors that can utilize the MOX plutonium in place by 2010. As of today, there are only two: Genkai reactor of Kyushu Electric in Saga prefecture and Ikata reactor in Ehime prefecture. ¶20. (U) Ehime Governor Accepts Pluthermal MOX Fuel for Ikata Nuclear Power Plant -------------- Ehime Governor Moriyuki Kato and Ikata Town Mayor Kazuhiko Yamashita officially accepted a proposal by Shikoku Electric Power to use "pluthermal" MOX fuel. The project seeks to start operation in 2010. Governor Kato mentioned that local people now understand the safety and importance of the project. Although, according to Mr. Kozo Kondo, a supporter and Honorary Chairman of the Shikoku Economic Federation, an advisor to Shikoku Electric Power Co., Inc. and the engineer who designed Ikata, there are still many voices opposed to the project. ¶21. (U) Japanese Research Whaling Ships Return to Kushiro With Smaller Catch -------------- Japan's whaling research vessels returned to Kushiro, Hokkaido, with a catch of only 35 minke whales as the country's northern Pacific Ocean whale research program came to a close at the end of October. This was far fewer than the 60 whales authorized for research purposes by the International Whaling Commission. Researchers blamed bad weather, including a late September typhoon, and a smaller than usual supply of Pacific saury (the minke whales' preferred food source) for the reduced catch. Head researcher Hidehiro Kato, professor at the Tokyo University of Marine Science and Technology, said in an Asahi Shimbun interview that because the size of the research area is limited, reduced catches are unavoidable. He stated it is necessary to make the research area much wider to estimate correctly the total number of whales in the region. Without providing details, Dr. Kato also mentioned that they acquired some peculiar data during this TOKYO 00006488 008 OF 008 year's research program. The findings will be presented at next year's IWC meeting in Anchorage. SCHIEFFER