FTA WITH AUSTRALIA: GOJ WILL DRIVE A HARD BARGAIN

C O N F I D E N T I A L SECTION 01 OF 02 TOKYO 007081 SIPDIS SIPDIS USTR FOR AUSTR CUTLER, ALSO FOR BEEMAN AND MEYERS E.O. 12958: DECL: 12/19/2016 TAGS: EAGR ECON ETRD JA SUBJECT: FTA WITH AUSTRALIA: GOJ WILL DRIVE A HARD BARGAIN REF: A. (A) JES VOLUME 2 ISSUE 49 (DEC 15 2006) ¶B. (B) TOKYO 6994 TOKYO 00007081 001.2 OF 002 Classified By: CDA Joseph R. Donovan, for reasons 1.4 (B) and (D). Summary -------------- ¶1. (C) There is a long, hard slog ahead after Prime Minister Abe and Australian PM John Howard agreed on December 12 to launch negotiations on a free trade agreement. MOFA officials, including DG for Economic Affairs, Kaoru Ishikawa, described for us the difficulty these talks will pose, particularly ahead of upper house Diet elections next summer. Japan's powerful agriculture lobby is working overtime to make sure the country's highly protected farm sector remains protected. If Australia does not show a high level of flexibility, the talks will not go far. A resolution passed in the Diet, enjoying the support of the ruling coalition and the opposition, calls on the government to halt the talks if Australia balks at effectively carving beef, dairy products, sugar, and wheat from a free trade deal. An agricultural economist we talked to speculated that the Agriculture Ministry (MAFF) was putting up strong opposition to a deal to up the price -- that is, in pork barrel to the agriculture industry -- of an eventual compromise. End summary. Looking for Flexibility -------------- ¶2. (C) MOFA DG Kaoru Ishikawa described for EMIN December 19 all the political complexities that will follow the announcement that Australia and Japan are set to launch FTA/Economic Partnership Agreement talks. Ishikawa said he would have preferred if the talks had not gotten off the ground, arguing -- or quipping, as the case may be -- that he would have been in a stronger position to make the case to pursue a deal with the United States instead. According to Ishikawa, the Australians will have to show substantial flexibility on agriculture if they hope to see these negotiations go through to a successful conclusion. ¶3. (C) Although only by a matter of degree, the MOFA DG was not as pessimistic as another MOFA official about reaching a deal with Australia. Yoshiharu Onishi, Deputy Director in MOFA's Oceania Division, told us that Japan would "never" accept a deal with Canberra if the Australians did not agree to take the key four senstive items off the table. He pointed to articles 58 and 59 in the Joint Study (see JES, per ref a) the two countries conducted prior to launching the talks. Article 58 puts no time limit on the negotiations, and article 59 leaves open the possibility of carving senstive items from the agreement. Without this language, he said, MAFF would never have agreed to launch the talks. And Japanese farmers could "never" survive unfettered competition with Australian farmers. (He used the word "never" a number of times.) Onishi predicted talks could take two or up to five or 10 years to complete, and certainly if the Australians did not show "flexibility," a suspension could be one plausible option. Ishikawa acknowledged the talks would be difficult but suggested insistence that the four sensitive items be taken off the table completely was more in the category of establishing an initial bargaining position. Domestic Politics Loom Large -------------- ¶4. (C) Election politics will play a big role. Ishikawa noted that there would be elections in Australia in the next few months that could loom large. In Japan upper house elections are set for next summer. He noted the strength in the Diet of the Hokkaido lobby, whose farmers -- primarily producing wheat, dairy goods, beef, and sugar -- are most directly threatened by a free trade deal with Canberra. He noted, however, that some of the key agriculture caucus members are capable of being "reasonable" and "bright" and part of what they will need as talks unfold in coming months is clear arguments -- or talking points -- to take home to their constituents. Both Ishikawa and Onishi pointed to the generally positive role played by Matsuoka in moving the Australian talks in the right direction. TOKYO 00007081 002.2 OF 002 ¶5. (C) Part of the posturing going on, according Yoshihisa Godo, an award-winning Agricultural Economist at Meiji Gakuin University in Tokyo, stems from the MAFF bureaucrats trying to extract as much pork as possible from the government before compromising. That was certainly their tack at the end of the Uruguay Round, he said. Ishikawa confirmed this by noting that the Ministry of Finance played an important role in the internal GOJ end-game on the Australian negotiations. It was only after he secured adequate additional funding for agricultural programs from MOF that key Diet members fell into line, he said. United States - Japan Agriculture Issues -------------- ¶6. (C) Putting aside Australia FTA talks, Ishikawa suggested there may be a role for the Embassy to play in expanded outreach with key agriculture caucus members on the issues of concern to the United States. There are some LDP Diet members who are worth engaging more frequently and also some LDP staff people, he said. He noted that Agriculture Minister Matsuoka would be traveling to Washington in the beginning of January. Matsuoka has been playing a very favorable role since becoming Minister, emphasizing the positive, including that Japan should do more to boost exports of food products. Ishikawa said it would be very helpful, in keeping him on this track, if he comes away from his visit to the United States with some deliverables. Although the MOFA DG did not specify what he had in mind, he noted that U.S. SPS regulations could be even more stringent than Japan's. Any progress that could facilitate Japanese food exports to the United States would be a boon for Matsuoka. ¶7. (C) Ishikawa also supplemented comments made by his boss, Vice Foreign Minister Yachi, to the Ambassador last week on widening access to U.S. beef (see ref b). While acknowledging Yachi's linkage of an OIE standard to support of imports of U.S. beef from cattle up to 30 months in age -- in contrast to the 20 months or younger restriction on U.S. beef currently in place in Japan -- Ishikawa adamantly stated that no movement on beef will be possible prior to next summer's Upper House elections. That a policy change on moving from 20 to 30 months will remain on the slow track echoes what we have heard from officials at the Health and Agriculture Ministries, who continue to make clear they do not even want to talk about the subject informally at this stage. SCHIEFFER