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

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Classified By: CDA Joseph R. Donovan, for reasons 1.4 (B) and (D).

Summary
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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.


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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