NO RESOLUTION TO EAST CHINA SEA DISPUTE

C O N F I D E N T I A L SECTION 01 OF 02 TOKYO 001524 SIPDIS SIPDIS PARIS FOR OECD. DOE PLEASE PASS TO DOE/PI: DPUMPHREY, JNAKANO. PACOM FOR D.VAUGHN E.O. 12958: DECL: 04/04/2017 TAGS: ECON ENRG PREL PGOV JA CH SUBJECT: NO RESOLUTION TO EAST CHINA SEA DISPUTE Classified By: Ambassador J. Thomas Schieffer for reasons 1.4 (b,d). ¶1. (C) Summary. Despite positive reports in the press, the March 29 meeting in Tokyo between Japan and China to discuss the East China Sea dispute yielded no new proposal and failed to bring the two sides any closer to a resolution. A panel of experts from both countries likely will meet on April 6 in Beijing to discuss the existence of a geological fault dividing the oil and gas field in the East China Sea but will do little else to advance the talks. Japan,s Teikoku Oil Co., which holds a license to develop the field, remains reluctant to begin work in the area due to fears the Chinese military might retaliate. A METI official noted that a bill introduced in this Diet session, when passed as expected, will provide a legal basis for the Japan Coast Guard to actively respond to any threat. End summary. Empty Proposal -------------- ¶2. (C) Ministry of Economy, Trade and Industry (METI) Agency for Natural Resources and Energy (ANRE) Petroleum and Natural Gas Division Director Shin Hosaka told econoff on April 4 that the Chinese abandoned their May 2006 proposal to resolve the East China Sea dispute and did not produce a new proposal during discussions held on March 29 in Tokyo. The earlier proposal called for joint development in two places, one in the northern part of the Sea and one in the south. Because this proposal included the area around the disputed Senkaku Islands, the Japanese would never accept it, Hosaka declared. He said that during the March 29 meeting, the Chinese initially appeared to offer a new proposal for one location to be developed jointly but when pressed, could provide no details on the substance of that proposal. Hosaka said that Asian and Oceanian Affairs Bureau Director General Kenichiro Sasae,s positive reaction, reported in the press, occurred before Sasae discovered the offer was hollow. ¶3. (C) Hosaka commented that the meeting between Foreign Minister Taro Aso and his Chinese counterpart Li Zhaoxing on April 3 in New Delhi also yielded nothing new. Hosaka added that he is very pessimistic that the dispute will be resolved and certainly not before the Chinese Premier's visit to Japan on April 11-13. Technical Panel to Meet -------------- ¶4. (C) A panel of technical experts from Japan and China likely will meet on April 6 in Beijing, Hosaka told Econoff, although he stressed that this meeting is not linked to a final resolution of the dispute. One of the main issues to be discussed is whether a geological fault lies in the middle of the field that prevents gas on one side of the median line from spilling over onto the other side. Japan is concerned China is siphoning off gas from Japan,s side of the line and disputes the existence of this fault. No Movement from Teikoku -------------- ¶5. (C) Asked why Teikoku Oil has failed to begin developing in the East China Sea despite having held the rights to do so since January 2006, Hosaka responded that Teikoku is afraid of a Chinese military reaction. He also wondered aloud how much longer Teikoku will hold onto the development rights for the field given that the company must pay taxes on them regardless of whether it starts production. ¶6. (C) Hosaka explained that one of the two basic marine laws before the Diet, which has already passed the Lower House and is expected to pass the Upper House before the end of April, would give the Japanese Coast Guard the necessary tools to take action against any incursions into Japanese territory. At the moment, the Coast Guard has the right but no obvious means to respond, according to Hosaka. Comment TOKYO 00001524 002 OF 002 -------------- ¶7. (C) While it is good news that Japan and China have held another round of discussions, unfortunately, neither side has anything new to offer. The longer this issue drags on without resolution, the less likely it becomes that China will concede anything to Japan because China continues to produce oil and natural gas in the area. China is unwilling to alter its position that its border lies at the edge of its continental shelf, which allows China to fully exploit the area. Japan has been flexible with its offer of a mid-way point between the two countries versus the borderline 200 kilometers from the Japanese shore that the country has claimed in the past. The April 6 meeting between the technical experts is a positive development, but Hosaka's unrelenting pessimism seems justified. End comment. SCHIEFFER