ECON CONTACTS CONFIRM SUCCESS OF ABE'S MIDDLE EAST

C O N F I D E N T I A L SECTION 01 OF 05 TOKYO 002269 SIPDIS SIPDIS PARIS FOR OECD. DOE PLEASE PASS TO DPUMPHREY, JNAKANO. PACOM FOR D. VAUGN. E.O. 12958: DECL: 05/17/2017 TAGS: PREL ECON ETRD ENRG XF EG KUNC QA SA AE JA SUBJECT: ECON CONTACTS CONFIRM SUCCESS OF ABE'S MIDDLE EAST TRIP REF: TOKYO 2190 Classified By: Ambassador J. Thomas Schieffer for reasons 1.4 (b,d) ¶1. (C) Summary. Separate talks with METI and Keidanren officials largely confirmed MOFA and Kantei reports (reftel) that Prime Minister SHINZO Abe,s April 28-May 2 visit to the Middle East was a success. One official emphasized the improved relationship with Saudi Arabia but explained that the offer to store Saudi Arabian oil in Okinawa was still being negotiated. He also noted that the large loan agreed between the Japan Bank for International Cooperation (JBIC) to U.A.E.,s Abu Dhabi National Oil Company (ADNOC) likely was made in support of U.A.E.,s Japanese Ambassador, a former JBIC employee. A second official bemoaned the slow pace of Japan,s FTA negotiations with the Gulf Cooperation Council (GCC) and highlighted the political and business concerns Japan has with Egypt. A Japan Business Federation (Keidanren) representative discussed the broad range of businessmen who joined ABE on the trip but noted the difficulty Japanese businesses will have finding employees for Gulf-based factories. End Summary. Japan-Saudi Relationship on the Mend -------------- ¶2. (SBU) Ministry of Economy, Trade and Industry (METI) Agency for Natural Resources and Energy (ANRE) Petroleum and Natural Gas Division Director Shin Hosaka, who accompanied Prime Minister SHINZO ABE on part of his visit to Saudi Arabia, U.A.E., Kuwait, Egypt and Qatar in late April and early May, said he was pleased that the Prime Minister had traveled to the Middle East. In particular, he observed that Abe,s talks in Saudi Arabia significantly contributed to repairing the relationship between the two countries. Hosaka described how the relationship had soured after Japan lost its concession in the large Saudi Khafji oil field in 2000 and said there had been very few official visits since then. Hosaka and ANRE Director General Hirofumi Mochizuki made a trip to Saudi Arabia in December 2006, Hosaka reported, during which they found the Saudis to be very frank and friendly. Hosaka posited that that visit surely had led to the positive outcome of Abe,s meetings as well as the subsequent meetings held for METI Minister Akira Amari TOKYO 00002269 002 OF 005 (septel),whom Hosaka also accompanied. (Note: Saudi Arabia is Japan,s largest oil partner, exporting 579 million barrels to Japan in 2006 or 29 percent of Japan,s total. U.A.E. is second with 524 million barrels or 26.2 percent followed by Iran with 141.5 million, 11.3 percent; Qatar with 207 million, 10.4 percent; and Kuwait 141.5 million, 7.1 percent. End note.) Abe Jumps the Gun on Saudi Stockpiling -------------- ¶3. (C) Hosaka revealed that ANRE had been working for some time behind the scenes on the idea of offering Okinawa-based tanks to Saudi Arabia to store oil in exchange for Japan,s access to the oil in a crisis. When ABE heard about the proposal he wanted to go public with it during his Middle East trip, according to Hosaka. Negotiations with the Saudis are not yet complete but the pressure to conclude them is now much greater, he said. He explained that the Japanese government owns storage tanks in Okinawa as do several Japanese private companies. Two of these companies have shown interest in cooperating on this project but Hosaka said it was still unclear whether Saudi Arabia's state-owned oil company Aramco was interested because Aramco already enjoys a robust market for its oil right out of the ground. Hosaka also confessed he had heard a rumor that the Korean president had proposed something similar to the Saudi government a month earlier but the Saudi government believes it to be a strictly commercial venture and asked to be left out of the negotiations with the Koreans. Hosaka also said China may have approached the Saudis as well. Aramco already has a refinery joint venture in Qingdao, he said, which might persuade Saudi Arabia to sign a stockpile agreement with China instead of Japan or Korea. JBIC Loan to U.A.E. -------------- ¶4. (C) Abe,s visit to U.A.E., despite the country's status as Japan,s second largest oil importer, was the first by a Japanese prime minister in 29 years, Hosaka noted. The main news to come from this part of the visit was the Japan Bank for International Cooperation (JBIC) agreement to loan Abu Dhabi National Oil Company (ADNOC) $5 billion for oil TOKYO 00002269 003 OF 005 projects, he said. Hosaka disclosed that Japanese Ambassador to U.A.E. Takuma Hatano is a former employee of JBIC. The bank was looking to support Hatano in some way, according to Hosaka, despite the fact that ADNOC has plenty of money and is in no need of a loan. Trip Broadens Japan-Middle East Trade Relationship -------------- -------------- ¶5. (SBU) In a separate meeting, Ministry of Economy, Trade and Industry (METI) Middle Eastern and African Affairs Director Michio Sakuramachi told Econoff that Prime Minister Shinzo Abe,s trip to the Middle East in late April had been successful because it had begun to create to a multi-layered, comprehensive trade relationship with the Middle East instead of one focused exclusively on oil. Sakuramachi related that -- unexpectedly -- key members of each of the Gulf countries, royal families had attended the meetings with Abe, leading to an even greater sense of accomplishment. GCC Free Trade Agreement -------------- ¶6. (SBU) Sakuramachi reported that the Gulf Cooperation Council (GCC) would hold an unofficial midterm meeting in June to discuss the free trade agreement (FTA) under negotiation with Japan. (Note: Japan is negotiating an FTA, not an economic partnership agreement (EPA),with the GCC. The FTA will include only goods and services as opposed to the broader-ranging Japanese EPA.) He mused that the process was slower than he had hoped and expected, mainly due to scheduling problems. (Note: The first meeting was in September 2006 and the second in January this year.) At the moment the GCC is focused on its FTA with the European Union, Sakuramachi reported, which ought to help spur talks with Japan by providing a model agreement. The Japan-GCC FTA has political implications as well, he said, which encourages both sides to speed up the process. Egypt Offers Little of Interest to Japan -------------- ¶7. (C) Sakuramachi admitted that Egypt has little to offer Japan in the energy realm but remains important from a TOKYO 00002269 004 OF 005 political point of view. Japan would like to strengthen its relationship with Egypt in order to demonstrate its commitment to the region's peace process, according to Sakuramachi. Egypt remains unattractive to Japanese businesses because of corruption, however, he said. Broad Range of Japanese Businesses Make the Trip -------------- --- ¶8. (SBU) Japan Business Federation (Keidanren) Managing Director Masakazu Kubota told EMIN that Japan,s oil trade with the Middle East remained its primary business but that Japan hoped to increase its non-oil trade with the region. One hundred eighty Keidanren companies accompanied the Prime Minister on his trip to the Middle East, including representatives from energy, chemicals, pharmaceuticals, finance, information technology (IT),automobiles, electric appliances and construction. In addition to increasing trade between Japan and the region, Japanese companies are interested in increasing their investment in the Middle East and in promoting advances in such areas as infrastructure, human resource development, and information and communication technology, according to Kubota. He added that follow-up on the trip would be very important if these goals are to be achieved. Finding Employees for Japanese Factories an Issue -------------- -------------- ¶9. (SBU) Kubota acknowledged that Japan is a late-comer to the Middle East but said Japan hoped to play a role in the region's modernization and that the Middle East held many business opportunities for Japan. Kubota noted, however, that given the standard of living enjoyed by much of the population in the area, finding workers for businesses such as car manufacturing was a challenge; the wage was simply too low. He dismissed security concerns, however, saying Japanese companies have not taken any special measures to protect themselves. Government-to-Government Business Discussions Essential -------------- -------------- ¶10. (SBU) Kubota explained the importance of TOKYO 00002269 005 OF 005 government-to-government business discussions in the Middle East where business is primarily conducted by government-run companies. The Japanese government had to get involved to get Japanese business through the front door, he claimed. Kubota also noted with relief, like our MOFA contacts, that part of the success of the trip was the fact that no one got sick -- most of the Japanese companies sent senior representatives who are in their 70s and 80s. Comment -------------- ¶11. (C) The Embassy's broad range of Japanese government and business contacts all confirm the success of Abe,s Middle East visit, although to some, "success" clearly means only that he went at all. This may also be true of the enormous Japanese business delegation. However, seeing the Middle East first hand may have strengthened the businessmen's conviction that there is little or no opportunity for many of them in the region. As one contact noted, follow-up on the trip will be key. Japan,s stockpiling idea got plenty of press attention but negotiations are on-going and success is far from guaranteed. Nevertheless, from a diplomatic and political standpoint, the trip was long overdue and certainly improved Japan,s relations with the countries ABE visited. SCHIEFFER