METI'S "ASIAN OECD" HAS FUNDING...BUT LITTLE ELSE

C O N F I D E N T I A L SECTION 01 OF 03 TOKYO 004055 SIPDIS SIPDIS STATE PASS USTR FOR CUTLER, BEEMAN, NEUFFER GENEVA ALSO FOR USTR NSC FOR TONG COMMERCE FOR 4410/MAC/OJ/NMELCHER PARIS FOR USOECD E.O. 12958: DECL: 08/31/2027 TAGS: ECON ECIN PREL ETRD JA SUBJECT: METI'S "ASIAN OECD" HAS FUNDING...BUT LITTLE ELSE Classified By: Charge d'Affaires, a.i., Joseph R. Donovan. Reason: 1.4 (b,d) ¶1. (C) Summary: The research institute initially conceived as part of Japan's "ASEAN Plus Six" proposal for regional economic integration will be, at least at the beginning, a small, independent entity with no direct ties to any organization or model for regional architecture, according to an official of Japan's Ministry of Economy, Trade, and Industry (METI) deeply involved in the initiative. METI, however, has left the decisions on location and staffing of the institute to the ASEAN Secretariat and is concerned about resolving these questions before the current Japanese funding for the initiative disappears at the end of March 2008. The METI official noted movement on an academic study of the "ASEAN Plus Six" proposal itself has been slow. On a related matter, the official indicated Japan's demand for special rules of origin for sensitive items remains the key area blocking the conclusion of a Japan-ASEAN free trade agreement. End summary. "Asian OECD" To Be Small, Independent Body -------------- ¶2. (C) None of the details for the Economic Research Institute for ASEAN and East Asia (ERIA) -- the facility Japan proposed as part of its concept of a "Closer Economic Partnership in East Asia" (CEPEA) comprised of Japan, ASEAN, South Korea, China, Australia, New Zealand, and India -- have been worked out, according to METI Asia and Pacific Division Director Tetsuya Watanabe. Meeting with econoff August 30, Watanabe noted METI has JPY one billion (about USD 8.7 million at the current exchange rate) in its FY2007 budget for ERIA that needs to be spent by the March 31 end of the Japanese fiscal year. Consequently, it is important ERIA be established as soon as possible. At present, to take advantage of the available funding, METI is financing some initial research activities on a "networking basis" under the ERIA label through the Institute of Developing Economies of the Japan External Trade Organization (JETRO). ¶3. (C) The decision on where to locate the ERIA has been left to the ASEAN Secretariat. Candidates for the institute's site have narrowed to Thailand, Malaysia, and Indonesia, with the decision to be announced at the East Asian Summit (EAS) meeting in November. Watanabe has been personally working with ASEAN Secretary General Ong Keng Yong on ERIA's creation. To begin with, Watanabe said, the ERIA -- characterized in the press as the precursor of a possible "Asian OECD" -- would likely consist of no more than 5-10 researchers with an equivalent number of staff. The head should be an eminent figure from one of the ASEAN states, although some Japanese might become ERIA staff members, Watanabe indicated. He hinted staffing the institute, also an ASEAN function, could prove problematic. ¶4. (C) The ASEAN Secretariat, Watanabe explained, had long been looking to establish a policy research institute like ERIA to support ASEAN's internal efforts at economic integration. As a result, the Secretariat had been eager to embrace that element of SIPDIS former Minister Nikai's regional integration proposal. Nevertheless, Watanabe emphasized, ERIA is intended to be a free-standing entity without direct ties to any other organization or institution. Watanabe acknowledged Japan would like the EAS to "welcome" the ERIA's creation but was not seeking any formal "endorsement" of the institute by the EAS or to attach it somehow to the EAS process. He stressed Japan is TOKYO 00004055 002 OF 003 working hard to dissociate ERIA from any particular proposal for a new regional economic architecture. Watanabe added that ERIA did not conflict with APEC. In fact, additional Japanese funds for the APEC Secretariat promised by METI Senior APEC Official SIPDIS Nobuhiko Sasaki were actually coming from the money earmarked for ERIA -- a point, Watanabe stressed, the Japanese were not looking to advertise. CEPEA "Track Two" Study Slow Off the Mark -------------- ¶5. (C) As for the CEPEA concept itself, the multinational academic study financed by Japan to examine the possibility of realizing an "ASEAN Plus Six" economic community has been slow to organize, Watanabe confessed. Although the study group had held two meetings, the most recent in August, the first session had been devoted purely to "brainstorming" while the second had only generated a list of topics for research. Watanabe acknowledged that the Japan- ASEAN August 25 joint statement had expressed "expectations" that the study would be completed by summer 2008, but he was not optimistic the study group could meet that timetable because no research has yet taken place. ¶6. (C) The study group itself contains several researchers who had taken part in the feasibility study for an ASEAN Plus Three economic community, which China has sponsored and which had been the trigger for the Japanese "ASEAN Plus Six" counterproposal in 2006. Notably, Keio University Professor Shujiro Urata, Chinese Academy of Social Sciences Asia-Pacific Institute Director Zhang Yunlin, and Korea Institute of International Economic Policy Lee Chang Jae -- all of whom were members of the earlier study group -- are participants in the CEPEA exercise. This is unavoidable, Watanabe indicated, because the pool of experts on this issue is exceedingly small. He noted that (ironically) Korea's Lee is also working on the ostensibly competing "phase two" study of the ASEAN Plus Three report. Rules of Origin Focus of FTA Negotiations with ASEAN -------------- -------------- ¶7. (C) Watanabe cited rules of origin (ROO) as the main area of contention in the ongoing negotiations for an "economic partnership agreement" between Japan and ASEAN. Once the parties had reached agreement on the modalities for tariff reductions in the spring, a particularly tough set of negotiations with ASEAN had followed over the summer to establish the items the agreement would actually cover. Now those lists were complete, but contentious issues on rules of origin remain. In particular, Watanabe noted, Japan wants to put in place strict rules of origin for goods it deems "sensitive," primarily agriculture products. (Note: The Japan-ASEAN joint statement released following the August 25 Economic Ministers' meeting in Manila specifically states both sides "expeditiously will proceed on the work of the text, including ROO" in order to conclude their agreement by November 2007. End note.) The next session of the ROO working group, Watanabe said, takes place in Singapore in early September. ¶8. (C) Although Watanabe confirmed the Japan-ASEAN agreement would be comprehensive in that it would include chapters on issues apart from trade in goods, such as services, investment, and intellectual property rights, he indicated those sections would contain little substance. The final text would simply call on both sides to endeavor to liberalize in these areas. Japan's individual bilateral agreements with TOKYO 00004055 003 OF 003 the major ASEAN economies -- all of which either are in effect or are pending final ratification -- will form the real basis for liberalization on non-trade issues, Watanabe stated. Comment: Still Not Much "There" There -------------- ¶9. (C) Before becoming director of METI's Asia and Pacific Division in July, Watanabe was one of the creators of the ERIA proposal, having been tasked by former METI Minister Toshihiro Nikai in late 2005 to draft the outline for the CEPEA. Although METI successfully secured a substantial chunk of money for this fiscal year to fund the ERIA, it appears, not surprisingly, that establishing an actual institute, with ASEAN in the driver's seat, is proving more complicated than anticipated. It is uncertain, once a site for the institute is named, whether it will function as anything more than a conduit for money to flow to other, more established regional research entities like the Institute of Developing Economies -- a METI affiliate. DONOVAN