MOFA PUTS POSITIVE SPIN ON CEBU ECON OUTCOMES

C O N F I D E N T I A L SECTION 01 OF 03 TOKYO 000448

SIPDIS

SIPDIS

STATE PASS USTR
GENEVA ALSO FOR USTR
USDOC FOR OFFICE OF JAPAN - NMELCHER
PARIS FOR USOECD

E.O. 12958: DECL: 02/01/2027
TAGS: ETRD ECIN ECON PREL JA
SUBJECT: MOFA PUTS POSITIVE SPIN ON CEBU ECON OUTCOMES


TOKYO 00000448 001.2 OF 003


Classified By: Amb. J. Thomas Schieffer. Reason: 1.4 (b, d)


1. (C) Summary: The endorsement of Japan's
proposal for an academic study of a free trade
area including the 10 ASEAN states along with
Japan, China, South Korea, Australia, New
Zealand, and India at the January 15 East Asian
Summit was a better outcome than had been
expected, according to an official of the
Japanese Ministry of Foreign Affairs (MOFA).
Nevertheless, prospects for an agreement between
Japan and ASEAN alone remain weak, with Japan
seeing little to gain despite ASEAN's insistence
on making those negotiations a priority. Japan's
Trade Ministry continues to be the driving force
behind the "ASEAN Plus 6" proposal for regional
economic integration, although officials of that
agency did not confirm the extent of their
involvement. End summary.

-------------- ---
Cebu Summits Show Acceptance of ASEAN Desire for
Regional Integration Options
-------------- ---


2. (C) The January summit meetings in Cebu
yielded a better response than the Japanese had
first predicted coming out of the December
preparatory sessions, according to MOFA Economic
Partnership Division Deputy Director Kohei Saito
in a January 25 meeting with econoff. In Saito's
view, what had changed fundamentally was a new
acceptance on the part of ASEAN's economic
dialogue partners that ASEAN preferred to have a
range of options on broader regional economic
integration once all of its agreements with
individual partners had been completed.


3. (C) Saito, who had attended the December
meetings, said that initially the Japanese had
been concerned that ASEAN would insist on
completion of a Japan-ASEAN economic partnership
agreement before it would consider any movement
on a "Track II" academic study of the
Comprehensive Economic Partnership in East Asia
(CEPEA, or so-called "ASEAN Plus 6" arrangement)
put forward by Japan at the August meeting of
economic ministers from ASEAN and its chief
dialogue partners. Instead, the ASEAN leaders in
Cebu agreed to language calling for a Track II
study on CEPEA in the joint statements of both
the ASEAN-Japan summit and the larger East Asian
Summit (EAS). Nevertheless the ASEAN leaders
still stressed the need to complete the ASEAN-
Japan agreement under negotiation as soon as
possible. This language, Saito noted, was
basically a repeat of the wording that emerged
from the August meetings and allowed progress on
the CEPEA initiative without an absolute
necessity to finish the Japan-ASEAN agreement.


4. (C) Saito also noticed a shift in ASEAN's
position on a possible ASEAN Plus 3-based free
trade agreement. In December, the ASEAN
representatives had been cool to the idea put
forward by the South Koreans to move ahead with
an in-depth sector-by-sector "Phase II" study on
the FTA proposal. Nevertheless, the final
statement from the ASEAN Plus 3 summit endorsed
the Koreans' initiative. In addition, neither
the Koreans nor the Chinese -- both of whom had
indicated reservations toward the CEPEA proposal
and had been far more supportive of economic
integration centered on ASEAN Plus 3 -- voiced
further opposition to a study on the ASEAN Plus 6
arrangement. Although the Chinese ambassador to

TOKYO 00000448 002.2 OF 003


the Philippines, who had represented Beijing at
the December meetings, had characterized a Track
II study on CEPEA as "premature," no similar
comments had emerged at the January summit.

-------------- --
Japan-ASEAN Talks to Center on Goods Trade Only
-------------- --


5. (C) Regarding prospects for a Japan-ASEAN
agreement, however, Saito acknowledged that many
problems remained. During the meeting of ASEAN
and Japanese economic ministers in December, the
ASEAN side had accepted the latest Japanese
modality for trade in goods -- elimination of
tariffs on 92 percent of trade by trade volume
with establishment of a maximum tariff or a
reduction of tariffs on the remaining eight
percent (mostly agricultural products) -- as a
basis for discussion. This opened the way for
formal negotiations, suspended since August, to
restart. ASEAN, however, wanted to see the
details of the Japanese proposal, Saito stressed.
He expected the next round of negotiations with
ASEAN to take place in the latter part of
February.


6. (C) Saito also acknowledged that the
Japanese had little interest in pursuing
negotiations on trade in services in the Japan-
ASEAN context beyond adding a few "endeavor
clauses" to the agreement and establishing a
committee with ASEAN to explore the topic.
According to Saito, although Japan would benefit
by having accumulated rules of origin on trade in
goods via a Japan-ASEAN agreement, this obviously
did not apply to trade in services. From the
Japanese perspective, the sections pertaining to
services in the various bilateral economic
partnership agreements with individual ASEAN
states were preferable to any arrangement that
could be achieved with ASEAN as a whole, Saito
said. With ASEAN and China having just concluded
an agreement on trade in services, however, Saito
expected that ASEAN would likely present Japan
with a proposal similar to the recently concluded
arrangement with China.

--------------
The METI Connection
--------------


7. (C) Interestingly, the Japanese had been
surprised at the decision announced in the
statement of the East Asian Summit leaders to
task the ASEAN Secretariat to take charge of the
CEPEA Track II study, according to Saito. As the
host of the EAS, the Philippines had
responsibility for drafting the joint statement
for the summit and did not consult with the
Japanese on that point before the statement was
released. Saito stressed, however, that the real
work on CEPEA was not going to be done by ASEAN
but by Japan's own Ministry of Economy, Trade,
and Industry (METI),albeit in conjunction with
the ASEAN Secretariat.


8. (SBU) Waseda Univesity Professor Shujiro
Urata, an expert on regional integration in Asia
and a participant in the Track II study on an
ASEAN Plus 3-based free trade agreement,
indicated to econoffs January 25 that, according
to his understanding as well, METI remained the
guiding force behind the CEPEA initiative despite
the ostensible involvement of the ASEAN
Secretariat. In fact, there was already

SIPDIS

TOKYO 00000448 003.2 OF 003


substantial discussion within METI on where to
locate the Japanese-funded Economic Research
Institute for ASEAN and East Asia (ERIA, billed
initially as an Asia-only version of the OECD)
promised as a way to win ASEAN support for the
CEPEA proposal, Urata said. METI officials,
according to Urata, wanted to locate the facility
in Thailand because of the large amount of
Japanese investment in that country while Urata
himself felt that Singapore would be a more
appropriate venue.


9. (SBU) In general, Urata believed the Cebu
summits had signaled a much more pragmatic
approach to economic integration than had been
seen a year earlier. The rhetoric on "East Asian
Community" had largely vanished to be replaced by
more concrete, programmatic proposals,
exemplified by Prime Minister Abe's ten points
for enhancing cooperation among the EAS member
states.


10. (C) METI officials, however, have been less
forthcoming about the extent of the ministry's
ongoing involvement in CEPEA. When asked by
econoff on January 19 regarding the outcome of
the Cebu meetings, Tetsuya Watanabe, the head of
METI's office charged with developing the CEPEA
proposal, provided little additional information
on the CEPEA study beyond what had been contained
in the official statements. According to
Watanabe, it was unclear as to when the ASEAN
Secretariat would begin work on the CEPEA study

SIPDIS
as called for in the EAS statement. According to
Watanabe, the ASEAN Secretary was on a break
following the summits in Cebu and had not wanted
to receive the tasking in the first place. As a
result, it was unclear as to when the study might
actually begin, who the participants would be,
and what timeframe it would involve. His
colleague from the METI Americas Division who
attended the meeting acknowledged to econoff that
Watanabe's briefing had been underwhelming.

--------------
Comment
--------------


11. (C) For Japan, the various summit meetings
in Cebu were successful because the Japanese won
some endorsement of their proposals.
Nevertheless, with Korea launching the next stage
of preparations for an ASEAN Plus 3 FTA and the
Chinese having come to agreement on trade in
services with ASEAN, securing the blessing of
ASEAN and the other EAS states to move ahead on
the METI-driven CEPEA Track II study is small
beer. Even as the announced (but not binding)
deadline of April to complete negotiations on an
ASEAN-Japan economic partnership agreement looms,
there remains little enthusiasm within the
Japanese Government to make the concessions
needed to strike a significant deal. The
question is whether the Japanese will find a way
to come to a minimally acceptable arrangement
with ASEAN that will allow a claim of partial
success or walk away entirely, risking domestic
political criticism for diplomatic failure. In
the meantime, none of Japan's initiatives in Cebu
would seem to point the way toward a true Asia-
Pacific Economic Community envisioned by the
United States.
SCHIEFFER