Identifier
Created
Classification
Origin
07TOKYO450
2007-02-01 01:53:00
CONFIDENTIAL
Embassy Tokyo
Cable title:  

JAPAN GINGERLY SEEKS NEW ECON TIES WITH CHINA,

Tags:  ECON EINV ETRD PREL JA CH KS 
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C O N F I D E N T I A L SECTION 01 OF 04 TOKYO 000450 

SIPDIS

SIPDIS

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

E.O. 12958: DECL: 02/01/2027
TAGS: ECON EINV ETRD PREL JA CH KS
SUBJECT: JAPAN GINGERLY SEEKS NEW ECON TIES WITH CHINA,
SOUTH KOREA


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

C O N F I D E N T I A L SECTION 01 OF 04 TOKYO 000450

SIPDIS

SIPDIS

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

E.O. 12958: DECL: 02/01/2027
TAGS: ECON EINV ETRD PREL JA CH KS
SUBJECT: JAPAN GINGERLY SEEKS NEW ECON TIES WITH CHINA,
SOUTH KOREA


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


1. (C) Summary: Japan sees little prospect for
substantial improvement in its official relations
with South Korea in the near term because of the
attitudes of the present Korean administration,
according to a senior official of the Asia Bureau
of Japan's Ministry of Foreign Affairs (MOFA).
The official believed talks with Korea on an
"economic partnership agreement" would remain
suspended until a new government came to power in
Seoul. In contrast, relations with China had
undergone a surprisingly rapid turnaround.
Nevertheless, although Japan was ready to begin
negotiations on a trilateral investment agreement
with China and South Korea, Japanese interest in
a free trade agreement with China remains
confined to simply studying the option. An
official of MOFA's office in charge of free trade
agreement negotiations also noted that, even in
the improved political environment, working out a
successful three-way investment agreement will
still be a challenge for the Japanese. End
summary.

--------------
No Hope for Relations with South Korea
--------------


2. (C) Meeting with ECON Mincouns over lunch
January 19, MOFA Asia Bureau Deputy Director
General Shiro Sadoshima said that there was no
hope of progress in relations with South Korea
under the current Korean administration. Using
very colorful language, he said the problem lay
not with the Korean Foreign Ministry but with the
Blue House and President Roh himself.
Nevertheless, Sadoshima pointed to a number of
MOFA-sponsored people-to-people exchanges with
Korea initiated recently -- particularly youth --
that indicated the level of animosity among the
general public in both countries was actually
much lower than either the media or politicians
portrayed it to be. MOFA looked to support more

of these kinds of exchanges utilizing some of the
USD 315 million over the next five years for this
purpose that Prime Minister Abe had announced
during the East Asian Summit meetings in the
Philippines.


3. (C) Sadoshima, consequently, was pessimistic
about the chances of restarting the "economic
partnership agreement" (i.e., FTA) negotiations
between Japan and Korea. He acknowledged that
there had been some discussion in MOFA to the
effect that renewed economic talks might help to
improve the atmosphere in the relationship
between the two countries. Because the prospects
of substantive progress in the near term were dim
and the time left to the Roh administration
limited, however, there was little interest in
Japan on restarting the negotiations only to face
the prospect of having to start all over again
potentially with a new Korean government.

-------------- --

TOKYO 00000450 002 OF 004


Interaction with China Dramatically Improved...
-------------- --


4. (C) Turning to China, Sadoshima indicated
that the progress in the relationship with
Beijing had been dramatic. He pointed to China's
decision on January 18 to lift its ban on imports
of Japanese rice as exemplifying the way in which
the Chinese position could shift 180 degrees
without warning. Japan was now looking to
initiate a ministerial-level discussion with
China like the U.S. Strategic Economic Dialogue.
At present, however, the specific Chinese and
Japanese participants, timing, agenda have yet to
be decided, Sadoshima said. The main focus for
the moment, according to Sadoshima, is
preparation for a visit by Chinese Premier Wen
Jiabao to Japan in April.

--------------
...But Still Not Ready for an FTA
--------------


5. (C) With respect to the possibility of a
trilateral investment treaty among Japan, South
Korea, and China, Sadoshima said that the
objective was to use the existing Japan-South
Korea investment agreement as the basis for
negotiation and to extend those terms to China.
Despite the announcement from the trilateral
meeting in Cebu regarding a study for a full FTA
among the three countries, Sadoshima indicated
that the Japanese had relatively little interest
in the prospect. Japan still has too many
concerns over China's protection of investor and
intellectual property rights, and remains
unwilling to make enough concessions on
agriculture to make an FTA feasible, he noted. A
China FTA is still at least four to five years
down the pike.

--------------
Three-way Investment Agreement Challenges
Japanese Diplomacy
--------------


6. (SBU) Takako Ito, Senior Deputy Director for
FTA/EPA Negotiations of MOFA's Economic
Partnership Division, told econoff January 25
that Japanese, Korean, and Chinese officials had
met six times between May 2005 and December 2006
in preparatory talks on the proposed investment
agreement and had reached agreement at the
meeting last December to advise their various
leaders to announce the launch of formal
negotiations. The meeting between Japan Business
Federation Chairman Fujio Mitarai and Chinese
Premier Wen Jiabao in September, followed by
Prime Minister Abe's China trip in October, had
given added impetus to finalizing the
arrangements to begin formal negotiations.


7. (SBU) According to Ito, the Japan-Korea
bilateral investment treaty, which went into
effect in 2003, is one of Japan's best, having
been influenced by the (unsuccessful)

TOKYO 00000450 003 OF 004


negotiations for the OECD Multilateral Agreement
on Investment (MAI). Whereas Japan's previous
bilateral investment agreements had focused on
investment protection, the MAI experience had led
to new thinking on possibilities for investment
liberalization, many of which had been
incorporated into the agreement with Korea, Ito
said.


8. (C) The 1990 Japan-China investment
agreement, Ito noted, was one of Japan's older
arrangements. Japanese investors, for example,
received most favored nation treatment under the
agreement but not national treatment. Japan's
hope was that, by teaming with Korea in three-way
negotiations, it would be possible to bring the
Chinese to agree on key areas such as greater
regulatory transparency and intellectual property
rights protection. Japan also hoped that the
Chinese could be persuaded to accept the
existence of an investment agreement as automatic
consent for investors to utilize the World Bank's
International Center for Settlement of Investment
Disputes (ICSID). Currently, Ito said, the
Chinese Government insisted on granting written
permission to allow ICSID arbitration on a case-
by-case basis.


9. (C) Establishing such a three-way agreement
will not be easy, Ito confessed. The Japanese do
not want the trilateral agreement to supersede
the bilateral arrangement with Korea, with which
they are quite happy. As part of the
preparations, the Japanese have been studying the
investment chapter of the North American Free
Trade Agreement (NAFTA) for clues as to how best
to manage a three-way negotiation. Ito indicated
that the Japanese had also studied the U.S. model
bilateral investment treaty but remained
uncomfortable with certain elements of the U.S.
model. Notably, the requirement for transparency
in the dispute settlement mechanism did not
appeal to Japanese and other Asians, who
preferred a more private arbitration process, Ito
stated.

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


10. (C) Sadoshima's frustration with the
current Korean administration recalled the
sentiments expressed by many inside and outside
Japan who had been waiting out the tenure of
former Japanese Prime Minister Koizumi in
anticipation of better relations with Japan's
Asian neighbors. The relative improvement of
relations with China in particular does appear to
have given an opening for some limited
initiatives on the social and economic side that
have been gestating in the bureaucracies of all
three countries for some time. Nevertheless, as
Ms. Ito's comments indicate, although a better
political atmosphere has allowed these
initiatives to emerge, the practical difficulties
of bringing them to fruition remain.

TOKYO 00000450 004 OF 004


SCHIEFFER