DAILY SUMMARY OF JAPANESE PRESS 10/30/07

UNCLAS SECTION 01 OF 08 TOKYO 005043 SIPDIS SIPDIS DEPT FOR E, P, EB, EAP/J, EAP/P, EAP/PD, PA; WHITE HOUSE/NSC/NEC; JUSTICE FOR STU CHEMTOB IN ANTI-TRUST DIVISION; TREASURY/OASIA/IMI/JAPAN; DEPT PASS USTR/PUBLIC AFFAIRS OFFICE; SECDEF FOR JCS-J-5/JAPAN, DASD/ISA/EAPR/JAPAN; DEPT PASS ELECTRONICALLY TO USDA FAS/ITP FOR SCHROETER; PACOM HONOLULU FOR PUBLIC DIPLOMACY ADVISOR; CINCPAC FLT/PA/ COMNAVFORJAPAN/PA. E.O. 12958: N/A TAGS: OIIP KMDR KPAO PGOV PINR ECON ELAB JA SUBJECT: DAILY SUMMARY OF JAPANESE PRESS 10/30/07 Index: (1) Meeting between Prime Minister Fukuda, DPJ President Ozawa on new antiterrorism bill ends without any agreement (Nikkei) (2) Japanese system involving trading firms in procuring defense equipment a breeding ground for collusion (Asahi) (3) Editorial: Moriya's Diet testimony has further deepened suspicions (Nikkei) (4) Former Defense Minister Kyuma to be hospitalized today (Mainichi) (5) EU, 11 states of US and Canada agree to form unified market for trading in greenhouse gas credits (Asahi) (6) JBIC to support China's environment policy (Sankei) (7) TOP HEADLINES (8) EDITORIALS ARTICLES: (1) Meeting between Prime Minister Fukuda, DPJ President Ozawa on new antiterrorism bill ends without any agreement Nikkei Net (Full) October 30, 2007 Prime Minister Yasuo Fukuda and Democratic Party of Japan (DPJ or Minshuto) President Ichiro Ozawa held their first meeting as party heads this morning in the Diet. The prime minister sought his cooperation on passing the new bill that will allow continued refueling services in the Indian Ocean by the Maritime Self-Defense Force (MSDF),but Ozawa would not accept his view, and the talks ended along divergent lines. However, Ozawa agreed to the prime minister's suggestion that they talk again on Nov. 2. Talks between the prime minister and President Ozawa lasted one hour and twenty minutes. Only at the start of the meeting were the secretaries general and Diet steering committee chairmen of the two SIPDIS parties present. For the rest of the session, only the two party leaders parleyed. Referring to the MSDF's refueling operation, the prime minister in seeking Ozawa understanding toward passage of the new bill, stressed, "For domestic and international reasons, I would like your cooperation in some way." Ozawa rejected the request, saying: "Dispatching the Self-Defense Forces overseas must be based on proper principles. It can only be allowed under the framework of being a United Nations activity." With no agreement in their views, the prime minister proposed holding talks again on Nov. 2, saying, "I would like to have another frank discussion with you." President Ozawa replied that he would do everything possible to oblige. With that in mind, the two decided to postpone the party-head debate scheduled for the Diet on Oct. 31. (2) Japanese system involving trading firms in procuring defense equipment a breeding ground for collusion ASAHI (Page 3) (Abridged) TOKYO 00005043 002 OF 008 October 30, 2007 The Defense Ministry heavily relies on major defense equipment from Western countries that are of high performance and inexpensive. A procurement system in which trading firms take care of complex contract procedures is unique to Japan. Serving not only as a go-between with overseas makers but also collecting and providing military information, the presence of Japanese trading houses is indispensable, according to a senior Defense Ministry official. Why is the presence of traders essential in procuring defense equipment? What problems lie there? Monopolistic deliveries The Self-Defense Forces annually procure equipment ranging from fighters to tanks to clothing that is worth about 2 trillion yen. Of that, 7 PERCENT of imports involve trading houses. The total volume of contracts in FY2005 came to 152.5 billion yen. Fierce competition exists among over 100 companies registered with the Defense Ministry. Defense equipment is procured through open biddings in principle, as is the case with other government agencies. However, because the limited number of makers producing equipment involving highly classified military secrets and special military specifications, the ministry in many cases ended up concluding discretionary contracts. This trend is more pronounced when military equipment is imported. Why do trading firms stand between equipment manufacturers and the Defense Ministry? A ministry procurement official explained it this way: "Simply put, they can take care of complex business procedures and deliver products on time without fail." Importing a large number of equipment takes several years. Under Japan's accounting system that is on a single-year basis, the ministry in principle makes payments at the end of each fiscal year. Some overseas producers, on the other hand, ask for advance or piecework payments in the middle of a fiscal year. In such a case, a trading house might borrow large sums of money from financial institutions. Importing equipment requires expertise in customs clearance and settling trade accounts, in addition to differences in business practices and languages. The Defense Ministry procurement department has neither secured enough personnel nor developed sufficient human resources. Many procurement officials agree that procurement operations will collapse without traders. Trading houses' other role is to collect information. A defense department official at a major trading firm commented: "We have been providing the latest and current defense information, such as what would be needed for the next generation, by checking the trends of the global arms markets five to 10 years from now." By collecting information and doing market research for the Defense Ministry and SDF, trading houses also intend to have a handle on the demand of their trading partners in the hope of new business opportunities. The reward of such work would be the monopolistic delivery of equipment as an agent of a foreign manufacturer. For instance, once a contract is concluded on aircraft parts that would be used for the TOKYO 00005043 003 OF 008 next 20 years, a company would automatically be able to deliver parts until the fuselages are scrapped. Moreover, unlike fierce competition for prices and quality among domestic makers in bidding, a company can in many cases win discretionally contracts when there are no competitors. In the case of Yamada Yoko Corp., over 90 PERCENT of its defense equipment contracts are discretionary contracts. Cautious views in the ministry It is a standard practice for procurement organizations of other countries to do business directly with Western military manufacturers that are mostly equipped with exporting functions. The involvement of trading firms is reportedly limited to the procurement of components. Military journalist Shinichi Kiyotani, who is knowledgeable about military procurement of other countries, takes a critical view of the Japanese system, saying: "In the case of Japan, everything -- from market research to negotiations to collecting information -- is left to trading houses. Leaving everything to them is too much to tolerate." Defense Minister Shigeru Ishiba has announced a plan to review the present procurement system involving traders. Ishiba's plan comes from a sense of alarm that excessive reliance on trading houses would result in a decline in the information-gathering capability. But there are highly cautious views in the Defense Ministry. A senior official well-versed in procurement transactions said: "The traders' role is to bridge gaps in accounting and contract systems between Japan and other countries. Reexamining the Japanese system would be difficult unless fundamental institutional reform is entailed." Procurement organizations of other countries are diverse, ranging from government organizations to national enterprises, though they are all large in scale. In the United States, procurement is done by the Defense Logistics Agency and the Defense Contract Audit Agency, which employ a total of 70,000 personnel. Britain has also nearly 30,000 personnel for procurement. In contrast, in Japan's Defense Ministry, the Equipment Procurement and Construction Office has only 600 personnel. Kiyotani proposes a national defense equipment procurement company without establishing a large government organization. Kiyotani said: "There would be no problem to establish a stand-alone entity composed of personnel from the Foreign and Defense Ministries, who would all be held responsible for procuring defense equipment." Meanwhile, military analyst Keiichi Nogi noted: "The procurement of arms overseas is ridden with irregularities, as well. It would be more pragmatic to increase the transparency of the current system and strengthen the checking functions." Scandals involving trading firms in the past In the Lockheed scandal and the Douglas-Grumman scandal that came to light in the 1970s, the aircraft makers' maneuverings for the selection by Japan of the P3C patrol aircraft and the E2C early-warning aircraft, respectively, were suspected. In both cases, the truths were not uncovered as the investigators were not allowed to tap into defense secrets, a sanctuary. TOKYO 00005043 004 OF 008 To prevent a recurrence, the then Defense Agency has switched to a system to directly conclude contracts between governments. But the system is prone to cause troubles, such as delayed deliveries. As a result, imports via trading firms are again on the rise. There has been no change in the system that produces collusive ties between foreign makers and trading firms that are strong in collecting information on what the user is likely to select in the future. Although traders have been refraining from treating retired Defense Ministry officials to free golf and wining and dining since the SDF code of ethics took effect in 2000, such practice has not disappeared altogether. (3) Editorial: Moriya's Diet testimony has further deepened suspicions NIKKEI (Page 2) (Full) October 30, 2007 Why was a person like Takemasa Moriya, who lacks a sense of ethics, able to hold on to the administrative vice minister's post for more than four years? A collusive relationship between former Administrative Defense Minister Takemasa Moriya and Nihon Mirise Corp. President Motonobu Miyazaki, a former executive of defense equipment trader Yamada Yoko Corp. was more than we had envisioned. Moriya, however, said that he had provided no favors to Miyazaki. The Diet needs to continue working to shed light on the allegation of inappropriate relations between the two. In his testimony yesterday before the House of Representatives Special Committee on Terrorism Prevention and Assistance for Iraq, Moriya revealed that he had played golf more than 200 times in about 11 years with Miyazaki, who always footed Moriya's bill. Miyazaki also paid for golf outings in Hokkaido, Kyushu and Shikoku regions with Moriya and twice gave Moriya and his wife golf clubs as gifts. When traveling overseas, he bought bags for Moriya's wife as souvenirs. Moriya yesterday apologized for his cozy ties with Miyazaki, saying, "My conduct was unwise and inappropriate." Moriya denied, however, allegations that he had helped Nihon Mirise conclude a discretionary contract with the ministry for the engine of the CX next-generation transport aircraft. He probably considers that Miyazaki entertained him because they were friends, and he had no other intention. We wonder a senior defense equipment trading house executive, who wanted to sell defense equipment to the ministry, spent such a large amount of money to entertain a senior bureaucrat just because they were friends. It is impossible in common-sense terms to entertain for a decade without seeking any rewards. Moriya revealed in his testimony that some politicians joined the entertainment on occasion. Although he avoided mentioning the names of politicians, he stated that former Defense Agency chiefs were included. How much the politicians were involved in the cozy relations between Moriya and Miyazaki will be uncovered. The reason for Moriya having served in the vice minister's post for such a long time is that he had close relations with LDP lawmakers with vested interests in TOKYO 00005043 005 OF 008 defense affairs. It is natural for the politicians in question to come forward if they have nothing to hide. "I feel deeply sorry for the public and for Defense Ministry officials," Moriya said. "I as administrative vice minister feel greatly responsible for causing problems that have delayed deliberations on the antiterrorism measures bill." If what he said is true, he has to honestly cooperate with continued efforts to shed light on the issues. He did not give any clear testimony for the correction of the amount of fuel the MSDF supplied to a US ship, which was also a focus of attention along with the Moriya scandal in his Diet testimony. The Diet has to shed light on this issue as well. (4) Former Defense Minister Kyuma to be hospitalized today MAINICHI (Page 3) (Full) October 30, 2007 Former Defense Minister Fumio Kyuma, a member of the ruling Liberal Democratic Party (LDP),revealed in a meeting yesterday of LDP House of Representatives members held in the city of Yokkaichi, Mie Prefecture that he will be admitted to a hospital today to undergo a dissecting aortic aneurysm surgery. He said: "If I don't have surgery as quickly as possible, I will become like Yujiro Ishihara (actor who died for the same illness). My doctor threatened me to rebuild the aorta with a synthetic graft." He therefore reportedly cancelled the planned overseas trip starting today. It has just been revealed that he was wined and dined in Tokyo by a former executive of defense equipment trader Yamada Corp. (5) EU, 11 states of US and Canada agree to form unified market for trading in greenhouse gas credits ASAHI (Page 9) (Excerpts) October 30, 2007 (Kishi, Kunimatsu, Lisbon) The European Union (EU) and 11 states of the United States and Canada, including California and New York, agreed on Oct. 29 to aim to form a unified market for trading of greenhouse gas credits and signed a political declaration in Lisbon. They will play a leading role in creating an international emissions market in the form of major US and Canadian states joining hands with the EU, which has taken the lead in emissions trading. Once preparations for a new unified market advance quickly under the cooperation between the US and Europe, it will inevitably have some impact on Japan, which has been halfhearted about emissions trading, as well as on negotiations on nation-specific emission-cut plans beyond the 2012 timeframe under the Kyoto Protocol. Japan might be left behind The agreement designed to unify the EU Emissions Trading Scheme (EUETS) and a planned US market is a great step toward forming a global market for carbon dioxide (CO2) that involves the US. If the international market begins to play a main role to reduce greenhouse gas emissions in the future, Japan, which has yet to set up a trading system, could be left behind. Japan is now being pressed to TOKYO 00005043 006 OF 008 determine whether to introduce a cap-and-trade system. The US has not joined the Kyoto Protocol. So even if states in the eastern and western parts of the US introduce the planned system, it will be considerable difficult to connect the US system free from any Kyoto requirements to the EUETS, which is based on the targets set in the Kyoto Protocol. The condition for two markets to be integrated smoothly is that both have the same reduction targets under an international treaty. Given this, the agreement reached this time may back up negotiations to work out a post-Kyoto framework that is also acceptable for the US. The agreement reached between the EU and the US states and Canada, even though no system has been prepared in the US, can be taken as a message urging the US Bush administration and the international community to introduce obligatory reduction requirements, prior to the start of negotiations on post-Kyoto framework in an international conference in Indonesia in December. Japan has yet to introduce a cap-and-trade system due to opposition from industrial circles, which hate emission quotas. But once a global market is formed, the prices of greenhouse gas credits set on the market will be applied in projects designed to reduce CO2 emissions across the world. If only Japanese firms cannot use the system freely, its companies will find it difficult to effectively cut gas emissions. Meanwhile, if Japan fails to meet its target set in the Kyoto Protocol, Japan will have to buy emission quotas on this international market. Japan is urged to discuss the issue of introducing a cap-and trade system. If Japan wishes to join the global market, it should start taking part in the process of forming a system. (6) JBIC to support China's environment policy SANKEI (Page 2) (Excerpts) October 30, 2007 The Japan Bank for International Cooperation (JBIC) has agreed with China's State Environment Protection Administration (SEPA) as of Oct. 29 to assist its measures to protect the environment. Saddled with such serious environmental problems as air and water pollution, as well as desertification, China has suffered grave environmental damage. It is estimated that the annual amount of damage accounts for 5.8 PERCENT of its gross domestic product (GDP). Most of the projects that Japan has carried out in China with its official development assistance (ODA) funds over the past several years are related to environmental protection. Given this, the JBIC decided to offer cooperation in projects to be carried out by the SEPA to improve the environment. Specifically, the JBIC intends to help China develop human resources and to give advice on how to enhance the effectiveness of measures to protect the environment and contain global warming based on ex-post-fact evaluation of policies. The bank is also expected to play a mediatory role between the SEPA and Japan's Environment Ministry on environment-protection regulations. In its 11th five-year program, China sets the goal of enhancing energy efficiency to 20 PERCENT of the nation's GDP by 2011. As seen from this, China is now eager to reduce greenhouse gas TOKYO 00005043 007 OF 008 emissions, reflecting the occurrence of serious health hazards caused by air and water pollution and desertification. In China, although a legal system, such as penalties for environmental contamination, has been arranged, an administrative system to urge people to abide by laws has yet to be prepared. Not only administrative organizations tasked with implementing laws but even people are not keenly aware of the importance of protecting the environment. In local areas, particularly, there are many cases in which plants are not observing the regulations that set the maximum levels of smoke and water discharges. The SEPA asked Japan to cooperate in improving the effectiveness of its projects to improve the environment. Since FY2006 Japan has provided China with new yen loans totaling 62.3 billion yen. All of these loans were allocated to project to improve the environment. (7) TOP HEADLINES Asahi, Yomiuri, Tokyo Shimbun & Akahata: Moriya admits playing golf more than 200 times with former defense equipment trading house executive, says former Defense Agency chief present when wined and dined with former executive Mainichi: Fukuda in meeting today to ask Ozawa to support new antiterrorism legislation Nikkei: Fuji Heavy Industries, Daihatsu eye tie-up on passenger cars Sankei: Fukuda, Ozawa to hold talks today (8) EDITORIALS Asahi: (1) Moriya's Diet testimony: What did Moriya give defense equipment firm executive in return for wining and dining? (2) Expressway tolls: It is too early to introduce tolls based on travel distance Mainichi: (1) Testimony by Moriya: Why was such a person appointed vice defense minister? (2) Japan-ROK environment award: Environmental pollution not an issue of the past Yomiuri: (1) Moriya case irrelevant to new antiterrorism bill (2) Suspension of new station construction is one good model to review public works projects Nikkei: (1) Moriya's testimony has deepened suspicions further (2) Can Minamata disease be resolved with political settlement? Sankei: (1) Moriya's Diet Testimony: Conditions met for discussing main issue (2) Chinese yuan: Greater reform efforts necessary for developed economy TOKYO 00005043 008 OF 008 Tokyo Shimbun: (1) What is Moriya trying to defend? (2) Idea of establishing tourism agency might run counter to administrative reform Akahata: (1) Moriya's Diet testimony has deepened suspicions SCHIEFFER