DNSA PRICE ENGAGES JAPANESE ON DOHA, BEEF, CHINA,

C O N F I D E N T I A L SECTION 01 OF 04 TOKYO 005655

SIPDIS

SIPDIS

E.O. 12958: DECL: 12/27/2017
TAGS: ECON EFIN PREL KGHG EAGR ETRD SENV JA
SUBJECT: DNSA PRICE ENGAGES JAPANESE ON DOHA, BEEF, CHINA,
CLIMATE


Classified By: CDA Joseph R. Donovan for reasons 1.4 b/d.

Summary
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1. (C) Assistant to the President and Deputy National
Security Advisor for International Economic Affairs Daniel
Price directly engaged Japanese politicians, business
figures, and officials in Tokyo December 5 - 7 on the margins
of the U.S./Japan Sub-Cabinet meetings and stressed the need
to avoid drift and for Japan to join us in working to ensure
our bilateral economic relations measure up to the promise
inherent in our political relationship and the size and
breadth of our economies. Specific issues DNSA Price raised
in the meetings included the need for progress in the Doha
Development Agenda, bilateral disputes over beef, medical
devices and pharmaceuticals, cooperation on engaging China,
climate and energy, and Japan's economic reform measures,
including in terms of boosting foreign investment. End
summary.

Engaging Japan on Multilateral and Bilateral Trade,
Economic Reforms, and Climate
-------------- --------------


2. (SBU) Assistant to the President and Deputy National
Security Advisor for International Economic Affairs (DNSA)
Daniel Price met Nomura Securities Chairman Junichi Ujiie,
ruling Liberal Democratic Party (LDP) Policy Research
Council Chairman Sadakazu Tanigaki, Ministry of Economy,
Trade, and Industry (METI) Vice Minister Masakazu Toyoda,
Ministry of Health, Labor, and Welfare (MHLW) Vice Minister
Takeshi Erikawa, and former LDP Secretary General Hidenao
Nakagawa in separate meetings on the margins of the
U.S.-Japan Sub-Cabinet. He also met Minister of State for
Economic and Fiscal Policy Hiroko Ota (reported septel).


3. (C) DNSA Price engaged Japanese interlocutors on the Doha
Development Round, beef, medical devices and pharmaceuticals,
climate change and energy policy, and Japanese domestic
economic reform. His key messages included that the
President's highest international trade priority is the
successful conclusion of the Doha Round and that Japan's
agricultural interests are holding it back from necessary
reform and from engaging fully in international negotiations.
He reiterated as well that Japan and the U.S. can and should
do more to energize bilateral economic relations and
cooperate on a broad range of global and multilateral issues,
including climate change/meeting the world's energy needs and
engaging China.


4. (C) Price rebuffed GOJ arguments for a slow phase-in of
imports of U.S. beef (starting with raising the age limit to
30 months) and insisted Japan and the U.S. work toward
setting a date certain to imports of all ages and cuts of
U.S. beef based on OIE-approved international guidelines. In
discussions of medical devices and pharmaceuticals, he
focused on the role innovation plays in both the Japanese and
U.S. economies, pointing out how Japan's plans to control
healthcare costs by reducing reimbursements will undercut
incentives for innovation and ultimately lead to decreased
availability of life-saving drugs in Japan.

Beef and Agricultural Interests
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5. (C) Explaining Japan's position on beef, Diet Member and
LDP Policy Research Chairman Tanigaki said Japan was only at
the beginning of discussions on relaxing import restrictions.
He agreed a solution needs to be reached as soon as
possible, but added further scientific evaluation was
necessary. Noting that the loss of traditional rural
supporters had contributed to the LDP's defeat in July's
Upper House elections, Tanigaki said the LDP wants to
liberalize markets to make agriculture more competitive.

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However, the party cannot ignore voters.


6. (C) Former LDP Secretary General and Diet Member Nakagawa
suggested a "two-step process" to resolve the beef issue,
starting with raising the age limit for cattle to 30 months.
DNSA Price pointed out, however, that many in the U.S. are
apprehensive the second stage of such a plan would never
arrive. Illustrating how GOJ actions perpetuate such fears,
Price noted how a MHLW Vice Minister at the Sub-Cabinet
meetings had rejected a U.S. proposal to discuss an
information exchange on risk analysis in connection with
improving food safety -- without even reading the proposal.
Nakagawa responded with a single word -- "understood" --
before promising to encourage a more constructive approach
from the bureaucracy.

Medical Devices and Pharmaceuticals
--------------

7. (C) Regarding pricing and other issues negatively
affecting medical devices and innovative pharmaceuticals,
MHLW Vice Minister Erikawa agreed with DNSA Price that
innovation is important, and noted Japan's efforts to cut
approval times for new drugs and medical devices. Erikawa
observed drug prices in the United States are based on market
forces, but that the government sets prices in Japan.
Erikawa asserted, without providing any new support for the
argument, that Japan's "special repricing" rule that cuts the
prices of best-selling drugs is fair, is not harmful to
companies experiencing the reductions, and would not reduce
incentives for manufacturers to market drugs in Japan. DNSA
Price, along with Commerce's Acting Under Secretary Padilla,
emphasized measures that prevent companies from recouping
their research and development costs, and thereby reduce
incentives for innovation, are ultimately harmful to new drug
development and availability.

China
--------------

8. (C) On the need for closer cooperation to foster China's
constructive participation in the international economic
system, METI Vice Minister Toyoda told DNSA Price that Japan
is much more integrated economically with China than the
United States, which makes it harder to confront China on
economic issues. He said pushing Beijing to lift equity caps
was difficult, for instance, because the Japan Business
Federation (Keidanren) does not want "instability" in China.
Nonetheless, Toyoda said Japan is persuading China to speed
up the appreciation of the yuan. (Note: Japan and China have
since seen a diplomatic tiff over China's unilateral deletion
of language regarding the yuan's appreciation from a joint
communique. See septel. End note.) Toyoda also stressed
the need to reach out to a number of ministries in China in
order to seek solutions to problems; the GOJ side dealt with
ten ministries in China in addressing intellectual property
concerns. Reacting to DNSA Price's points on concerns EU
Commissioner Mandelson and others had raised during the
U.S./EU Transatlantic Economic Council meeting, Toyoda was
pleased the current EU leaders are more wary about China than
their predecessors had been.


9. (C) Nomura Chairman (and Keidanren official) Ujiie
particularly stressed taking a cautious approach to China.
He commended Treasury Secretary Paulson's recent speech on
China's need to further open financial markets, but said
there is great danger in pressing for too much too fast,
because China's "fragile equilibrium" could be shattered by
excessive reform. Ujiie asserted any turmoil would
disproportionately hurt Japan, since China is now Japan's
largest trading partner. Price said that, to the contrary,
the danger lies in moving too slowly.

Doha Development Agenda
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10. (C) METI Vice Minister Toyoda told DNSA Price Japan wants
the DDA concluded in time for President Bush to sign the
completed agreement and the current Congress to approve it.
However, when challenged on how continued over-attention to
domestic agricultural interests hinders Japan from taking a
leadership role or achieving all it could for its
manufacturing and service sectors, Toyoda asked if the
Administration could secure trade promotion authority (TPA)
and argued partners feel the lack of TPA raises questions
about the USG's seriousness. DNSA Price strongly
remonstrated against using TPA as an excuse to do nothing.
An agreement worth signing would have broad support from the
private sector and would warrant TPA, continued Price, and
Japan should not underestimate its own role in making an
agreement easier or more difficult to achieve. Toyoda
ultimately acknowledged METI's role and suggested vaguely
that "if you can be flexible on one or two things, we can
help."

Energy, Climate, a post Bali Roadmap and the G8
-------------- --

11. (C) In discussing climate and energy, LDP Policy Research
Chairman and Diet member Tanigaki highlighted the need for
China and India to be part of the dialogue on global warming
and the environment. He added without U.S. leadership, they
would not participate. Explaining he had taken part in the
Kyoto Protocol negotiations, Tanigaki observed that there was
room for new measures to counter increased greenhouse gas
emissions and, as an example, suggested farmland could be
included as a carbon sink. Tanigaki also asked for DNSA
Price's help as the U.S. Sherpa to make the 2008 G8 Summit a
success.


12. (C) METI Vice Minister Toyoda said Japan is pushing to
establish an ad hoc working group in the UN Framework
Convention on Climate Change for discussion of a post-Kyoto
framework with the goal of presenting an effective
pledge-and-review process (versus the binding commitments
being pushed by Europe). Toyoda's "pledge and review, and
recommendation, and assistance" mechanism would allow
emerging economies to commit to greenhouse gas reduction
measures. Japan, the U.S., and the EU could then provide
assistance to help finance new technologies to cut energy
use, green house gas emissions, and so forth, as long as
intellectual property rights were respected. DSNA Price
pointed to the U.S./Japan factsheet on energy security, clean
development, and climate change as embodying principles on
which we should be able to move forward, noting that the
architecture of a future agreement "how the elements fit
together" would be the subject of the next Major Economies
Meeting in January.

Japanese Economic Reform
--------------

13. (C) The Japan Business Federation (Keidanren) is
reluctant to press the government on economic reforms for
fear of destabilizing the Fukuda government, Nomura Chairman
Ujiie told DNSA Price. Keidanren had advocated previously
for an Economic Partnership Agreement (similar to an FTA)
with the United States, but now the organization fears the
political consequences of taking a forward-leaning stance.


14. (C) Former LDP Secretary General Nakagawa judged the
political situation as just as fragile, but took a more
optimistic outlook. Saying his "gut feeling" was that
Japan's next Lower House election would take place in the
first half of 2008, Nakagawa said he hopes to visit the
United States after the election. Relations could be
"recharged" then by emphasizing the vital importance of
bilateral ties and the benefits both sides could receive from
strengthening and deepening economic ties.


15. (U) The Assistant to the President cleared this message

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subsequent to his departure from Tokyo.
DONOVAN