MARGINAL PROGRESS ON RESTARTING JAPAN-KOREA TRADE

C O N F I D E N T I A L SECTION 01 OF 03 TOKYO 001139 SIPDIS SIPDIS STATE PASS USTR FOR CUTLER, BEEMAN NSC FOR TONG COMMERCE FOR 4410/ITA/MAC/OJ TREASURY FOR IA - POGGI E.O. 12958: DECL: 04/24/2018 TAGS: ETRD ECON PREL PGOV JA KS OECD SUBJECT: MARGINAL PROGRESS ON RESTARTING JAPAN-KOREA TRADE TALKS Classified By: Amb. J. Thomas Schieffer. Reason: 1.4 (b,d) ¶1. (C) Summary: Despite a decision to engage in working-level discussions with Japan, Korea is hesitant to restart full negotiations on a trade agreement, according to an official of Japan's Ministry of Economy, Trade, and Industry (METI). The Koreans hope to establish "industrial cooperation" with Japanese business that would transfer technologies or operations in key parts or materials to Korea as a precondition for resuming formal talks on a broader agreement. Such a proposition has no appeal to either the GOJ or Japanese companies. Consequently, while there is again some movement toward a Japan-Korea agreement, progress overall is likely to be extremely slow. End summary. -------------- - "Working-level Talks" Not Renewed Negotiations -------------- - ¶2. (U) In their April 21 joint press conference and accompanying press release issued by Japan's Ministry of Foreign Affairs (MOFA),Japanese PM Yasuo Fukuda and South Korean President Lee Myung-bak announced plans for "working-level consultations" in June aimed at possibly restarting formal negotiations on a bilateral economic agreement. The two leaders also agreed to urge consideration by Korean and Japanese industry of greater interaction in the field of "parts and materials." President Lee, in fact, indicated Korea would consider establishing specialized industrial parks designed to attract investment from Japanese manufacturers in these industries. ¶3. (C) In preparing the joint press statement, the Koreans were very hesitant even to indicate the working-level discussions in June might lead to resumed formal negotiations on a trade agreement, METI Northeast Asia Division Director Shigeaki Tanaka told econoff April 22. (These negotiations have been suspended since November 2004.) The June discussions are labeled "preparatory" -- an absurdity, Tanaka acknowledged, as formal negotiations, though suspended, had begun years earlier. The Korean side, however, had shied away from announcing any purpose for the exercise beyond "creating an environment" to restart negotiations. The Japanese fought hard with their Korean counterparts up to the day before Lee's visit to be sure the joint statement included some reference to "consideration" (kentou) of renewed negotiations, Tanaka said. ¶4. (C) In addition, the ROK insisted the participants in the June meeting rank no higher than "division director" (equivalent to an office director in a U.S. federal government agency) although the GOJ continued to dispute this point. According to Tanaka, the Japanese side preferred to raise the level of the June talks to deputy director-general (deputy assistant secretary equivalent). In the GOJ, this higher representation would facilitate the restart of full negotiations at the vice minister level. For the moment, MOFA Japan-Korea Economic Affairs Division Director Takeshi Akahori is slated to lead the Japanese side. If the Koreans agreed to raise the level of the talks, however, MOFA Asian and Oceanian Affairs Bureau Counselor Kazuhide Ishikawa will head Japan's delegation, Tanaka stated. ¶5. (C) Comment: MOFA leads the Japanese teams in TOKYO 00001139 002 OF 003 all bilateral trade negotiations, with other ministries sending representatives as necessary, although METI obviously plays a key role. Normally, MOFA's Economic Affairs Bureau -- in particular, the Economic Partnership Division -- acts as the focal point for these talks. The fact an official of MOFA's Asia Bureau, a regional bureau whose role would usually end with the opening of formal negotiations, is expected to head the Japanese side in the June discussions with Korea seems to signal a bureaucratic step backward in the negotiating process. End comment. -------------- -------------- "Industrial Cooperation" Korean Condition for Renewed Negotiations -------------- -------------- ¶6. (C) Tanaka stressed the ROK wants to secure some form of "industrial cooperation" between Japanese and Korean industries in the area of parts and materials, items which make up a substantial portion of Korea's chronic trade deficit with Japan. The Korean side, in fact, broached the idea of creating a "consultative body" between the two countries' manufacturers to further this objective. Tanaka said he and METI Trade Policy Director-General Hiroyuki Ishige raised this idea with Japanese industry representatives who quickly dismissed it. Japan's position, Tanaka argued, is that Japanese suppliers of parts and materials complement Korea's producers whose well- known brands are strong in the retail and after- service end of the production chain. ¶7. (C) Any movement toward a formal restart of trade agreement negotiations with Korea, Tanaka believed, would need to advance in tandem with progress on the kind of "industrial cooperation" Korea seeks. In the GOJ's view, Korea would have little incentive to work toward a broader trade pact if it gained "industrial cooperation" prior to the restart of formal negotiations. Nevertheless, although the GOJ shares the preference of most Japanese manufacturers to keep their high-value components and materials production in Japan, participation in such an arrangement with Korean business would be a private decision on the part of individual firms. The GOJ would not block companies from establishing operations in Korea, Tanaka said. He also thought statements from the Korean side hinting neither country is ready to conclude an agreement were largely tactical on the part of the Korean negotiators who need to be seen taking a hard line in order to deal with domestic opponents of any deal with Japan. -------------- Comment -------------- ¶8. (C) Although the decision to move ahead with working-level consultations on a trade agreement represents progress from the nearly four years of stasis, it is a far cry from full negotiations. Despite the improved political atmosphere between Japan and Korea, the economic realities have not changed, and the ROK, as arguably the disadvantaged partner in the relationship, appear to want something tangible to level the playing field before restarting work toward a broader agreement, a proposition of little or no interest to the Japanese. If the two sides do advance, the betting right now is any TOKYO 00001139 003 OF 003 progress will be glacial. SCHIEFFER