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.

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"Working-level Talks" Not Renewed Negotiations
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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

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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.

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"Industrial Cooperation" Korean Condition for Renewed
Negotiations
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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.

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Comment
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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

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progress will be glacial.
SCHIEFFER