ACCJ ADVISES TARGETED APPROACH ON INVESTMENT

C O N F I D E N T I A L TOKYO 000612 SIPDIS SIPDIS DEPT FOR EAP: HASLACH DEPT FOR EEB: DIBBLE, BYERLY, AND KAMBARA NSC FOR TONG DEPT PASS USTR FOR CUTLER AND BEEMAN USDOC FOR 4410/ITA/MAC/OJ/NMELCHER JUSTICE FOR ANTITRUST DIVISION - CHEMTOB TREASURY DEPT FOR IA/CARNES AND POGGI GENEVA FOR USTR E.O. 12958: DECL: 03/07/2013 TAGS: EINV ECON OECD JA SUBJECT: ACCJ ADVISES TARGETED APPROACH ON INVESTMENT REF: TOKYO 408 Classified By: Ambassador J. Thomas Schieffer. Reason 1.4 (b)(d) ¶1. (C) Summary: American Chamber of Commerce in Japan (ACCJ) President Allen Smith urged the Embassy and the USG to move carefully in lobbying Japan on investment issues at this politically sensitive time. "Rather than a strategy of 'gaiatsu', this was the time for 'shiatsu'", he advised. U.S. government and business leaders should seek out opportunities to ally with pro-reform elements in Japan to push common agendas. The ACCJ will raise the issue of Japan's investment climate with Washington interlocutors during its "DC Doorknock" scheduled for mid-April. End Summary ¶2. (C) ACCJ President Allen Smith, who is also General Counsel of AIG Japan, in a March 7 conversation with EMIN agreed the current political situation in Japan has resulted in a lack of leadership on reform issues. Concern among voters about the negative impact of past reforms has reinforced the cautiousness of political leaders, but this was difficult to counteract through diplomatic or business lobbying. ¶3. (C) In the current climate, a strategy of "gaiatsu" (foreign pressure) was unlikely to be effective and, in fact, could be counterproductive. A confrontational strategy that focused on emotional issues would likely trigger a defensive response and only slow down progress. ¶4. (C) A more effective strategy, in Smith's view, would be "shiatsu", the name of a popular massage technique that promotes better health through targeted application of force on a body's key pressure points. There are Japanese opinion makers who continue to promote reform and U.S. government and business leaders should look for ways to ally with them to advance similar interests. Among recent positive developments Smith identified were the defeat of the MLIT-proposed restrictions on foreign investment in Japan's airport operators and the appointment of a Cabinet Office Investment Experts Group, of which Smith is a member. ¶5. (C) A "shiatsu" investment strategy would focus on technical issues where changes can have a real impact on liberalization of Japan's M&A market. Examples of such issues that are important to ACCJ members are the ability to conduct tax-free acquisitions and corporate restructurings, improvements to corporate governance, such as requiring a Japanese-listed company to have a minimum number of independent directors on its board, and the ability for firms to conduct M&A in Japan without an existing Japanese subsidiary. ¶6. (C) Smith noted that the new Investment Experts Group would address all these issues in its current discussions. He offered to facilitate introduction of USG views into the group's deliberations ¶7. (C) Comment: We have heard similar warnings against a "gaistsu" strategy in recent meetings with Diet members. In the weeks ahead, we will seek to identify key reform leaders with which we can work to advance a practical, pro-reform agenda. SCHIEFFER