JAPAN DISCUSSIONS OF TRILATERAL ECON TIES FOCUS ON

C O N F I D E N T I A L SECTION 01 OF 03 TOKYO 000912

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SIPDIS

STATE PASS USTR FOR AUSTRS CUTLER AND STRATFORD
USTR ALSO FOR BEEMAN, WINTER
STATE ALSO FOR E, OES, EEB, AND EAP/J
GENEVA ALSO FOR USTR
NSC FOR TONG
TREASURY FOR AMB HOLMER, TSMITH,
TREASURY ALSO IA/DOHNER, WINSHIP, POGGI, CARNES

E.O. 12958: DECL: 04/02/2017
TAGS: ECIN ENRG EINV PREL ETTC JA CH KS OECD
SUBJECT: JAPAN DISCUSSIONS OF TRILATERAL ECON TIES FOCUS ON
CHINA


Classified By: DCM Joseph R. Donovan. Reason: 1.4 (b,d)


1. (C) Summary: Japan's desire to leverage cooperation
with the U.S. in dealing with China figured prominently in
discussions March 27 between Japanese officials and visiting
economic section heads from Embassies Beijing and Seoul. On
climate change, for example, the GOJ wants U.S. assistance in
finding incentives to encourage action by emerging economies,
notably China. Convincing China to grant full national
treatment for investors and to improve its overall business
climate were additional areas put forward for possible
cooperation between the U.S. and Japan. At the same time,
GOJ officials remained cautious about moving quickly with the
U.S. on APEC-based initiatives for regional economic
integration and on possible WTO cases against China.
Although they generally welcomed improved overall relations
between Japan and South Korea, none of the senior GOJ
officials handling economic issues we met exhibited a sense
of urgency to move that relationship forward. End summary.

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Environment Ministry Seeks Emerging Economy Incentives
on Climate Change
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2. (C) Ministry of Environment Councilor for Global
Environment Ryutaro Yatsu told the EMINs from Embassies
Beijing, Seoul, and Tokyo March 27 Japan wants to strengthen
bilateral cooperation with the U.S. on climate change. Japan
seeks a "concerted effort (with the U.S.) toward emerging
economies and developing countries" for the Lake Toya G-8
Summit, Yatsu said. To that end, the PM's Special Advisor,
Hiroshi Okuda, will travel to China to obtain further climate
change commitments for the China-Japan summit in May.
(Okuda, a former president of Toyota, advises PM Fukuda on
climate change.) Japan also wants to encourage Korea to
become an Annex I country -- i.e., to take on developed
country responsibilities -- under the United Nations
Framework Convention on Climate Change (UNFCCC). After all,
Yatsu continued, Korea joined the OECD immediately after
signing the UNFCCC. He said PM Fukuda is to discuss this
matter with Korea,s new president at their upcoming
bilateral summit.


3. (C) Yatsu also raised the intellectual property concerns
surrounding efforts to transfer clean energy technology to
developing countries and the need to set up new mechanisms to
support action in these countries on climate change. He said
the sector-based approach to reducing emissions that Japan
advocates will be a major topic of discussion at the next
Major Economies Meeting in Paris and suggested the U.S. and
Japan work to determine what our industries can do to
encourage developing countries to take sectoral action.

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Foreign Ministry: Investment, Energy Possible Areas
for Cooperation on China; Cautious on Korea Trade
Agreement and FTAAP
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4. (C) Despite improved Japan-China relations, China's
refusal to accept the principle of national treatment in the
pre-establishment phase on investment has slowed progress
toward a three-way investment agreement among Japan, China,
and South Korea, according to MOFA Deputy Director General
for Economic Affairs Sumio Kusaka. Kusaka suggested the U.S.
and Japan could work together to change China's hard line on

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this issue. Second North America Division Director Noriyuki
Shikata suggested, apart from investment, Japan and the U.S.
might also look to cooperate in helping improve intellectual
property protection in China, particularly through efforts at
the local level, and in finding ways to have China
participate in the International Energy Agency (IEA) even
though it is not an OECD member. Kusaka observed China has
focused on more on limiting Taiwan's interaction with the
OECD than on working toward its own eventual membership in
the organization.


5. (C) Restarting Japan-Korea "economic partnership
agreement" (EPA) negotiations could prove problematic, Kusaka
said. The improved political environment between Tokyo and
Seoul has not changed the fundamental economic issues
affecting the ability of the two sides to reach an agreement.
Kusaka acknowledged Korea, which runs a large and chronic
trade deficit with Japan, will want significant Japanese
concession on market access in areas such as agriculture and
automobiles in order to renew the talks. Furthermore, the
Korean side likely will want to focus first on ratification
of the KORUS FTA and Korea's ongoing negotiations with the EU
rather than complicate these discussions by launching a new
effort with Japan, Kusaka surmised.


6. (C) Regarding future regional economic architecture,
Kusaka noted there is already agreement within APEC to
study the concept of a Free Trade Area of the Asia-Pacific
(FTAAP). He posited a small group of like-minded countries,
centered on the United States and Japan, might work toward
creating such a trans-Pacific economic agreement. With
elections in the U.S., however, discussions between the two
countries on this idea can take place only at the working
level right now, Kusaka asserted. The MOFA APEC Office
Director, Mitsuyo Shino, added there is no need to report out
ideas on FTAAP this year. Rather, it is important right now
to remain open to all possible models, she stressed.

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METI: Trilateral Investment Negotiations Will Last
Years; Focus on Improving Business Climate, Not WTO
Litigation
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7. (C) Japan's goals in the trilateral investment agreement
negotiations center on China, Ministry of Economy, Trade, and
Industry (METI) Trade Policy Director-General Hiroyuki Ishige
indicated during his meeting with the economic
minister-counselors. In addition to pre-establishment
national treatment, the GOJ wants China to agree to expanded
use of international investment dispute settlement
mechanisms, elimination of performance requirements on
foreign investment projects, and increased administrative
transparency. The general sense in METI, however, is
negotiating the agreement will take years because, as the
Chinese have highlighted in the talks to date, there are so
many measures -- at the local as well as the national levels
-- that do not conform to national treatment principles.


8. (C) Advocacy for change in Chinese policy on rare earth
exports, addressing China's demand for high technology
products and systems, and efforts to improve the business
climate in China are other possible areas of U.S.-Japan
cooperation, Ishige suggested. He characterized China's
export quotas on rare earths as a probable violation of its
WTO commitments but noted fears of Chinese retaliation made
Japanese firms hesitant to call for WTO dispute settlement of

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the issue, and a decision by China to increase export quotas
last year had also relieved pressure on the GOJ to launch a
case in Geneva. During the December 2007 High-level Economic
Dialogue, the PRC had also asked Japan to agree to a list of
technologies the GOJ would authorize for export to China,
Ishige recounted. Part of the Chinese argument for their
request, he reported, was that the U.S. had already
established such a set of guidelines with Chinese
authorities. Ishige also broached the idea of greater
U.S.-Japan cooperation on improving the business environment
in China. He indicated METI is interested in doing a public
study contrasting conditions in China with those in other
Asian countries as a way to put pressure on China. Ishige
wondered whether the USG had undertaken any similar research.



9. (C) When negotiations on the economic partnership
agreement with Korea were suspended in 2004, no one believed
the hiatus would be as long as it has been, Ishige said.
Even though Korea's new President, Lee Myung-bak, and PM
Fukuda had both indicated a desire to restart the talks,
other Korean officials had been less positive, citing Japan's
failure to make concessions on agricultural trade. The GOJ
hoped to use President Lee's planned April 21 visit to Japan
to push for renewed negotiations.

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Comment
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10. (C) Dealing with China -- notably the difficulties in
doing so -- was the common thread in the remarks by GOJ
officials March 27. While the Japanese officials we spoke
with seemed pleased at the prospect of improved overall
relations with Korea, they exhibited no urgency with respect
to moving the economic relationship forward. On China,
however, the Japanese officials have a specific list of
topics in mind where they might want to cooperate with the
U.S., but without a broader strategy to increase economic
integration and mutual trust among the three major Northeast
Asian economies.


11. (U) Embassies Beijing and Seoul cleared this message.
SCHIEFFER