POSTAL REGULATORY COMMISSION CHAIRMAN BLAIR ENGAGES JAPAN

UNCLAS SECTION 01 OF 02 TOKYO 001445

SENSITIVE
SIPDIS

STATE FOR EAP/J
STATE PASS PRC FOR CHAIRMAN BLAIR
USTR FOR M. BEEMAN, E. HOLLOWAY, AND AUSTR CUTLER
COMMERCE FOR K. ROTH, D. BARZDUKAS AND D. RUTTER

E.O. 12958: N/A
TAGS: ETRD EINT PGOV ECON BEXP JA
SUBJECT: POSTAL REGULATORY COMMISSION CHAIRMAN BLAIR ENGAGES JAPAN
ON ACCOUNTABILITY, TRANSPARENCY

SENSITIVE BUT UNCLASSIFIED. PLEASE PROTECT ACCORDINGLY.


1. (SBU) Summary: Facing declining mail volume and decreased
revenues, Japan Post Service needs to consider new ways to generate
income, Japanese government officials told U.S. Postal Regulatory
Commission Chairman Dan Blair in meetings in Tokyo June 10-12. As
it proceeds with the privatization process begun in 2007, the
government-owned entity is considering new businesses such as
international logistics; according to one GOJ official, allowing
Japan Post to enter into new businesses is "one of the primary
objectives of privatization." Japan continues to weigh the costs of
maintaining its universal service obligations against political
pressures to ensure continued mail delivery in rural and isolated
parts of the country with the need to diversify its income stream.
Chairman Blair's visit provided a useful opportunity to engage the
GOJ on accountability and transparency, as well as on concerns about
cross-subsidization. End summary.


2. (U) Postal Regulatory Commission (PRC) Chairman Dan Blair, while
in Tokyo to participate in a June 9 USG-sponsored symposium on U.S.
postal reform, emphasized in separate meetings with senior GOJ
officials the issues of accountability and transparency, as well as
the role of the PRC as an independent regulator. He explained how
the PRC defines competitive versus market dominant products and how
it addresses concerns such as cross-subsidization in the U.S. Postal
Service system in order to ensure a level playing field with the
private sector. He also emphasized the significant role that the
private sector plays in the U.S. postal industry, particularly
through worksharing arrangements with the U.S. Postal Service.
Chairman Blair met with officials from the Ministry of Internal
Affairs and Communications (MIC),Japan Post Services Co. Ltd., the
Japan Fair Trade Commission (JFTC),the Office for the Promotion of
the Privatization of Postal Services (OPJP),the Council for the
Promotion of Regulatory Reform (CPRR),and the Postal Services
Privatization Committee (PSPC). Chairman Blair also held
discussions with U.S. industry representatives and the American
Chamber of Commerce in Japan (ACCJ),and conducted interviews with
the Nikkei newspaper, TV-Tokyo, and Logi-Biz, an industry
newsletter.

Japan Post Service Enters New Businesses?
--------------


3. (SBU) Japan Post Service needs investment and capital-intensive
infrastructure to maintain efficient and competitive direct mail
service, but lacks adequate resources to innovate, Postal
Privatization Committee (PSPC) Chairman Tanaka told Chairman Blair.
Office for the Promotion of the Privatization of Postal Services
(OPJP) Secretary-General Hideyuki Furikado, another top official,
told Chairman Blair that due to declines in mail volume, there is a
consensus in Japan that Japan Post Service should be allowed to
enter into other businesses to increase its revenue.


4. (SBU) Japan Post Service plans to expand into international
logistics, Japan Post Service Chairman and CEO Norio Kitamura,
reported. Citing his 40 years working at Toyota, Kitamura said
Japan Post Service could grow an international logistics business by
reaching out to Toyota and other manufacturers. A new international
logistics entity could allow Japan Post Service and USPS to
cooperate more closely, he continued. Since Japan Post Service
began privatizing 18 months ago, it does not have access to
government support and would not request it even during difficult
economic times, Kitamura stated. The company is still in the
process of determining how to organize itself and develop as a lean,
competitive organization. Chairman Blair explained that current
U.S. postal laws limit the Postal Service to its core mission of
hard-copy mail delivery.


5. (SBU) The MIC Policy Planning Bureau Director-General Hiroomi
Kira told Chairman Blair it is difficult to "draw a line" between
postal and non-postal businesses, as well as between dominant and
competitive products. Due to a significant decline in volume, Kira
said, it is critical Japan Post starts new services; in fact, "one
of the primary objectives of privatization is to allow Japan Post to
enter into new businesses." Kira said a new international logistics

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business, a joint venture between Japan Post Service and the private
company Sankyu, would compete with the private sector.

Cross-Subsidization, Transparency and Accountability
-------------- --------------


6. (SBU) Tanaka, the Chairman of the PSPC, noted express mail
industry players remain suspicious that Japan Post cross-subsidizes
its businesses. For this and other reasons, the PSPC continues to
focus on the need for greater transparency and open disclosure.
Japan Post Service needs to disclose more information regarding its
postal operations, Tanaka added. Separately, MIC's Director-General
Kira said MIC will focus on transparency and at an arm's length
transactions between Japan Post Service and Sankyu.


7. (SBU) Though the JFTC has no official position on Japan Post
Service's plan to start an international logistics business, the
JFTC emphasized the importance of equal footing with other players,
JFTC Deputy Secretary-General Toru Aizeki told Chairman Blair.
Privatization means giving freedom and latitude rather than trying
to restrict activities of players in the market, Aizeki claimed.

Universal Service Obligation
--------------


8. (SBU) An overarching challenge for postal privatization is how
best to define universal service, PSPC Chairman Tanaka said.
Council for the Promotion of Regulatory Reform (CPRR) member Ushio
Chujo said the CPRR continues to monitor MIC's approach to the
universal service obligation. (Note: In September 2008, the CPRR
ordered MIC to establish a study group on universal service.
Meetings are on-going and the final report is due in approximately
March 2010. In the June 15 meeting of the MIC Study Group on
Universal Services, the Conference of Asia Pacific Express Carriers
(CAPEC) (an organization of express mail carriers DHL, FedEx, TNT,
and UPS) requested a more level playing field and equal conditions
of competition. The study group's final recommendations could have
substantial implications for the U.S. express mail industry in
Japan. Though some of the study group's meetings have been open to
the public, industry remains skeptical about whether MIC and other
players will be able to live up to the ideals of transparency,
accountability, and maintenance of equal conditions of competition.
End note.

Comment:
--------------


9. (SBU) Chairman Blair's visit provided an extremely useful
opportunity to engage the GOJ in a non-adversarial manner by
offering an expert's perspective on how we handle postal reform
issues in the United States. That a MIC universal study group
member said the group is looking at the PRC's accounting methods as
a possible example for Japan is one example of how this visit may
have helped advance our agenda for the GOJ to address level playing
field concerns associated with the Japan Post's 10-year
privatization process. End comment.


10. (U) Chairman Blair cleared this message after departing Tokyo.

ZUMWALT