APEC SENIOR OFFICIAL KURT TONG'S MEETINGS ON APEC,

UNCLAS SECTION 01 OF 03 TOKYO 002358 SENSITIVE SIPDIS STATE FOR E, EEB, EAP/EP AND EAP/J NSC FOR JIM LOI USTR FOR WENDY CUTLER, ARROW AUGEROT, AND MICHAEL BEEMAN E.O. 12958: N/A TAGS: ECON EINV PGOV PREL APECO JA SUBJECT: APEC SENIOR OFFICIAL KURT TONG'S MEETINGS ON APEC, U.S.-JAPAN RELATIONS AND INVESTMENT ¶1. (SBU) SUMMARY: Acting U.S. Senior Official for APEC Kurt Tong emphasized the need to focus on discrete outcomes rather than process in U.S.-Japan economic relations, as well as in setting the agenda for consecutive APEC host years, during meetings with senior GOJ officials in the Ministry of Foreign Affairs (MOFA) and Ministry of Economy, Trade and Industry (METI) on October 2. MOFA and METI interlocutors said new PM Hatoyama is interested in realizing specific outcomes from Japan's year as APEC chair in 2010; the GOJ's stance on APEC engagement would focus on regional economic integration (trade and investment liberalization),climate change (the "Hatoyama Initiative") and themes of balanced, inclusive and sustainable growth. MOFA officials asked that the United States amplify its rhetoric regarding the importance of APEC in discussions with Japanese political-level officials, as a way of reminding Japan not to promote East Asian economic architectures that exclude the United States. MOFA officials stressed the Government of Japan still regards the G8 as a key economic and political forum to address the world's challenges and seeks a strong, independent G8 that can operate independently, as needed, from the G20. END SUMMARY. APEC 2010 AND KOREA G20 MEETING -------------- ¶2. (SBU) MOFA Deputy Director General for Economic Affairs (and APEC Senior Official) Kenji Hiramatsu said Japan needs to do more to promote regional economic integration and that APEC serves as a vehicle for Japan to further open its economy. Hiramatsu added that he had briefed PM Yukio Hatoyama on APEC and told the PM APEC is an important way for the U.S. to be involved in the region. Hatoyama, according to Hiramatsu, believes Japan can be a bridge for the United States to Asia and that the East Asian Community (EAC),an idea which PM Hatoyama first raised on the sides of the UN General Assembly in New York, could somehow be this bridge. Tong explained that USG officials are skeptical of the EAC and the challenges it poses for the region. Tong added that Asian-only approaches are not likely to be successful in achieving economic policy breakthroughs, and that some in Washington interpreted the EAC as a way of "keeping the United States out of Asia." Hiramatsu stressed PM Hatoyama knows the United States is committed to Asia, but suggested that the United States step up its rhetoric regarding the value of APEC in order to underscore the importance of key modalities that support U.S. engagement in Asia. ¶3. (SBU) Hiramatsu stressed that the GOJ feels strongly that the Korea G20 summit should follow Japan's APEC Leaders' Summit in November 2010. MOFA, in particular, is concerned that issues such as climate change, sustainable growth, and WTO/Doha will get lost if the G20 macroeconomic and financial discussions occur before Yokohama. Hiramatsu said APEC is always in the PM's talking points, as are sustainable growth and energy and climate. Tong said the "Hatoyama Initiative" is a great idea for developing countries, particularly the adaptation component, and presents an opportunity for the Pacific Island nations, for example, to participate in APEC climate change work programs. ¶4. (SBU) Separately, METI Director-General for International Trade Policy (and METI APEC SOM Chair) Hidehiko Nishiyama explained that the Japanese Government is working hard to distinguish APEC topics and G20 topics. METI is concerned that Japan's APEC year and Korea's G20 host city will conflate the two organizations, hurting APEC's image. METI would like the APEC Leaders' Meeting to convene before the G20 Summit so that APEC issues are highlighted in Japan and G20 global financial issues are highlighted in Korea. Tong urged the Japanese Government to work with its colleagues in Seoul to resolve the timing issue as soon as possible. ¶5. (SBU) Deputy Foreign Minister Yoichi Otabe also raised the November 2010 timing issue, stating PM Hatoyama wants the APEC Leaders' Meeting to take place prior to the G20 summit in Korea. He said Japan values the renewed interest in APEC the United States is showing. Tong explained U.S.-Japan coordination on APEC is reassuring everyone that we are both engaged in the region and that we share an interest in Asia-Pacific integration. Embassy Tokyo,s Deputy Chief of Mission Jim Zumwalt told Otabe that it is important for the new DPJ government to have close communication with the USG, particularly on topics such as the East Asia Community proposal. Otabe said he is regularly briefing the PM TOKYO 00002358 002 OF 003 concerning APEC and the close cooperation between the United States and Japan. He added it is welcome that the U.S. is making renewed efforts in Asia. DFM OTABE ON THE FUTURE OF THE G8/G20 -------------- ¶6. (SBU) Deputy Foreign Minister Otabe reported that Japan was "shocked" by President Obama's statement in Pittsburgh that the G20 is now the premier fora for international cooperation. Otabe said France recognizes the importance of the G8, and others value the work completed during the financial crisis -- stimulus package coordination; revision of the International Financial Institutions; etc. Otabe said Japan wants a strong G8 independent from the G20, and added that the G20 needs to prove it is viable in the future. He asserted G20 members are not prepared to work on issues such as Iran and North Korea, and stressed Japan would oppose the idea of a caucus within the G20 to address political and security issues. REGIONAL ECONOMIC INTEGRATION -------------- ¶7. (SBU) Hiramatsu said Japan views Regional Economic Integration (REI),the Trans-Pacific Partnership (TPP),the Free Trade Agreement of the Asia-Pacific (FTAAP) as the keys to Japan's chairmanship of APEC in 2010. Japan will push Singapore on services this year in the hope that it will build momentum for the REI agenda in Japan's year. Japan has talked to Indonesia about its plans to handle review of the Bogor Goals, and Hiramatsu expects no problems with the agreed-upon Japan-Indonesia plan winning APEC-wide endorsement. Tong reiterated the USG likes Japan's approach. Regarding inclusive growth, Tong said he hopes APEC will focus on its strengths, specifically worker retraining, micro finance, SME assistance and education. Tong also suggested the U.S. and Japan search for illustrative examples of successes to show inclusive growth to our domestic audiences and to show off APEC's relevance. APEC MEMBERSHIP -------------- ¶8. (SBU) METI International Economic Affairs Director Yasuhisa Nakao said Australia and New Zealand are lobbying Japan to put India's APEC membership application on the agenda for 2010. Tong explained that tackling the membership item rashly, too early in the 2010 year, could result in substantive paralysis at APEC meetings. Instead, he encouraged "informal" participation for non-APEC members in specific APEC events so that membership is not a focal agenda item and so that non-members could contribute to the discussions. DG SUZUKI SAYS DPJ FOCUSING ON SHORT-TERM GOALS -------------- -- ¶9. (SBU) Economic Affairs Director General Yoichi Suzuki told Tong that MOFA has "no real clear sense of direction" on where Japan's foreign economic policy will go with the DPJ, but added Japan is looking for discrete results via APEC and other fora. He agreed that any bilateral economic dialogue should be "results oriented." Suzuki said Foreign Minister Katsuya Okada had requested a interagency meeting on trade, but that one has not been scheduled. In response to Tong's point that the East Asia Community proposal should not neglect the United States and APEC, Suzuki explained PM Hatoyama and FM Okada both know APEC was created to strengthen the Asia-Pacific region. Suzuki cited Australian PM Rudd's comments to PM Hatoyama in New York as evidence of this fact; "Asia can't integrate without the United States; it is unthinkable." METI PERSPECTIVES ON THE INVESTMENT WORKING GROUP -------------- -------------- ¶10. (SBU) Focusing on U.S.-Japan bilateral dialogue, METI,s Nishiyama proposed that the United States and Japan hold Investment Working Group talks at the end of October or in November 2009 to build momentum behind this important part of the bilateral relationship. Nishiyama provided a copy of METI's proposed Investment Working Group agenda (para 12) and suggested the USG and GOJ consult on these themes in capitals prior to meeting later this year. Tong stressed the USG needs to have interagency consultations on the components of its bilateral dialogue with Japan, specifically those related TOKYO 00002358 003 OF 003 to the composition of the dialogues, the timing of the talks, and the substance. The METI non-paper will allow the USG to consult at senior levels on the substance of a possible successor investment dialogue, but Tong explained that recently confirmed Undersecretary for Economic, Energy and Agriculture Affairs Robert Hormats and other officials will need to be briefed on the Investment Working Group before the USG can proceed. ¶11. (SBU) Elaborating, METI Americas Division Director Yasushi Akahoshi said the GOJ still needs to hold intra-governmental consultations on the agenda, but would like to have some discussion on the future of the investment working group by the end of 2009. Tong noted that the Investment Working Group's work has been quite valuable, but that its future direction must be decided at the sub-cabinet level and needs to be considered in the context of our overall bilateral economic dialogue. METI NON-PAPER -------------- ¶12. (SBU) BEGIN TEXT OF METI NON-PAPER ON INVESTMENT: Suggested Agenda of U.S.-Japan Investment Dialogue in October or November (subject to adjustment based on intra-governemnt discussion) ¶I. Corporate governance issues (U.S. lead) i. Disclosure and proxy voting ii. Protection of minority shareholders II. Expansion of allowable structures for M&A (U.S. lead) -Expanding and simplifying tax deferral for M&A III. Removal of disincentives to corporate reorganization (Form F-4) (Japan lead) IV. Exploring ways to promote innovation and entrepreneurship and support corporate start-ups (U.S. lead) ¶V. Efforts to oppose investment protectionism and promote investment liberalization in third countries (Japan lead) i. Investment climate issues in China ii. Cooperation on investment issues of APEC iii.Operation issues of Anti-monopoly Act in China iv. Issues of international taxation in third countries (e.g. Brazil) VI. Investment-related tax issues (U.S. lead) -Extension of the net operating loss carry-forward period VII. Defined contribution pension (U.S. lead) i. Further increasing the limits on tax deductible contributions ii. Allowing full employee matching of employer contributions iii.Allowing withdrawals prior to age 60 under certain conditions iv. Introducing a DC pension plan for public workers VIII. Exchange information on BIT (Japan lead) i. Updating information on negotiating BIT in Japan and U.S. ii. Exchange information on Model BIT END TEXT OF METI NON-PAPER ON INVESTMENT. ROOS