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