U/S HORMATS: KEIDANREN OFFICIALS WELCOME U.S. ENGAGEMENT

UNCLAS SECTION 01 OF 02 TOKYO 002708 SIPDIS SENSITIVE E.O. 12958: N/A TAGS: ECON ETRD EINV PREL KGHG JA SUBJECT: U/S HORMATS: KEIDANREN OFFICIALS WELCOME U.S. ENGAGEMENT BUT WARY OF DPJ POLICIES AND CHINA SENSITIVE BUT UNCLASSIFIED. NOT FOR DISTRIBUTION OUTSIDE OF USG. ¶1. (SBU) Summary: Japan Business Federation (Keidanren) officials told Under Secretary of State Hormats the Japanese business community welcomes American "reengagement" in the region and, in particular, the U.S. commitment to APEC. They expressed concern, however, about the global management of the rise of China, as well as the lack of a coherent economic growth policy among the new Democratic Party of Japan (DPJ) leadership. The Keidanren will continue to engage the USG and GOJ on policy matters. U/S Hormats's November 16-17 meetings with GOJ officials reported septel. End Summary. Tokyo on Par with Prague and Cairo -------------- ¶2. (SBU) Cannon Marketing Chairman Haruo Murase told U/S Hormats the President's selection of Japan to deliver his Asia policy speech puts Tokyo on par with Prague and Cairo in importance. U/S Hormats concurred, noting the importance of pivotal speeches on Asia being delivered in Japan, an ally and close friend that shares common values, and a market-driven economic philosophy with the United States. APEC -------------- ¶3. (SBU) Keidanren International Affairs Bureau Director Kazuyuki Kinbara said Keidanren seeks an ambitious APEC agenda, noting the United States and Japan can lead on clean energy, investment, improving the business environment, and climate change. U/S Hormats agreed, and suggested that the Keidanren engage with the DPJ and the bureaucracy and advocate on behalf of the business communities' priorities. Kinbara said that the Keidanren can do more, and added that APEC should shift its focus from primarily "soft" decisions to more "hard" decisions on climate change, the Doha Development Agenda, investment, and intellectual property rights. Takeda Pharmaceutical President and CEO and Keidanren U.S. Affairs Committee Chairman Yasuchika Hasegawa agreed, saying APEC's consensus-based decision-making structure is sufficient only up to a point; after that, leadership is needed. China Remains a Concern -------------- ¶4. (SBU) Hasegawa argued that part of Japan's concern with the U.S.-China relationship stems from a lack of understanding among the Japanese about what the alliance entails. The leadership in Japan appreciates that both the United States and Japan need China economically, but is less sanguine about the relationship in terms of China's lack of respect for human rights, rule of law, democracy, and transparency. Conversely, these are all values the United States and Japan share in common. Hasegawa said the Japanese people should not take the alliance for granted and that steps to strengthen our bilateral partnership needed to be taken to avoid further erosion. ¶5. (SBU) Keidanren Senior Managing Director Masakazu Kubota said Japan's "insecurity" vis-`-vis China and the United States explains part of the GOJ's continued push for a Strategic and Economic Dialogue(S&ED) equivalent structure with the USG. Keidanren similarly advocates a bilateral dialogue similar to the S&ED, arguing this structure offers needed "reassurances" in an otherwise increasingly uncertain relationship. U/S Hormats questioned whether we needed something that structured, noting the maturity of the U.S.-Japan relationship obviates the need for an S&ED style of engagement. The United States and Japan need to select 3-5 key issues to focus our energies on bilaterally and to make progress and generate results, U/S Hormats said. Kinbara acknowledged the merit of this approach, but asserted that any future engagement needed to take into account the concern in Japan that the U.S. is "neglecting" the relationship. This same concern underpins the joint Keidanren-American Chamber of Commerce Japan (ACCJ) call for a U.S.-Japan Free Trade Agreement, Kinbara said. An FTA would demonstrate political commitment and strengthen the alliance through stronger trade and investment links. Tariffs are not the primary hurdle to concluding an agreement, beef not withstanding; in fact, reducing non-tariff barriers (NTBs) is what is most important to both business communities, he said. DPJ Lacks Economic Growth Strategy -------------- ¶6. (SBU) Hasegawa said the DPJ wants to reform the way policy and the budget are made in Japan. The DPJ is moving to establish a National Strategy Bureau (NSB) for this purpose, but no clear policy direction has yet to materialize. The DPJ is not rigid or absolute, but it is looking for ideas and an identity, Hasegawa asserted. U/S Hormats said the new administration in the United States is undergoing a similar evaluation of past policies. In particular, the business community has engaged the Obama Administration on economic, trade, and investment policy, with good results. TOKYO 00002708 002 OF 002 ¶7. (SBU) Hasegawa said the DPJ, which originally targeted the Keidanren as an "opponent", is now gradually opening up to the business community and seeking its views and suggestions. The DPJ leadership is, by Keidanren's own admission, intelligent, flexible, and adept at listening. Big gaps with the Hatoyama Administration remain, Hasegawa said -- notably reconciling the impact of the new government's pledge to reduce CO2 emissions by 25 percent from 1990 levels by 2020 -- but the biggest challenge for the Japanese business community remains the DPJ's lack of an economic growth strategy. The DPJ needs to develop one if it is to win the June 2010 Upper House election, Hasegawa argued, and the party's current policy plans will not stimulate the type of sustainable domestic demand promised during this year's election campaign. Investment -------------- ¶8. (SBU) Hasegawa told U/S Hormats outward investment is not viewed as a negative by the Japanese as it oftentimes is in the United States. Kubota said Japan's problem is its failure to attract adequate inward investment. The prefectures have little power to offer incentives because of the concentration of power in Tokyo, he explained. Furthermore, the governors are not enthusiastic about promoting trade and investment because their constituents are moving to Tokyo. Kinbara said the DPJ is working to decentralize power, but it will take some time and a change in mind-set among the governors and the bureaucrats to support business outside of Tokyo, not to mention overseas, in a strategic manner. ¶9. (U) U/S Hormats cleared this message after departure from post. ZUMWALT