AUSTR CUTLER RAISES BILATERAL TRADE IRRITANTS AND

C O N F I D E N T I A L SECTION 01 OF 05 TOKYO 002890

SIPDIS

STATE FOR EAP/J, EAP/EP, AND EEB
STATE PASS USTR FOR AUSTR CUTLER, MBEEMAN, AND DLEE
USDA/FAS FOR BERMAN
NEC FOR LSUMMERS

E.O. 12958: DECL: 12/11/2019
TAGS: ETRD EAGR EINV APEC PREL JA
SUBJECT: AUSTR CUTLER RAISES BILATERAL TRADE IRRITANTS AND
COOPERATION WITH JAPANESE OFFICIALS

REF: A. TOKYO 2709

B. TOKYO 2715

C. TOKYO 2768

Classified By: Deputy Chief of Mission James P. Zumwalt;
Reasons 1.4 (b) and (d)


1. (C) Summary: Government of Japan (GOJ) officials --
politicians and bureaucrats alike -- told AUSTR Wendy Cutler
during her December 10 visit to Tokyo they are frustrated by
the challenges with the new government's political
transition, most notably inconsistencies in the decision
making process. They spoke favorably of a senior level
economic dialogue with the United States, but had different
views on how it should be structured. Ministry of Foreign
Affairs Director General Suzuki told AUSTR Cutler that his
ministry has now received the political green light to move
forward with updating the U.S.-Japan Regulatory Reform
Initiative, and expressed an overall positive reaction to the
U.S. proposal for this work. AUSTR Cutler also urged the GOJ
to resolve several bilateral trade irritants, including those
related to insurance, autos, and access for U.S. beef. On
autos, Ministry of Economy, Trade and Industry Director
General Okada noted Cutler's concern regarding the lack of
Big 3 auto company participation in Japan's cash for clunkers
program. He asserted that the program is not discriminatory
since some European models already qualify, but left the door
open on finding a solution to U.S. concerns. On insurance,
Cabinet Office Senior Vice Minister Furukawa listened
carefully to Cutler's suggestions that we use the window of
opportunity presented by Japan's current review of Japan Post
to quietly address level playing field concerns. He
cautioned the U.S. to be careful, noting that too much
attention by the USG could be exploited by politicians like
Minister Kamei who are determined to reverse Japan Post's
partial privatization. Director General Suzuki offered
privately that in presenting U.S. views to politicians on the
Japan Post issue, Cutler should also express concerns
regarding Japan's adherence to its WTO obligations. On APEC,
Director General Okada shared Cutler's concern that Japan may
be setting an overly expansive APEC agenda to make meaningful
progress during 2010 when it chairs the forum. AUSTR Cutler
urged the GOJ to prioritize its agenda to focus a manageable
set of issues. End summary.


2. (SBU) Assistant U.S. Trade Representative for Japan,
Korea, and APEC Affairs Wendy Cutler discussed a broad range
of bilateral trade and regional cooperation issues, including
APEC, autos, insurance, and beef during meetings December 10
with Senior Vice Minister and Director of the National
Strategy Office Motohisa Furukawa, Parliamentary Vice
Minister Shuji Kira, Deputy Foreign Minister Yoichi Otabe,
Ministry of Economy, Trade and Industry (METI) Director
General for Trade Policy Hideichi Okada, and Ministry of
Foreign Affairs (MOFA) Director General for Economic Affairs
Yoichi Suzuki.

Difficult Transition from Bureaucrats to Politicians
-------------- --------------


3. (C) Senior Vice Minister Furukawa appeared reluctant to
suggest names of senior level officials with whom the USG
could engage on economic and trade issues, offering instead
that Japan is in the midst of a "once-in-a-hundred-years"
political transition, a change he likened to the magnitude of
the 2008 "Lehman Shock" on the global economy. The
Democratic Party of Japan (DPJ),he said, is working to wrest
decision making authority from the hands of the bureaucrats
and put it in those of the politicians. Unfortunately, this
transition is "not going so well", Furukawa conceded. He
attributed this difficulty to several factors, in particular
the GOJ's inability to remove "entrenched" senior civil
servants (who are protected legally from being fired). In
some cases, bureaucrats still lead the decision making

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process and the DPJ is struggling to establish the best
mechanism by which information can move up from the
bureaucrats to the politicians. Furukawa acknowledged that
the (clumsy) way in which the DPJ handles decisions has
sometimes created strains in the bilateral relationship,
which can be exacerbated further by the limited foundation
for frank discussions that exists between the USG and the new
DPJ-led government. Whether the change is "good or bad"
remains to be seen, but politicians must lead the government,
he insisted. Director General Okada echoed similar
frustrations with day-to-day operations.

Regulatory Reform Initiative
--------------


4. (SBU) Director General Suzuki said he now had just
received approval from Foreign Minister Okada to consult with
other parts of the GOJ on USTR's proposal for future
Regulatory Reform Initiative talks. Suzuki said MOFA would
recommend some changes, but by and large is receptive to the
U.S. suggestions and hopes to provide a response shortly. He
likes the idea of establishing a Food Safety Working Group,
but expressed skepticism the Agriculture Ministry would be
comfortable with including discussions on animal health. In
terms of "building block" projects, Suzuki expressed interest
in working together on third-country issues in such areas as
standards.

Senior Level Economic Dialogue
--------------


5. (C) Echoing statements Deputy Prime Minister Naoto Kan
and he made during their November 14 meeting with National
Economic Council (NEC) Director Lawrence Summers (ref A),
Senior Vice Minister Furukawa said he supports a senior level
bilateral economic dialogue; he suggested to AUSTR Cutler
that Deputy Prime Minister Naoto Kan could lead Japan's
participation. AUSTR Cutler said the USG favors a dialogue
that leads to tangible outcomes (APEC, development
assistance, and cooperation on issues involving China came up
in subsequent discussions as possible areas for senior level
engagement). Furukawa asserted a senior level dialogue is
necessary to ensure healthy bilateral economic ties. He
likened the U.S.-Japan relationship to that of an old married
couple in which one half of the partnership may feel
neglected or hold long standing grievances that, if left
unaddressed, "can lead to divorce". It is important to
consider the perspective of both sides, he said.


6. (C) Deputy Foreign Minister Otabe separately expressed
surprise Furukawa would suggest that Deputy Prime Minister
Kan lead a senior level dialogue. He doubted the efficacy of
a ministerial level dialogue, an idea favored by certain GOJ
officials as well as the American Chamber of Commerce Japan,
noting this type of framework yielded limited results during
the 1970s. Otabe asserted it makes more sense for METI Vice
Minister Ishige and himself to chair a dialogue with USTR and
State. His travel schedule for 2010 will take him to Canada
about once a month for G8 meetings and he therefore could
travel easily to Washington, as needed. Director General
Suzuki conveyed similar doubts about Deputy Minister Kan
leading a senior level dialogue, noting for example that Kan
would have a difficult time engaging on bilateral issues such
as beef. (Comment: With MOFA's career vice ministers having
long been the main U.S. interlocutors in senior-level
economic policy discussions, cautionary comments about
allowing Japan's political leaders to step in as the main
interlocutors with U.S. deputies are not surprising.)

Autos
--------------


7. (SBU) AUSTR Cutler outlined concern with Japan's vehicle
purchase subsidy program -- in particular the extent to which

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Japanese autos benefited from the now discontinued U.S.
equivalent "cash-for-clunkers" program -- and urged the GOJ
to resolve this issue expeditiously. Noting that both the
White House and Congress have also expressed concerns, she
cited the lack of consideration for autos imported into Japan
under the PHP (preferential handling procedure) program,
which allows for streamlined importation of low-volume auto
imports (2,000 or fewer per model) without the need for fuel
efficiency tests (ref C).


8. (SBU) Director General Okada told AUSTR Cutler he had not
yet seen the letter from Tokyo-based Big-3 auto
representatives to METI sent December 7 concerning their
recommendations about how to address the issue of limited
coverage under Japan's automobile purchase incentive program
for imports, but that he will give it careful consideration.
Referring to the recent Cabinet decision to continue the
program until September 30, 2010, Okada said he was unclear
whether the extension entails any modifications to the
existing requirements. (NOTE: The GOJ's December 8 economic
policy package, entitled "Emergency Economic Measures for
Reassurance and Economic Growth Tomorrow," included a six
month extension of the current eco-car subsidy program
through the end of September 2010. On December 15, the
Cabinet approved a second supplemental budget to finance
mainly the policy package, including JPY 260.9 billion (USD
2.9 billion) for the eco-car subsidy program. Post expects
the Diet to approve the budget in February 2010. END NOTE.)
Okada noted that while seven out of the 10 top selling models
under the U.S. cash-for-clunkers program were Japanese, 81
percent of these vehicles were manufactured in North America,
according to data compiled by Ward's Automotive Reports. He
said METI is working to compile U.S.-specific data.


9. (SBU) Okada claimed the "cash for clunkers" moniker
sometimes applied to Japan's incentive program creates
misperceptions about its primary purpose, which he said is to
promote sales of enviro-friendly vehicles with improved fuel
efficiency. He claimed Japan's program is
non-discriminatory, noting that although no U.S. imports
currently qualify under Japan's program, 30-40 percent of
European models do. Director General Suzuki suggested the
best solution would be for U.S. manufacturers to propose a
enviro-friendly vehicle to be imported into Japan (e.g., the
Ford Explorer II). AUSTR Cutler replied that the lead times
and costs associated with introducing a new model into the
niche Japan market made this proposal infeasible, and instead
urged that the GOJ seek ways to include U.S. models. With a
clear indication given by her counterparts of Japan's
preparedness to leave the door open to work with the U.S. to
find a solution, AUSTR Cutler agreed on the need to stay in
close touch to resolve this issue.

Japan Post Insurance and Level Playing Field Concerns
-------------- --------------


10. (SBU) AUSTR Cutler told Director General Suzuki that the
USG continues to remain neutral about whether Japan Post
should be privatized and believes that is a decision for
Japan to make. She noted the U.S. and Japan have an
important opportunity to work together to resolve these
concerns, particularly before Japan completes its review of
postal reforms and introduces new legislation governing Japan
Post Insurance, which is expected to be passed before next
July's election. She urged the GOJ to give equal
opportunities for foreign stakeholders to provide input
during its review of postal reform policies, noting the
recent decision to not invite foreign business associations
to a hearing held December 11 on the future of the postal
services is unhelpful.


11. (C) Concerning the GOJ's reversal of efforts to promote
a level playing field for U.S. insurance companies, AUSTR
Cutler told Director General Suzuki that U.S. industry has

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approached the USG with concerns about their ability to
compete. She said that the USG has been reviewing Japan's
WTO commitments and has some serious concerns. She explained
USG attorneys have so far identified three areas where they
believe a strong case can be made to show Japan is in
violation of its "national treatment" commitments under the
WTO:

1) access to the postal network (foreign insurance companies
are permitted to sell limited products at roughly 1,000 post
offices; Japan Post Insurance is able to offer its full
product range at more than 20,000 post offices);

2) cooperation with other Japan Post group companies on
strategic business objectives (unlike Japan Post group
entities, private companies are prohibited from joint
ownership of insurance, banking, and non-financial operations
of foreign companies; and

3) differential enforcement of insurance laws (the Financial
Services Agency, or FSA, appears to give more favorable
treatment to Japan Post Insurance in enforcement matters).


12. (C) Suzuki said he would follow up on AUSTR Cutler's
suggestion that Japanese embassy officials discuss these
possible violations with USG attorneys. (NOTE: Japanese
Embassy officials from MOFA and Ministry of Internal Affairs
and Communications (MIC) visited USTR on December 14 to ask
for more details on the three areas AUSTR Cutler identified.
END NOTE.) In a subsequent discussion, Suzuki suggested to
AUSTR Cutler privately that, when raising our level playing
field concerns with officials at the political level, the USG
should also raise our concerns about Japan's compliance with
its WTO commitments on trade issues. He said METI Minister
Naoshima is sensitive to possible violations of Japan's
multilateral trade commitments and that even Minister Kamei
understands the importance of abiding by international rules
-- even if he also plays by his own political rules. Suzuki
said timing is critical since Minister Kamei will most likely
push ahead with drafting new legislation as soon as the Diet
convenes in mid January. He said he will talk to key
officials who work with Senior Vice Minister for the
Financial Services Agency and Postal Reform Kouhei Ohtsuka
and asked that either the DCM or EMIN meet with Ohtsuka
directly as well. He suggested the embassy also engage MIC
Parliamentary Secretary Kensei Hasegawa on this issue.


13. (C) Senior Vice Minister Furukawa acknowledged U.S.
concerns about the lack of a level playing field between
Japan Post Insurance and foreign companies, but asked for
understanding as the GOJ continues to consider next steps
related to Japan Post's recently frozen privatization
process. He cautioned that too much attention by the U.S.
could be exploited by certain politicians (a reference to
Minister Kamei). Vice Minister Kira separately noted that
many DPJ parliamentarians did not support the bill to stop
the sale of Japan Post shares, but that other factors were
also at play such as the DPJ's need to maintain its ruling
coalition (that includes Kamei's People's New Party),at
least until the July 2010 Upper House election. Director
General Suzuki noted domestic insurance providers are
similarly concerned about Japan Post Insurance's market
power. The challenge is for the bureaucracy to keep up with
developments in the political process; everything in the GOJ
is on "short notice" these days, he said.

APEC and Regional Architecture
--------------


14. (SBU) Senior Vice Minister Furukawa agreed Japan and the
U.S. have a real opportunity for cooperation in the
Asia-Pacific Economic Cooperation (APEC) forum and for
strengthening the organization as back-to-back chairs in 2010
and 2011. AUSTR Cutler identified promotion of "green

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growth", energy efficiency, and intellectual property rights
protection as areas where the U.S. and Japan also share
common objectives and concerns, and that bilateral efforts on
these issues could serve as models for the region. Director
General Okada applauded the close cooperation on APEC issues,
but also expressed concern that Japan had set so ambitious an
agenda that it may not be able to make all of its targets in

2010. AUSTR Cutler concurred, noting that Japan's agenda has
become increasingly broad and potentially unmanageable. She
urged the GOJ to prioritize its work to focus on a set of
relevant and meaningful issues. Okada said Japan is
undertaking a similar prioritization process vis-a-vis its
Japan-China-South Korea, ASEAN 3, and ASEAN 6 trade
liberalization discussions. AUSTR Cutler cautioned that
Japan needs to be careful not to inadvertently create lower
standard agreements that in turn become models within APEC
for a Free Trade Area of the Asia Pacific (FTAAP). Asked
about Prime Minister's intentions concerning the East Asian
Community (EAC) concept, Vice Minister Kira said the Hatoyama
administration considers its relationship with the United
States to be the most important bilaterally and sees APEC as
an key framework for U.S.-Japan cooperation.

Doha Development Agenda
--------------


15. (C) Deputy Foreign Minister Otabe expressed his hope the
Doha Development Agenda negotiations can be accelerated
towards a successful conclusion. He said his State Minister
had pressed his Chinese counterpart in Geneva to show more
flexibility in negotiations with the U.S. Both China and
India need to take into account political considerations in
the U.S. to facilitate a deal, Otabe said. Japan wants to
work with the U.S., but it would help if the USG also made
more concrete proposals that reflect its "real position."
Director General Suzuki said he was relieved METI Minister
Naoshima was able to join Agriculture Minister Akamatsu in
Geneva last week for the WTO meetings, noting there had been
worries that Japan would send the wrong message if only
Minister Akamatsu had represented Japan.


16. (U) AUSTR Cutler cleared this message after her
departure from post.
ROOS