INSURANCE: JAPANESE AGENCIES ON NEW POSTAL PRODUCT

UNCLAS SECTION 01 OF 04 TOKYO 000706 SENSITIVE SIPDIS USTR FOR AUSTR CUTLER, BEEMAN, AND HOLLOWAY NSC FOR LOI PARIS FOR USOECD E.O. 12958: N/A TAGS: EFIN ECON PGOV JA SUBJECT: INSURANCE: JAPANESE AGENCIES ON NEW POSTAL PRODUCT REF: A. TOKYO 629 ¶B. TOKYO 617 ¶C. TOKYO 616 ¶D. TOKYO 555 ¶1. (U) This is an action request. See paragraph 20. Summary -------------- ¶2. (SBU) Following a cabinet minister's public remarks promoting Japan Post Insurance (JPI) and dismissing market fairness complaints of U.S. insurers, EMIN raised U.S. concerns about JPI and the politicization of postal privatization on March 25 with senior officials from three relevant agencies. Japanese officials generally replied that what they called a "fair process" has been laid out in Japanese law and that JPI's recent regulatory request will be judged on criteria set out in the law. Some downplayed U.S. concerns by suggesting those concerns are motivated by the protection of U.S. firms' market share and not by market fairness or the transparency of regulatory processes. Nevertheless, those officials expressed a willingness to accommodate U.S. concerns, but asked for examples of specific measures the U.S. would like implemented to improve the process. End summary. Raising U.S. Government Concerns -------------- ¶3. (SBU) Following Ministry of Internal Affairs and Communications (MIC) Minister Kunio Hatoyama's public remarks regarding Japan Post Insurance (Kampo) moving to offer a new cancer insurance product (refs A-C) and dismissing the concerns of U.S. insurers, EMIN met officials March 25 from the Office for the Promotion of Privatization of Postal Services (OPJP),Financial Services Agency (FSA),and MIC. EMIN used the separate meetings with OPJP Director General Hideyuki Furikado, FSA Supervisory Bureau Deputy Director General Toshiaki Ido, and MIC Postal Services Policy Planning Department Director General Hiroomi Kira to reiterate the U.S. government's deep and growing concerns about developments in postal privatization, including Japan Post Insurance's (JPI's) recent moves to bring a new cancer product to market and the increasing politicization of the process. OPJP Response -------------- ¶4. (SBU) Director General Furikado outlined the steps OPJP has taken, as the secretariat to the Postal Services Privatization Committee (PSPC),to make the privatization of Japan Post transparent. He noted Japan reached out to a variety of stakeholders and that the American Chamber of Commerce in Japan (ACCJ) had appeared before the PSPC, both on specific issues and as part of the three-year review of postal privatization now underway. ¶5. (SBU) Furikado directed special attention to comments an ACCJ representative made to the PSPC November 10, 2008, in which the ACCJ representative was quoted as saying the organization "appreciates measures taken so far to establish equivalent conditions of competition." Specifically, Furikado continued, the ACCJ representative welcomed the access private companies had been given to the postal network and "evaluated especially highly" the FSA's work to regulate the postal financial companies in the same manner as private sector companies. He passed a copy of the remarks, in Japanese, to EMIN. A copy and informal translation has been sent to EAP/J and USTR. ¶6. (SBU) Furikado described a two-tier process that he said JPI will be required to follow to introduce a new cancer product (ref C). The process he described includes a request to revise a government administrative ordinance and an TOKYO 00000706 002 OF 004 application for a product approval. OPJP Director Nobuyuki Tajiri, who sat in with Furikado, clarified that "it would not be impossible" for JPI to pursue the ordinance change and the product application at the same time, but stated, noting remarks by a JPI executive, that JPI is not considering that approach. ¶7. (SBU) Noting JPI in 2008 had requested the introduction of a product rider under the same procedures, Furikado asserted a transparent process is in place. He added the ACCJ and other stakeholders had "positively evaluated" that process in PSPC hearings (though that information is not included in the hearing excerpts passed to EMIN). Furikado also said that up until November, the ACCJ was welcoming GOJ efforts on postal privatization and the way privatization was progressing. He stated current U.S. concerns probably had to do with the competitive implications of JPI's proposed new cancer product for U.S. companies and were not related to the process itself, because the process has not changed. ¶8. (SBU) When EMIN noted the various examples of politicians interjecting into the postal privatization process since November, DG Furikado suggested that if Minister Hatoyama's comments were of concern, the right venue for raising those concerns or clarifying the minister's intentions would be discussions with MIC officials. The PSPC and OPJP, he said, are more specialized and neutral organizations with a responsibility to manage the process itself. ¶9. (SBU) Furikado would not comment on remarks by other Japanese politicians except to note opposition Democratic Party of Japan (DPJ) parliamentarians are asking his office about contacts with U.S. government officials regarding Japan Post and that he would probably have to note our March 25 meeting. EMIN said the U.S. values transparency and the work that has been taken over the years to boost transparency in the U.S. government. He said Embassy officials would be willing as well to meet with interested Diet members to discuss USG concerns about postal privatization, as officials do on other issues. ¶10. (SBU) Furikado closed with a preview of what he said might come up in meetings with MIC and FSA. The U.S. share of the cancer insurance market is nearly 80 percent, he said. To many Japanese, that figure indicates the market is already open to U.S. companies and that a potential loss of market share is the reason why U.S. companies are concerned about JPI's actions. FSA Response -------------- ¶11. (SBU) Financial Services Agency DDG Ido told EMIN the FSA is fully aware of U.S. concerns about postal privatization and JPI's March 19 administrative ordinance revision request. He said the FSA will ask JPI to explain the proposal in order to render a decision on whether to remove that regulatory barrier to JPI bringing a new cancer product to market. Asked about the timeframe of the FSA's decision, he said there is no required deadline but, as a government entity, the FSA is required "to consider the proposal sincerely." ¶12. (SBU) Ido told EMIN the standards the FSA will use to judge JPI's request "have nothing to do" with what is going on in the Diet or among politicians. The FSA, he said, will base its decision on the postal privatization laws. As has been explained in previous meetings with U.S. officials, the key principles in the law are establishing equivalent conditions of competition in the market while ensuring the postal entities have sufficient management freedom to privatize and enhance the benefits the entities provide to the Japanese people. TOKYO 00000706 003 OF 004 ¶13. (SBU) Enumerating some examples for Ido, FSA Postal Insurance Supervisory Bureau Director Mitsuhiro Tsuchiya said the FSA specifically will consider market conditions, including the degree of competition in the market and the benefits the Japanese people may expect if a new product is introduced. He said the FSA will also evaluate JPI's position in the market, its financial condition, and the effects of a new product on the organization's profits. These factors will be considered "comprehensively" along with a check of JPI's "preparedness in providing appropriate service" to consumers. Ido stated there would be no discrimination against domestic or foreign companies in the FSA's decision. ¶14. (SBU) In response to the point that the politicization of the process undercuts work to establish equivalent conditions of competition, Ido said the privatization laws set out a ten-year transition period for the postal financial entities to reach full private sector status, including the sell-off of all government ownership. The law, he continued, lays out the way forward, including new product applications. If the U.S. government has a problem with developments within the established legal structure, said Ido, the FSA is open to hearing them. Changes to the legal structure, however, are not a matter for consideration by the FSA. "Our mission is to consider this (the request for an ordinance change) by the law." ¶15. (SBU) Subsequent to the meeting, Director Tsuchiya asked econoff for clarification of the U.S. position. The FSA will surely take U.S. concerns into consideration before making any decision, he said, but what conditions must be met before JPI should be allowed to sell cancer insurance? What specifically, he asked, would the U.S. government like to see happen to ensure a level playing field? MIC Response -------------- ¶16. (SBU) Director General Kira told EMIN postal privatization is designed as a ten-year process in which the postal financial entities are expected to "fade into" the private market. And to act like private companies, he said, Japan Post Bank and Japan Post Insurance will need over time to expand their product lines. MIC's role in the process, along with the FSA and PSPC, is to oversee that process and to ensure that it is transparent and fair. Like his counterparts at the FSA and OPJP, Kira argued the administrative procedures used for other product applications indicate a transparent and fair process has been established. ¶17. (SBU) Pressed on Minister Hatoyama's comments and the subsequent politicization of the process, Kira stated that, as one of the main principles of the privatization is to increase convenience for the Japanese people, an application by JPI to bring a new product to market "should be considered in a forward-looking manner." That, he said, is what MIC officials have interpreted Minister Hatoyama's comments to mean. ¶18. (SBU) Director General Kira noted that in the cancer insurance market, U.S. companies have a market share of almost 80 percent. He said he is aware the ACCJ and American Council of Life Insurers (ACLI) have raised concerns about JPI's plans and that MIC and the Japanese government wish to be responsive. The PSPC, he noted, had provided opportunities for stakeholders to comment on postal privatization and he hopes there will be further opportunities to exchange opinions. ¶19. (SBU) Echoing his boss, MIC Savings and Postal Director Yamazaki told EMIN there are many stakeholders in postal privatization and that within the Japanese government there is a consensus to undertake the efforts needed to ensure the TOKYO 00000706 004 OF 004 success of the privatization. Transparency and fairness are included within the privatization laws and continue to be taken into account as issues arise. If the U.S. government has specific concerns, he concluded, MIC would hope to address them. Action Request -------------- ¶20. (SBU) The comments from FSA and MIC officials requesting greater specificity about U.S. concerns (paras 15 and 19) highlight the need to refine U.S. talking points, per discussion in ref D. POST