Cablegate: Postal Privatization: Goj Response to U.S.

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RR RUEHFK RUEHKSO RUEHNAG RUEHNH
DE RUEHKO #5686/01 2720620
ZNR UUUUU ZZH
R 290620Z SEP 06
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC 6935
INFO RUEHFK/AMCONSUL FUKUOKA 8254
RUEHNAG/AMCONSUL NAGOYA 7978
RUEHNH/AMCONSUL NAHA 0803
RUEHOK/AMCONSUL OSAKA KOBE 1617
RUEHKSO/AMCONSUL SAPPORO 9336
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/TREASURY DEPT WASHDC

UNCLAS SECTION 01 OF 02 TOKYO 005686

SIPDIS

SENSITIVE
SIPDIS

USTR FOR AUSTR CUTLER AND M. BEEMAN

E.O. 12958: N/A
TAGS: ECON EFIN JA
SUBJECT: POSTAL PRIVATIZATION: GOJ RESPONSE TO U.S.
CONCERNS ABOUT IMPLEMENTATION FRAMEWORK

REF: BEEMAN-FANTOZZI EMAIL 8/9/06

Summary
-------
1. (SBU) A round of meetings with GOJ officials involved
with postal privatization indicates gradual progress toward
the goals of greater transparency and a level playing field.
Contacts assured us that the Japan Post Corporation (JPC)
could not obtain approval for new products through its July
submission of a framework implementation plan and that each
new product request would be reviewed individually. The
officials (except from JPC) voiced support for the need for
transparency and a level playing field, but most also
balanced this with a perceived need for new products to make
JP0pFZhrvices during the privatization. End summary.

Demarche Delivered on Japan Post Corp. Plan
-------------------------------------------
2. (U) In response to reference request, ECOUNS delivered
talking points regarding the Japan Post Corporation's July
release of a framework implementation plan for postal
privatization in the following meetings to listed
participants.

Financial Services Agency (FSA), August 23
Insurance Business Division Director Toshiyuki Yasui

Office of the Privatization of Japan Post (OPJP), August 30
Acting Director Masayuki Tokushige

Ministry of Internal Affairs and Communications, August 30
Postal Life Insurance Policy Planning Division Deputy
Director Yukio Teramura
International Affairs Office Principal Deputy Director
Atsushi Ozu
General Management Office Deputy Director Shingo Okamura
Postal Policy Planning Division Operation Systems Manager
Yasunari Ueno

Postal Service Privatization Committee (PSPC), August 31
Chairman Naoki Tanaka

Japan Post Corporation (JPC), September 22
Postal Life Insurance Company Division General Manager
Nobuyasu Katou
General Affairs Division General Manger Akihito Nishiguchi
Postal Life Insurance Company Division official Takao Furusawa
General Affairs Division official Yasuto Takano

EMIN also highlighted USG concerns for OPJP President
Watanabe during an August 21 courtesy call. A detailed
memorandum of conversation for each meeting has been emailed
to USTR and EAP/J.

New Product and Level Playing Field Concerns
--------------------------------------------
3. (SBU) Our interlocutors uniformly said it was not
possible for the Japan Post Corporation to use the framework
implementation plan to seek implicit or explicit approval for
new products, noting that the framework was neither an
official document nor binding on ministries. The FSA's Yasui
went so far as to say the framework had "nothing to do" with
official approval for new product applications. All contacts
agreed that new products would still have to be examined, one
by one, by the PSPC and MIC, and, for financial products
including insurance, by FSA.

4. (SBU) Our interlocutors were also familiar with and
generally accepting of the idea that no new products should
be introduced before a level playing field has been
established. Many also expressed in various ways that this
objective needed to be balanced against the perceived need
for new products to make privatization a success. PSPC
Chairman Tanaka, for example, vigorously endorsed the idea
that equal footing for companies is important not only for
fairness's sake, but that it is essential to preventing the
privatization process from distorting resource allocation
across the wider Japanese economy. But he also argued that
the new postal banking and insurance entities would have to
introduce new products before their IPOs. That, he

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explained, would be necessary for the entities to gain
experience in the marketplace and show potential investors
thei:J}ml]=QQqs. Others interlocutors, like the FSA's
Yasui, stressed equal regulatory conditions when conversation
turned to level playing field issues.

5. (SBU) Tanaka's point that the new postal entities will
need to introduce new products to gain experience and show
their market potential was echoed in several of the other
discussions, often with reference to the principles embedded
in the privatization laws (that privatization should not
distort the marketplace, but that the new entities'
management need the freedom to succeed). The need for the
new entities to improve their risk-management capabilities,
both to satisfy regulatory requirements and be successful in
the marketplace, was also a common theme. (Note: Only one
person, Kazuhiko Toyama, a PSPC member to whom we spoke
earlier, has recognized that new products could actually lose
money and hence hurt the JPC's IPOs.)

Cross-subsidization and Transparency
------------------------------------
6. (SBU) In response to questions about the potential for
cross-subsidization among the new postal entities, our
interlocutors generally stressed that regulatory approval and
disclosure practices would allow the contracts among the
companies to be scrutinized and would ensure arm's-length
contracting prevailed. MIC's Teramura, for example, noted
that contracts between the new insurance entity and the
Public Successor Corporation would have to be disclosed under
negotiated terms of the Regulatory Reform Initiative. More
proactively, Chairman Tanaka stated that arm's-length
transactions were important to keep companies from taking
unnecessary risks and that the PSPC would actively monitor
transactions to ensure they were market-based. JPC officials
agreed that such contracts would be scrutinized by the PSPC,
but noted they would be addenda to the Implementation Plan.

Express Mail Service (EMS)
--------------------------
7. (SBU) The largest difference of opinions surfaced
regarding EMS, ranging from MIC's Ozu claiming that EMS
services fell under Japan's postal universal service
obligations (and thus are not subject to equal footing
concerns) to PSPC Chairman Tanaka's view that EMS is subject
to the same equal footing concerns that affect insurance and
banking services. Separate discussions suggest Ozu's
statement may reflect his personal, rather than the
ministry's, view; the Embassy will be following up to
determine whether that is the case.

Comment
-------
8. (SBU) With the possible exception of EMS, what we heard
was broadly supportive of our goals to ensure transparency
and a level playing field througout postal privatization. We
note in particular that PSPC Chairman Tanaka, in a press
conference on the same day of our meeting, announced that the
PSPC would formulate guidelines for the introduction of new
products, as well as a series of Fall hearings for
stakeholders, and that PSPC member Toyama has told us he
supports those actions. We take the iterative feedback
process Tanaka is proposing as a positive sign0"4"YFXQ_increased transparency and the establishment of a level
playing field. We also note that as the privatization law
comes more fully into effect, our concerns are being more
specifically addressed. While we cannot let our guard down,
we are generally in a better position than a year ago.
DONOVAN

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