Cablegate: The Japan Economic Scope--July 5, 2007 Part 2

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SENSITIVE

E.O. 12958: N/A
TAGS: ETRD ECON JA ZO EAGR
SUBJECT: The Japan Economic Scope--July 5, 2007 Part 2

Sensitive but unclassified. Please protect accordingly.

1. (U) This cable contains part two of the Japan Economic
Scope from July 5, 2007.

2.(SBU) Table of Contents

3. JBIC Will Finance Pipe Manufacturing in Russia
Autos, Energy
4. International Auto Standards and ACCJ Japan American Auto
Industries Subcommittee
5. Nissan on Exchange Rates, Overseas Investments, Environment
6. The First GUAM Plus Japan
7. New Officers in Econ Section
8. New Intern Antonio Gonzales
9. Fourth of July Celebration
10. Red Sox Japanese Imports Thriving at Season's Halfway Point
11. Kei Igawa Loses to Oakland
12. U.S.-Japan Baseball Relations

3. (SBU) JBIC Will Finance Pipe Manufacturing in Russia
---------------------------

Japan Bank for International Cooperation (JBIC) announced that on
July 2 it signed a bank loan contract with the Joint-Stock Bank
of the Gas Industry "Gazprombank," Russia's third largest
commercial bank.

The loan promises up to 10 billion yen worth of co-financing with
Mizuho Corporate Bank and will be used by Gazprombank to finance
UralTrubprom's purchase of a seam-welded pipe manufacturing
facility currently owned by Mitsubishi Corp., Nakata MFG.Co., LTD
and Mitsubishi Hitachi Metals Machinery.

By promoting the export of a Japanese pipe manufacturing facility
based on Japan's top technology, JBIC hopes to contribute to the
development of Russia's manufacturing sector.
JBIC has been proactively promoting Japanese plant exports by
offering bank loans to Russian commercial banks. (ECON: Eriko
Marks)

4. (SBU) International Auto Standards and ACCJ Japan American
Auto Industries Subcommittee
---------------------------

The Japan Automobile Standards Internationalization Center
(JASIC) has kicked off its activities for developing a whole
vehicle type approval system (WVTA) according to a Japan
Automobile Importers Association (JAIA) presentation to the ACCJ
American Auto Industries Subcommittee meeting on July 5.

A JASIC-WVTA steering committee has been created and the goal is
to reach a consensus in 2009 and report Japan's views to the
WP.29 in 2010, said JAIA. JASIC would seek to enforce the system
by 2015 -- which is also the year that Japan is seeking to
harmonize emissions standards.

A key issue before the steering committee is the comparison of
European and Japanese homologation application documents to
develop a harmonized set. U.S. automaker reps at the ACCJ
meeting commented that they remained worried about this trend of
convergence of European and Japanese standards. It may force U.S.
automakers to import cars from Europe not because of a better
value or consumer interest but because of the regulatory
environment.

In addition, although importing cars from Europe may be one way
to address this constraint, they noted that this solution is not
one that the U.S. government may wish to endorse.

Some of the other issues the steering committee will wrestle with
are definitions and metrics for measurements. For example, in
Japan a passenger car is defined as carrying 10 or fewer people,
while in Europe it is nine or fewer. In terms of weight, whether
to count the car as empty or full will need to be decided, and,
if full, whether an average passenger weight of 55 kg (Japan), 68
kg (U.S.) or 75 kg (Europe) will be used.

The ACCJ subcommittee also discussed Japan's new fuel efficiency
standard; Japanese regulations covering explosives, which will
affect airbags in cars sold in Japan; auto battery recycling

TOKYO 00003127 002 OF 004

regulations; and active safety measures.

Separately the Diet passed a revision of the Road Traffic Law on
June 13 that requires the wearing of rear seatbelts. A
supplementary resolution was also passed that called on the
relevant ministries to direct industries to develop accident
avoidance systems such as alcohol interlock with alcohol detector
and a drive recorder that keeps image data before and after the
collision. (ECON: Josh Handler)

5. (SBU) Nissan on Exchange Rates, Overseas Investments,
Environment
-----------

We met with Nissan motors representatives on July 3 to discuss
the weak yen, their U.S. plant decisions, and emissions and fuel
efficiency plans.

On the weak yen, the Nissan representatives told us that to guard
against exchange rate risk -- in the mid-1990s the yen was strong
and not to Japan's automakers advantage, they noted -- Nissan
tries not to base its production decisions or profitability on
exchange rates.

The representatives explained that over 80 percent of Nissan
vehicles sold in North America are produced in the United States
or Mexico. In case of Europe, over 60 percent are locally
assembled in such places as Spain.

The Nissan reps said that Nissan is not able to switch production
between the United States and Japan as there are distinct models
in the two markets. Other Japanese companies, they said, can
switch production to take advantage of the exchange rate as they
have a dual production system, where products are interchangeable.
They remarked that Nissan should not be blamed for any of the
trade imbalances as Nissan is not exporting more to the United
States.

According to the Nissan reps, the incentive package from state
governments and the available workforce are important factors in
deciding on where to build plants in the United States.
The Nissan reps noted that Japanese companies have come to expect
tax breaks, help with land, and assistance with training, etc.
They were not certain if the State of Michigan could offer
attractive incentives to a Japanese auto manufacturer. On the
other hand, they noted that Nissan has a technological center in
Michigan. The states where Nissan has plants do not have many
auto engineers, while Michigan is still a center of automotive
engineering and design.

Nissan announced in December 2006 a "Nissan Green Program 2010"
which outlined Nissan's plans to reduce emissions and increase
fuel efficiency.

Commenting on the plan, the representatives noted that improved
batteries are the key to improved hybrid technology and electric
cars. Nissan's recently announced partnership with NEC to
develop a next generation lithium-ion batter for auto use is
central to Nissan developing its own hybrid engine technology.
Nissan currently does not have its own hybrid engine and it is
purchasing engines from Toyota to put in the Altima for sale in
the United States.

Nissan is also committed to pursuing clean-diesels for the
Japanese, European and U.S. markets. Nissan thinks that tax
incentives will be needed in Japan to encourage the market.
The Nissan reps noted the Agriculture Ministry's plans for
ethanol production and use in Japan are unrealistic and they do
not think that ethanol will be widely available in Japan soon.
They reported, however, that Nissan vehicles already on sale in
Japan can handle up to E3 fuel and in the United States and
Europe up to E10. In addition, they have E85 vehicles for the
U.S. market.

Nissan is also investing in fuel cell technology. Nissan like
other auto companies has managed to engineer the power train into
a regular sized car. The cost, however, of each vehicle remains
prohibitive. Nissan is working to reduce the cost, but they said
it would be difficult.

Commenting on the U.S. scene, they said the fuel efficiency

TOKYO 00003127 003 OF 004

standards being considered in Congress would be a challenge to
meet. (ECON: Josh Handler)

6. (U) The First GUAM Plus Japan
----------------------------------

On June 19, the GUAM (Georgia, Ukraine, Azerbaijan and Moldova)
countries ended their summit with a joint statement confirming
security cooperation in the region. In addition, President
Aliyev of Azerbaijan announced that crude oil from the Caspian
Sea will be supplied to the pipeline between Ukraine and Poland.
On June 18, Deputy Minister for Foreign Affairs Mitoji Yabunaka
met with the Foreign Ministers and/or Vice Ministers of GUAM
countries in Baku for the first time. At the meeting, the
participants agreed to strengthen the relationship in the
framework of "GUAM Plus Japan".

Yabunaka proposed the establishment of a working level energy
conservation workshop within the framework starting JFY 2007,
while GUAM countries showed great interest in Japanese investment
particularly in energy and transportation. Yabunaka expressed
interest in making "GUAM Plus Japan" a regular meeting. Click
here for the joint press statement. (ECON: Eriko Marks)

7. (U) New Officers in Econ Section
---------------------------

The Econ section welcomes Charlotte "Charlie" Crouch and Carrie
Bergstrand. Charlotte hails from California and has served in
Panama as the Pol/Mil officer and South Korea as a consular
officer. Her portfolio includes aviation, distribution of postal
privatization and import controls. Prior to joining the service,
Charlie served 13 years as a Marine Staff Sergeant in both the
U.S. and Japan.

Carrie hails from Wisconsin, and before coming to Embassy Tokyo,
she completed one year language training at FSI Yokohoma. Her
portfolio includes export controls and Latin America. Prior to
joining the service, Carrie managed a Foreign Exchange Program.
(Econ: Virsa Hurt)

8. (U) New Intern Antonio Gonzales
---------------------------

The Tokyo Economic Section welcomes Antonio Gonzalez. Gonzalez
is a graduate student at the University of California, San
Diego's Graduate School of International Relations and Pacific
Studies and will be with us for the next ten weeks. His
portfolio will include bilateral FTAs, the Trade Forum, and
corporate governance.

Gonzalez learned Japanese while working in the Kansai area, and
he also speaks Spanish. On a professional level, his interests
include finance, economics, and investment analysis in Japan and
the Latin American region, as well as energy economics
(specifically biofuels).

On a more personal note, Gonzalez enjoys martial arts (Aikido,
Judo, and Capoeira), hiking, and rock climbing. He can be
reached at TMPGonzalezA@state.gov. (ECON: David DiGiovanna)

9. (U) Fourth of July Celebration
---------------------------

The 231st Fourth of July celebration, held at the Ambassador's
residence, hosted close to 1,600 people from the American,
Japanese and International community. In addition to foreign
dignitaries, Japanese government officials, and the U.S. business
people, other special guests included Tokyo Disneyland's own
Mickey and Goofy and even Uncle Sam himself came to join in the
festivities. Musical entertainment included the Pacific Air
force Band, the Nemunoki Children's Choir and a special
appearance by the King of Rock-n-Roll, Elvis Presley.
The food menu appeared to be endless as tables of BBQ hotdogs,
hamburgers, fruits, and other delicious goodies filled the
walkways. Vendors including Starbucks, Quizno's Subs, Dominos,
Coldstone's Creamery, and Krispy Kreme donuts added to the
festivities and brought a touch of the United States.
Ambassador Schieffer and Mrs. Schieffer as well as the Embassy-
wide community worked together to make this one of the most
successful, patriotic, and fun-filled Fourth of July celebrations.

TOKYO 00003127 004 OF 004

(Econ: Virsa Hurt)

10. (U) Red Sox Japanese Imports Thriving at Season's Halfway
Point
-----

Japanese imports Daisuke Matsuzaka and Hideki Okajima continue to
thrive in Boston. Matsuzaka logged another dominating
performance against Akinori Iwamura and the Tampa Bay Devil Rays
on the Fourth of July. He struck out eight and left the game
after eight scoreless innings. The Red Sox won 4-1. In his last
six starts, Matsuzaka has given up only six runs.

His Japanese teammate on the Red Sox, Hideki Okajima, meanwhile
continues to make a good case that he is the best relief pitcher
in baseball. He has appeared in ten straight games without
giving up a run since June 3, and his earned runs average is now
at 0.88.

In a separate development, the Associated Press reported on July
4 that the Red Sox have signed a "strategic alliance" with the
Chiba Lotte Marines of Japan's Nihon Pro League (NPL). According
to the report, the two teams will share player evaluations,
statistical analysis, and possibly engage in player exchanges at
the minor league level. (ECON: Nicholas Hill)

11. (U) Kei Igawa Loses to Oakland
---------------------------

The Yankees $46 million pick up imploded June 30 under a wilting
sun at Yankee Stadium. The home team lost to the visiting A's
and dropped four games under 500. Igawa's record in New York
dropped to 2-2, and his ERA is 6.91.

Only the sushi restaurant owners of Scranton/Wilkes-Barre are
smiling -- with the prospect that their favorite son could return
to pitch in the southeast Pennsylvania baseball hotbed, bringing
back scores of Japanese fans in his wake.

Igawa pitches again for the big club on July 5, a day after the
Yankees lost 6-2 to Minnesota -- George Steinbrenner's birthday -
- and dropped 12 games back of the Red Sox. (ECON: Nicholas
Hill)

12. (U) U.S.-Japan Baseball Relations
---------------------------

Listener on Line 2: That nice intern told me I was on hold for
'Car Talk' - how did I get re-directed to THIS show? But since
I'm on the air, I'm worried about the rapidly deteriorating U.S-
Japan balance of trade in baseball services. Many point the
finger at excessive competition in the AL East Division
(www.ThereGoThoseALEastCraziesAgain.com) - what gives?
Signed,

Editor's reply: Thank you for your views. We are gratified to
have such a large readership in Enid. We only regret that we
don't have enough space available to answer all the letters we
receive from there.
SCHIEFFER

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