Cablegate: Daily Summary of Japanese Press 10/18/07

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UNCLAS SECTION 01 OF 12 TOKYO 004870

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DEPT FOR E, P, EB, EAP/J, EAP/P, EAP/PD, PA;
WHITE HOUSE/NSC/NEC; JUSTICE FOR STU CHEMTOB IN ANTI-TRUST DIVISION;
TREASURY/OASIA/IMI/JAPAN; DEPT PASS USTR/PUBLIC AFFAIRS OFFICE;
SECDEF FOR JCS-J-5/JAPAN,
DASD/ISA/EAPR/JAPAN; DEPT PASS ELECTRONICALLY TO USDA
FAS/ITP FOR SCHROETER; PACOM HONOLULU FOR PUBLIC DIPLOMACY ADVISOR;
CINCPAC FLT/PA/ COMNAVFORJAPAN/PA.

E.O. 12958: N/A
TAGS: OIIP KMDR KPAO PGOV PINR ECON ELAB JA

SUBJECT: DAILY SUMMARY OF JAPANESE PRESS 10/18/07

Index:

(1) Simulation on new antiterrorism legislation (Mainichi)

(2) Interviews with Yukio Okamoto and Kenji Isezaki on MSDF
refueling operation (Asahi)

(3) Military commentator Keisuke Ebata: Continued Japan's refueling
operation significant (Yomiuri)

(4) Editorial: Whether new special antiterrorism bill will clear
Diet relies on prime minister's determination (Asahi)

(5) Widening gulf between LDP and DPJ over personnel appointments
that require Diet approval (Sankei)

(6) Government to get down to work to hike consumption tax: "It will
be necessary to raise the tax to between 11 PERCENT -17 PERCENT "
(Asahi)

(7) Okinawa City Assembly to adopt a rape protest resolution
(Okinawa Times)

(8) FTC's draft amendments to Antimonopoly Law set vague standards
on fines; Ruling camp criticizes measures to protect subcontractors
as insufficient (Asahi)

(9) Editorial: Triangular mergers: Use system instead of just being
scared (Sankei)

ARTICLES:

(1) Simulation on new antiterrorism legislation

MAINICHI (Page 3) (Slightly abridged)
October 18, 2007

The government yesterday submitted to the ongoing Diet session a new
antiterrorism bill to extend the Maritime Self-Defense Force's
(MSDF) refueling mission in the Indian Ocean. This is the first bill
over which the ruling and opposition parties will face off in the
Diet under the Fukuda administration. However, many in the
government and the ruling camp remain cautious about ramming the
bill through the Diet by resorting to strong-arm tactics, which
could lead to dissolving the House of Representatives. Some are
calling for carrying deliberations on the bill over to a regular
Diet session next January. Meanwhile, some lawmakers, with an eye on
the next House of Representatives election, are skeptical of Prime
Minister Yasuo Fukuda's stance of keeping a low profile toward the
opposition camp. The prime minister is likely to be pressed to make
a hard decision while carefully paying attention to public opinion.

(1) Bill passed in Lower House but killed in Upper House

A senior member of the Liberal Democratic Party's Machimura faction
said: "We should have the bill passed at least by the Lower House.
If the bill is killed in the House of Councillors, we should
resubmit it in the next regular Diet session."

The current extraordinary Diet session is to end Nov. 10. The
Democratic Party of Japan (DPJ), which has control of the House of
Councillors, remains opposed to the government's plan to continue

TOKYO 00004870 002 OF 012

the MSDF refueling mission. If the ruling camp tried to enact the
bill in the current session in a high-handed manner, the political
situation would inevitably grow tense later this year.

Floating under such a situation is the idea presented by senior
member of the Machimura faction. In this case, the session would be
extended by only less than one month. If the bill cleared at least
the Lower House, the prime minister would be able to report on this
result during a visit to the US scheduled for Nov. 17-19. In a
meeting with President Bush, Fukuda would be able to shift the
responsibility for the suspension of the refueling operation to the
DPJ.

If the bill was carried over to the ordinary Diet session, priority
would naturally be given to deliberations on a FY2008 budget bill.
In a press conference held just after coming into office, the prime
minister had also said: "The people's daily lives must not be
negatively affected." The start of deliberations on the bill would
be sometime after the budget bill passes the Diet next March, at the
earliest. In this case, the refueling operation would be suspended
for more than six months after the current law expires on Nov. 1.

The showdown between the ruling and opposition parties is expected
to heat up next spring, when budget-related bills are also to be
deliberated on. Some observers see that DPJ Secretary General Yukio
Hatoyama, keeping this in mind, suggested dissolution of the Lower
House through talks, after the budget bill comes into effect.

(2) Deliberations on bill carried over to next session

In the government and the ruling camp, there is also an option of
adjourning the current Diet session on Nov. 10 as initially
scheduled, without having the bill passed the Lower House. In this
case, the government and the ruling camp will be able to avoid harsh
attacks from the opposition camp over the allegation of diversion of
MSDF-provided fuel for use in the Iraq war.

In a joint meeting of LDP national defense departments yesterday,
former Defense Minister Yuriko Koike indicated that it would be
better to close the current session without extending it. She said:
"Regarding the refueling issue, whenever negative aspects are
reported, public opinion tends to react negatively to the refueling
mission, as is the case of politics-and-money scandals." Those who
are calling for swiftly ending the session are also worried about
the DPJ's move to demand summoning former Vice Defense Minister
Moriya for unsworn testimony regarding the Defense Agency's
correction of the amount of Japanese fuel provided to US supply
ships.

Even so, if the bill is carried over to the next session,
deliberations on it will not start before the budget bill for next
fiscal year passes the Diet.

If Japan gives up on a resumption of the MSDF refueling mission
without having the bill passed the Lower House, Japan will find it
difficult to explain Japan's stance to the US, which has offered
all-out cooperation to the Japanese government.

US Ambassador to Japan Thomas Schieffer met with Chief Cabinet
Secretary Nobutaka Machimura at the Prime Minister's Office on Oct.

SIPDIS
16 and renewed his call for Japan's continued refueling service.
Should the US become skeptical of the prime minister's eagerness,

TOKYO 00004870 003 OF 012

the result of the planned US visit by the prime minister might be
adversely affected.

In a meeting of the Upper House Budget Committee yesterday, the
prime minister dodged a question by a DPJ member asking the
possibility of ending the Diet session without extending it, just
saying: "It is a matter on which the Diet should decide."

(3) Bill enacted after re-voting in Lower House

Even if the bill is voted down in the Upper House, the coalition can
still ram it through the Diet by a two-third Lower House overriding
vote. But some lawmakers in the ruling bloc are reluctant to use
such forceful tactics.

Re-voting ignores the intentions of the Upper House, which reflects
public opinion. Given this, if the bill is brought back into the
Lower House for a revote, the opposition camp will surely react
strongly, defining the approach as "arrogance of power." In this
case, the opposition bloc may submit a censure motion against the
prime minister to the Upper House and adopt it. Although a censure
motion has no binding power, a senior member of the ruling camp's
election committee says: "If we are driven into corner over a
censure motion, the government will inevitably be driven into
dissolving the Lower House for a snap election. If an election is
carried out under such a situation, the ruling camp will suffer a
major loss without fail. We must absolutely avoid this situation."
The New Komeito, which insisted on "one year" as the new
legislation's term of validity, also remains extremely cautious
about a revote.

Former Chief Cabinet Secretary Kaoru Yosano under the Abe
administration reiterated the justification of the provision for the
two-third vote (in Article 59 of the Constitution), saying, "The
provision can be commonly used." He reportedly stressed the
effectiveness of this provision to LDP Diet Affairs Committee
Chairman Tadamori Oshima.

Lawmakers who emphasize the effectiveness of re-voting seem to be
judging that if Prime Minister Fukuda keeps a low profile, he may
not be able to compete with DPJ President Ichiro Ozawa. To counter
Ozawa, they think that attacking is the best defense. But the prime
minister cannot easily resort to the tactics advocated by Yosano and
others that could lead to dissolving the Lower House for general
elections.

(2) Interviews with Yukio Okamoto and Kenji Isezaki on MSDF
refueling operation

ASAHI (Page 18) (Abridged slightly)
October 18, 2007

Foreign affairs commentator Yukio Okamoto -- Terrorism must be
prevented from spreading to Asia

-- When the government decided on the refueling operation in 2001,
you were serving as an adviser to the Cabinet Office.

Okamoto: Japan had several options back then, but Prime Minister
Koizumi and Chief Cabinet Secretary Fukuda chose the refueling
mission. I think it was a pragmatic decision.

TOKYO 00004870 004 OF 012

Many countries are associated with Afghanistan in three areas:
Operation Enduring Freedom (OEF), the International Security
Assistance Force (ISAF), and the Provincial Reconstruction Team
(PRT). Japan is refueling naval vessels of the countries engaged in
the maritime interdiction operations (MIO) as part of OEF. Although
the refueling operation is least dangerous and not so costly, it is
appreciated by other countries.

-- How would other countries be affected if Japan discontinued its
services?

Okamoto: US and British refuelers are operating in the same waters,
so they would be able to continue with MIO even without Japan.
Whether or not to drop out of the international effort of 40
countries that are engaged in the war on terrorism in Afghanistan is
a serious question for Japan.

-- Will the government be able to convince the general public about
the rationale behind the refueling operation?

Okamoto: Why doesn't it say that they are preventing terrorism from
spreading to Asia? Terrorism is moving east, engulfing the
Palestinian territories, Iraq, Afghanistan, and Pakistan. They are
working hard so as not to allow terrorists take control of the sea.

-- Is there any option other than providing fuel for Japan?

Okamoto: Japan can cooperate in providing information, which is more
desirable. Two MSDF vessels -- a supply ship and a destroyer -- are
now in the Indian Ocean. But because they are playing only a
supportive role, Japan is regarded as an associate MIO member. Japan
is not informed of the overall picture of the operation, either.
Japan would be able to become a full member if it reduces the two
vessels to one destroyer and provides information on suspicious
boats. Japan would not have to conduct ship inspections that require
use of weapons. It would just have to provide information on the
sea. Such would not constitute an exercise of the right to
collective self-defense.

-- Democratic Party of Japan President Ichiro Ozawa has proposed
participation in the ISAF.

Okamoto: Afghanistan has claimed 71 Canadian lives. The ISAF would
be more dangerous than the Ground Self-Defense Force's operations in
Samawah. I wonder if such is really possible. Replacing the
refueling mission with ISAF participation sounds ridiculous.

Tokyo University of Foreign Studies Prof. Kenji Isezaki -- Better
security possible with civilian power

-- What is your view of Afghanistan today?

Isezaki: The security situation has deteriorated. The country is
producing over 90 PERCENT of poppies consumed in the world. No exit
is in sight. Poverty produces terrorists. The anti-terrorist
operations by the US military and other countries have destroyed
people's livelihood and drawn a backlash, turning moderates into
terrorists. America's self-centered actions have fueled such a
trend. A large number of terrorists have been produced as a result
of the training of several days in the process of building the
corrupt Afghan police structure. The country has been swayed by the
Bush administration's quest for results.

TOKYO 00004870 005 OF 012

-- Has the refueling operation helped improve the situation?

Isezaki: I seriously doubt it. Although the government indicated as
if the country has received words of gratitude and requests from
other countries, the Afghan government and people did not know about
Japan's activities until recently. The refueling mission is only a
cheap means to demonstrate Japan's assistance to the United States.
The government and ruling parties think sending SDF troops is the
only way to contribute to the international community, which is not
true. This is a chance to think of ways of bringing stability to
Afghanistan and reducing terrorism.

-- What do you think Japan should do?

Isezaki: First, Japan should withdraw the MSDF and break with the
military sector. I would strongly recommend a security sector reform
(SSR) project. Japan's civilian power has succeeded in the
disarmament, demobilization and reintegration (DDR) of military
cliques as part of the SSR. Reconciliation between the Afghan
government and moderate Taliban groups is also vital. It is becoming
a reality in Afghanistan, though the United States does not want to
recognize it. Japan, a nonmilitary and non-Christian country, can
take the initiative.

-- Won't MSDF withdrawal adversely affect the Japan-US alliance?

Isezaki: I don't think so. Actively playing a role in improving the
situation in Afghanistan would be welcomed, and that would actually
help the United States. Japan should end its practice of dispatching
the SDF for the sake of the US' complacency.

-- What do you think of DPJ President Ozawa's argument that Japan is
allowed to take part in a peacekeeping operation backed by a UN
resolution?

Isezaki: His logic is legally correct. No Japanese troops have been
killed on the ground due to the misconception that Japan has never
been involved in the country militarily. But once ground troops are
sent there, they would definitely become targets of terrorism.

(3) Military commentator Keisuke Ebata: Continued Japan's refueling
operation significant

YOMIURI (Page 4) (Full)
October 18, 2007

Countless numbers of tankers navigate back and forth through the
Indian Ocean. If terrorists became active in those waters, and they
scattered mines across the ocean, the global economy would be thrown
into a panic. Therefore, in order to provide security for the
region, it is crucial for Japan to continue to support the maritime
interdiction operation. It is not easy to understand why the
government was adamant about the refueling activities. The
government has explained that the costs of the refueling operation
is relatively modest and that the operation is safe. However, it is
possible for Japan to search and monitor suspicious ships on the
ocean by using the Maritime Self-Defense Force's P-3C antisubmarine
aircraft. Therefore, it is regrettable, that the government did not
discuss any other options than the refueling activities.

I have heard that the Democratic Party of Japan (DPJ or Minshuto) is

TOKYO 00004870 006 OF 012

considering civilian assistance, but there are such problems as the
standards for use of arms and the sharing of intelligence with other
countries. Other countries' militaries cannot afford to protect
Japan.

Acts of terror continue on a global scale. However, the validity of
the new legislation is one year. It is necessary to promote a
national debate in a flexible manner as to what Japan should and can
do for global security, including the establishment of a permanent
law.

(4) Editorial: Whether new special antiterrorism bill will clear
Diet relies on prime minister's determination

SANKEI (Page 2) (Full)
October 18, 2007

The new antiterrorism special measures bill was finally submitted to
the diet. As the current law is to expire in two weeks from now, it
is unavoidable that the Maritime Self-Defense Force's refueling
operation in the Indian Ocean will be suspended. In an attempt to
resume the MSDF activities as quickly as possible, the government
and ruling coalition must make their utmost effort to enact the new
antiterrorism bill.

Prime Minister Yasuo Fukuda will likely be forced to make tough
decisions on whether to extend the current Diet session and whether
to take a second vote on the new legislation at the House of
Representatives. Some in the ruling coalition camp are cautious
about dealing with bills in the ongoing extraordinary session. From
the viewpoint of fulfilling Japan's international responsibility by
participating in the war on terror, the prime minister is required
to adamantly push through the legislation.

The main opposition Democratic Party of Japan (DPJ or Minshuto) has
remained opposed to the MSDF refueling operation. The largest
opposition party, however, will look into a counterproposal to
provide a contribution in personnel in Afghanistan. If the
counterproposal is aimed for the sake of its reputation or to buy
time, the qualifications of the DPJ as a responsible party will be
questioned.

There was a two-month political vacuum after the July Upper House
election that resulted in a delay in the submission of the
legislation. The LDP-New Komeito coalition bears primary
responsibility for the delay in submitting the bill as it did not
take any steps immediately after the Lower House race.

The expectation is that the new legislation will be voted down in
the Upper House, a majority of which is held by the opposition camp,
and it then will be put to a second vote in the Lower House. Unless
there are special changes in deliberations in the upper chamber, the
ruling coalition should take a second vote in the Lower House to
enact the bill. It is unacceptable to carry the bill over to the
ordinary session next year due to political motives.

The new bill does not require ex post facto Diet approval and
reporting, but it shortens the term of the MSDF refueling operation
from the current two years to one year. It is desirable that the SDF
dispatch overseas after the two Diet chambers approve it. But as
long as the DPJ opposes continuing the refueling mission, the
government has no choice but to omit procedures as much as

TOKYO 00004870 007 OF 012

possible.

However, a response requiring frequent legal changes to a refueling
law might give the impression that Japan is reluctant to take part
in the war on terror. The government should hurry to conduct debate
on a permanent law with an eye on improving the legal structure.

The DPJ is looking into a possibility of providing manpower
assistance to the International Security Assistance Force (ISAF),
but it has yet to decide on such specific measures as what the
contents of activities are and whether to dispatch Self-Defense
Force troops to Afghanistan. It is overly irresponsible to establish
a law just to say there is a law to send someone overseas.

(5) Widening gulf between LDP and DPJ over personnel appointments
that require Diet approval

ASAHI (Page 4) (Full)
October 17, 2007

LDP's proposal of pre-screening turned down

A gulf is widening between the ruling and opposition camps over the
appointments of council and committee posts that require Diet
approval. Although the ruling Liberal Democratic Party (LDP)
proposed to the main opposition Democratic Party of Japan (DPJ or
Minshuto) that the largest opposition party participate in the
pre-screening between the government and the ruling camp on the
appointments. The DPJ, however, rejected the proposal. Calling for
consultations at center stage, the DPJ intends not to hesitate to
oppose appointments. With the expiration of terms of posts
approaching, the number of appointment bills on which the Diet is
expected to take a vote is 28 from 14 organizations. Chances are
that some appointments will not be approved in the current session
and will be carried over to the next ordinary session.

With the Diet divided -- the ruling bloc holding a solid Lower House
majority and the DPJ-led opposition in control of the Upper House --
the LDP tried to have the DPJ take part in its consultation-policy
line, by letting it join the pre-screening of the appointments of
government panel posts. The approval of both Diet houses is required
for the appointments of posts. Disapproval means the Diet decides a
certain person is not suitable for the post. So, the LDP Diet
Affairs Committee Deputy Chairman Kenji Kosaka proposed to the DPJ
pre-consultations, saying "I want the DPJ, the largest party in the
Upper House, to understand the appointments and bear responsibility
like the ruling camp does."

Soon after the inauguration of the Fukuda government, a senior LDP
Diet Affairs Committee member suggested an idea of getting the DPJ
involved in the pre-screening. The DPJ did not immediately reject it
even though it has refused to hold all prior consultations.

The following exchanges were carried out in early October.

Kosaka said: "Those who are appointed will be inconvenienced. As we
will disclose all information, I want you to agree to hold
discussions in private."

DPJ Diet Affairs Committee Chairman Kenji Yamaoka responded: "If so,
persons in charge of the issue should discuss it more."

TOKYO 00004870 008 OF 012

However, the DPJ formally informed the LDP last weekend its refusal.
Following this, the LDP confirmed its policy of screening on its own
and starting the Diet procedure.

The term of three of the Transport Council members is to expire
soon. The Ministry of Land, Infrastructure, and Transport has pushed
ahead with the appointment work to obtain informal consent from the
Prime Minister's Official Residence. Since the DPJ once opposed the
appointment of council members, there is no guarantee that the
ministry will get Diet approval. In case the appointments of three
committee members are rejected, the council will not be able to
fulfill its duties due to a lack of a majority. The term of one of
the three commissioners of the Board of Audit will end next
February.

The ruling coalition will shortly pre-screen 28 appointments at once
and submit them to the Diet as a bill.

Minshuto wary about cooperation

Hirohisa Fujii, supreme adviser of the Democratic Party of Japan
(DPJ or Minshuto), explained the reason for his party opposing
pre-consultations in this way: "When we discuss one issue from
scratch (with the LDP), it is the same that we do so for forming a
'grand coalition.' We won't be able to bring about a two-party
system."

The DPJ is wary of the word "pre-screening." Pre-screening means
coordination on bills between the government and ruling camp. If the
DPJ takes part in such a framework, it will be integrated with the
government. The party will have no choice but to offer non-cabinet
support little by little. Since the leading opposition party aims to
take political power, it seems that the largest opposition party
senses ill intentions from the LDP.

Should the DPJ be treated like a ruling party, the alliance with
other opposition parties might be destroyed. Four opposition parties
have agreed to fall in line on a vote on the Diet approval-required
appointments.

If the DPJ disapproves any appointments, those appointments will not
be realized. This was demonstrated in a meeting on Oct. 10 of the
DPJ's General Affairs Division. NHK Executive Committee Chairman
Shigetaka Komori, who was invited to the meeting, came under
criticism for having called on NHK to call attention to its
programming during election campaigning. This is a message from the
DPJ that the party will not hesitate to oppose the appointments of
three NHK executive members, which will be put to a vote at the Diet
in the ongoing session. The government's draft appointments will be
submitted to a director meeting of the Lower House Steering
Committee after going through the pre-screening in the ruling camp.
The DPJ decided on the 16th to deal with this issue in an executive
meeting, including Ozawa, after internal discussion. The party is
considering summoning candidates to the Diet in order to determine
whether to approve or disapprove.

(6) Government to get down to work to hike consumption tax: "It will
be necessary to raise the tax to between 11 PERCENT -17 PERCENT "

ASAHI (Page 1) (Full)
October 18, 2007

TOKYO 00004870 009 OF 012

A hike in the consumption tax has surfaced as a major policy issue
for the Fukuda administration. The Cabinet Office during a meeting
of the Council on Economic and Fiscal Policy yesterday released
estimates that in order to maintain the present level of medical and
nursing care services, a tax hike worth approximately 14-31 trillion
yen would be necessary and that if that amount is covered with a
hike in the consumption tax, it would become necessary to hike the
rate to between 11 PERCENT -17 PERCENT . Chief Cabinet Secretary
Machimura and Liberal Democratic Party (LDP) Tax System Research
Council Subcommittee Chairman Kaoru Yosano also indicated their
willingness to take a second look at the consumption tax rate,
putting forward a clearer stance of the administration tacking this
issue in tandem with maintaining social security services.

Prime Minister Fukuda during an Upper House Budget Committee meeting
held prior to the CEFP meeting stressed the need to speed up debate
on the tax hike issue, noting, "Even if it was found that it is
impossible to finance an increase in social security expenses after
completing spending reform, it would be impossible to cut social
spending." Machimura also told a news conference, "In the long-term
perspective, probably nobody will think that the consumption tax
could be left unchanged." Yosano during an interview with Asahi
Shimbun the same day indicated his intention to press ahead with the
tax reform drive with a hike in the consumption tax in mind. He
said, "We must discuss indirect taxes as a major tax item, involving
the entire Japanese society."

The Fukuda administration wants to address the consumption tax hike
issue as a key agenda item, because it wants to consolidate the tax
system in a way that can cope with a future increase in social
security expenses with the end-of-the year annual tax code revision
close at hand.

The estimates made by the Cabinet Office are intended to support the
stance of the government and senior ruling party officials.

The estimates were made based on two premises -- 14.3 trillion yen,
the government goal for a spending cut to be achieved by fiscal
2011, and 11.4 trillion yen. Estimates are thus made based on a
total of eight cases, for instance, assuming a nominal growth rate
of 3.2 PERCENT and 2.1 PERCENT in the fiscal 2012-2025 period.

Even in the most optimistic case, in which 14.3 trillion in spending
cuts is achieved, a tax hike worth at least 14.4 trillion yen would
be needed in fiscal 2025 in order to fund payouts for medical and
nursing care services and interest payments for government bonds. In
terms of the consumption tax, it would be necessary to raise it to
up to 10.7 PERCENT . In the most pessimistic case, a tax hike worth
up to 31 trillion yen would be necessary in fiscal 2025. In terms of
the consumption tax, a hike to17.4 PERCENT would be necessary.

(7) Okinawa City Assembly to adopt a rape protest resolution

OKINAWA TIMES (Page 2) (Full)
October 18, 2007

OKINAWA -- The Okinawa City Assembly special base investigative
committee (chaired by Katsue Yonamine) decided on Oct. 17 to hold a
special meeting on Oct. 22 to propose a protest resolution and an
opinion letter regarding a rape resulting in bodily injury by a
21-year-old son of a US serviceman residing on Kadena Air Base, on
the grounds that the inhumane crime trampling on human rights is

TOKYO 00004870 010 OF 012

intolerable. The assembly is likely to unanimously adopt them.

The protest resolution says: "It is extremely regrettable that an
incident of this sort occurred again despite our repeated requests
to the US military for preventive measures and stricter discipline
in the wake of a series of incidents involving US military personnel
or civilian employees." It also calls for an apology and
compensation to the victim and the prevention of a similar
occurrence.

(8) FTC's draft amendments to Antimonopoly Law set vague standards
on fines; Ruling camp criticizes measures to protect subcontractors
as insufficient

ASAHI (Page 11) (Full)
October 17, 2007

The Fair Trade Commission (FTC) released a report outlining its
basic plans to revise the Antimonopoly Law yesterday. The report
includes measures to protect subcontracting firms, avoiding such
drastic measures as slashing surcharge rates again. Some in the
ruling camp criticize the measures to help small businesses as
insufficient. The report also sidesteps a review of the current
judgment system in which the FTC makes judgments on complaints of
punishment handed down by the FTC itself, leaving a cause of
conflict for the future. The FTC wants to compile a bill by the end
of the year, with an eye on submitting it to the regular Diet
session next year, but coordinating views is likely to be
difficult.

In a meeting of the Liberal Democratic Party's Research Council on
the Antimonopoly Law (chaired by Mitsuo Horiuchi) yesterday, former
Justice Minister Okiharu Yasuoka said: "The report represents the
FTC's views. It is not correct to think that all the proposals in
the report will be included (in the bill)."

Under the judgment system, the FTC plays both roles of prosecutor
and judge. Nippon Keidanren (Japan Business Federation) calls for a
review of the system to enable complaints to be dealt in accordance
with legal procedures. Keidanren intends to work on the LDP to
stipulate in a revised version the abolishment of the judgment
system. Participants in the meeting also presented views supportive
of this idea.

The report further proposes expanding the scope of acts that could
be subject to administrative surcharges to include major companies
abusing their dominant positions against smaller firms and other
illegal practices. A member of the LDP, which suffered a crushing
defeat in the House of Councillors election this summer, evaluated
this proposal positively, saying: "The measure will contribute to
protecting subcontractors and small to medium-sized firms." Even so,
the FTC has left standards vague for actually imposing fines.

The FTC report also suggests changing the current ex post facto
reporting system on stock transactions into a prior reporting
system. But Keizai Doyukai (Japanese Association of Corporate
Executives) yesterday called for full consideration to be given to
ensure speedy procedures so as not to delay merger and acquisition
(M&A) plans, which need flexibility. Keidanren also worries about
the proposed prior system, a senior member saying: "It will be
undesirable if stock transactions are not carried out smoothly,
affecting business activities negatively."

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(9) Editorial: Triangular mergers: Use system instead of just being
scared

SANKEI (Page 2) (Full)
October 4, 2007

Leading US financial group Citigroup will wholly own the Nikko
Cordial Group under its wing using a triangular merger method.

The Japan affiliate of Citigroup, which has about 68 PERCENT stake
in Nikko, said it would transfer its parent company's stocks listed
on the US market as merger consideration in exchange for obtaining
all of the remaining Nikko stocks.

Under the triangular merger system, when a parent company obtains
another company through its subsidiary, a stock-swap using the
parent company's stocks is allowed. Though the target company of the
merger this time between the Japan corporation of the Citigroup and
the Nikko Cordial Group is a fully-owned company, this is the first
merger using the triangular merger method, which has become
available to foreign companies since this May.

A triangular merger makes flexible M&As possible, since it does not
require merger funds. In particular, large foreign companies with
large capital stock issues and high-market value find it easier to
buy out Japanese companies.

Voices alarmed about foreign companies have grown stronger in
business circles. As a result, this method was put on hold for a
year even after the amended Corporation Law went into effect.

Consent at a board meeting and shareholders meeting of a target
company is needed in order to apply the triangular merger method. In
particular, a special resolution requiring approval from more than
two-thirds of shareholders with a voting right has to be adopted at
a shareholders meeting. Many companies have adopted measures to fend
off takeover bids while the law was put on hold. High barriers exist
to fight off hostile takeover bidders armed with this method.

The reality is that even if conditions for using the triangular
merger method were made tougher, it would still be possible for
foreign companies to buy out Japanese companies using the
conventional method, if gigantic overseas companies are determined
to do so. On reason is because there is a global money glut as
represented by oil money.

Instead, we should probably look at the downside of becoming
strongly alarmed about triangular mergers, that is to say, if
foreign investors feel the Japanese market is reluctant about this
method, they might avoid investing in Japan, judging that its market
is closed.

Triangular mergers are effective for the reorganization of domestic
industries. As is represented by the home electronics industry, a
war of attrition among numerous companies is going on in some areas.
Such industries need reorganization in order to effectively use
human resources and capital.

The original aim of introducing triangular mergers was to encourage
investment by foreign countries and the reorganization of domestic
companies. We want to make the most of the method to revitalize the

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economy and strengthen companies' international competitiveness,
instead of being scared of it as a come on to bring in the Black
Ships --- i.e., the advance of foreign companies into Japan.

SCHIEFFER

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