Cablegate: Sub Cabinet Meetings, Dec. 6-7, U.S. Urges More

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UNCLAS SECTION 01 OF 17 TOKYO 005678

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN EAGR ETRD JA
SUBJECT: SUB CABINET MEETINGS, DEC. 6-7, U.S. URGES MORE
AMBITIOUS ECONOMIC ENGAGEMENT

Summary
-------

1. (SBU) Assistant to the President and Deputy National
Security Advisor for International Economic Affairs Daniel
Price led a deputies-level team from USTR, Treasury,
Agriculture, Commerce, and State for the U.S.-Japan Economic
Sub-Cabinet Dialogue meetings on December 6-7 in Tokyo. The
over-arching message, stated in private meetings with senior
Japanese counterparts as well as in public media events, was
that we need to put the U.S.-Japan bilateral economic
relationship on a more ambitious track, in particular in
support of global trade liberalization. More can be done to
coordinate on climate and energy policies, and to share
economic policy strategies toward China. Progress was
limited on key issues, including allowing imports of all ages
and products of U.S. beef; cooperating on food safety;
enhancing foreign direct investment opportunities; pricing
for innovative U.S. pharmaceutical products; and greater
engagement and ambition in the Doha Development Agenda.
Additionally, the regional architectures Japan has completed
to date have not included the United States, although the
U.S. market is likely the single most important driver of
East Asian private sector integration.

2. (SBU) Japanese representatives repeatedly stressed their
desire to work more closely with the United States, but often
noted domestic political factors -- chiefly the opposition
party,s control of the Upper House of Japan,s Diet which
also impedes the Japanese government's ability to proceed
with any economic policy reforms. Japan agreed in principle
with the U.S. view that bilateral or plurilateral trade or
investment arrangements must truly liberalize economic
dealings and positively shape globalization. The two sides
committed to closer cooperation on intellectual property
rights protection; secure trade; development assistance; and
energy security, and climate change. Both sides looked
forward to close coordination in the coming months, including
in the Major Economies and G-8 processes. End Summary.

Delegation List
---------------

Japan
-----

Masaharu KOHNO, Deputy Minister, Ministry of Foreign Affairs
(MOFA);
Yoichi OTABE, Director General, Economic Bureau, MOFA;
Masakazu TOYODA, Deputy Minister for International Affairs,
Ministry of Economy, Trade and Industry (METI);
Naoyuki SHINOHARA, Deputy Minister for International Affairs,
Ministry of Finance (MOF);
Takehiko NAKAO, Senior Deputy DG, International Bureau, MOF;
Masayuki YAMASHITA, Counselor, Minister's Secretariat,
International Affairs, Ministry of Agriculture, Forestry and
Fisheries (MAFF);
Kousuke SHIBATA, Deputy Minister for International Affairs,
Ministry of Land, Infrastructure and Transportation (MLIT);
Yutaka YOKOI, Minister for Economics, Embassy of Japan in the
United States

USG
---

Daniel M. Price, Assistant to the President for International
Economic Affairs and Deputy National Security Advisor for
International Economic Affairs, National Security Council;
David McCormick, Under Secretary for International Affairs,
Department of Treasury;

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Mark E. Keenum, Under Secretary, Farm and Foreign Agriculture
Service, Department of Agriculture;
John Veroneau, Deputy U.S. Trade Representative, Office of
the U.S. Trade Representative;
Christopher Padilla, Acting Under Secretary for International
Trade Administration, Department of Commerce;
Daniel S. Sullivan, Assistant Secretary for Economic, Energy
and Business Affairs, Department of State;
Robert F. Cekuta, Minister-Counselor for Economic Affairs,
U.S. Embassy in Japan;

(also attending)

A. Ellen Terpstra, Deputy Under Secretary of Agriculture,
USDA;
Robert Dohner, Deputy Assistant Secretary for Asia, Treasury;
Kurt Tong, Director for Asian Economic Affairs, NSC
Michael Beeman, Deputy Assistant USTR for Japan, USTR;
Jessica Webster, Chief for Economic Affairs, Japan Desk,
State;
Ian Clements, Japan Officer, Commerce.

Pushing Japan to Help Fulfill the Promise
-----------------------------------------

3. (SBU) Going directly to the principal U.S. message for
the meeting, DNSA Price noted that U.S.-Japan economic
relations are not living up to their promise and are lagging
behind our political-security interaction. He asked the
Japanese side to work with the United States to find a way to
make our dialogue more relevant and productive and put
relations on a more ambitious track. The United States wants
Japan to be more of a full partner both regionally and
globally. Price noted the need to resolve long-standing
bilateral economic issues that hamper U.S.-Japan relations
and to begin to fulfill the promise of what cooperation
between the world's two largest economies can realize. So
far, Price noted, the "scorecard" for concrete activities
undertaken in the Sub-Cabinet process was poor. From the
U.S. perspective, only activities related to energy security
deserved an "A."

4. (SBU) Remarking on DNSA Price's strong opening statement,
Deputy Foreign Minister Kohno observed that although the U.S.
- Japan economic relationship is mature, ties are complex and
the two societies continue to hold different values on some
questions. Kohno thanked Price for his strong opening
statement and observed the level of maturity of the
U.S.-Japan economic relationship is, to some extent, an enemy
of progress. Ties between the U.S. and Japan are complex and
the two societies continue to hold different values on some
questions. Moreover, the "score" for the relationship, Kohno
added, should be a joint score, not just an assessment of
Japan's performance. Taking the longer view, METI Deputy
Minister Masakazu Toyoda commented that the bilateral agenda
between Japan and the U.S. has become far more positive over
the last 15 years.

5. (SBU) DNSA Price acknowledged the achievements cited by
the Japanese side but emphasized USG concerns over drift or
apathy in the relationship. Neither the bilateral
Sub-Cabinet meetings nor Japan,s upcoming G-8 presidency
should simply issue statements and work plans that do not
yield substantive progress. Commerce Acting U/S Padilla
stressed that the lack of acute frictions in the U.S.-Japan
relationship does not mean problems do not exist and pointed
to the range of issues -- the Doha Development Agenda,
approaches to China, that development of regional
architecture in East Asia -- where opportunities for positive
joint action by the U.S. and Japan might be lost.

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6. (SBU) DFM Kohno argued that much of the drift results
from political uncertainties in both countries and pointed to
the November Summit between President Bush and PM Fukuda as a
sign of continued strong cooperation. Kohno also expressed
annoyance at "anonymous criticisms" of Japan's position on
economic issues that had appeared in the U.S. press in the
run-up to the meeting. Kohno referred to PM Fukuda's
interest in revitalizing intellectual exchanges between the
U.S. and Japan to illustrate his country's interest in better
bilateral communication and to promote the global role of the
relationship.

---------------------
"Concrete Activities"
---------------------

Secure Trade
------------

7. (SBU) A/S Sullivan noted progress on secure trade
cooperation through Secure Trade digital video conferences
and a late November visit to Japan by a joint Department of
Energy and Department of Homeland Security team, and work on
the U.S. Customs Trade Partnership Against Terrorism (C-TPAT)
and Japan's Authorized Economic Operator (AEO) programs.
Acting U/S Padilla pointed out the U.S. Customs Commissioner
and the EU,s head of Customs were working together as part
of the U.S.-EU dialogue and that it might be useful for U.S.
and Japan customs authorities to meet. Deputy Trade Minister
Toyoda stressed that secure trade is a Japanese government
priority, but said Japan sees the need to balance security
considerations with minimizing the burden of security
measures on industry. The business community desires
effective security systems which do not inhibit the smooth
and efficient flow of goods. Japan would like mutual
recognition between C-TPAT and Japan's AEO program, and
Toyoda saw value in working too with the EU on mutual
recognition to ensure integration.

8. (SBU) DG Otabe noted the work in the G-8,s Roma-Lyon
Group on international criminal and terrorism issues and
suggested this G-8 forum could also help ensure
complementarity in bilateral and regional/global approaches.
MOF's Deputy DG Nakao said his ministry, which oversees Japan
Customs, is looking at how best to implement mutual
recognition in the Container Security Initiative (CSI). MOF
had given a proposal to DHS over the summer and DSNA Price
clarified the next step is a DHS response. GOJ officials
plan to solicit specific feedback from business to "smooth
out" problems as security programs are implemented. MLIT DG
Shibata said his ministry enjoys good working level
cooperation with the U.S. across a range of issues and he
pointed to October,s successful meetings in Osaka on land
transportation.

9. (SBU) Both countries were moving ahead in developing a
pilot program on Megaports, A/S Sullivan noted. Deputy
Foreign Minister Kohno and Deputy Trade Minister Toyoda each
expressed GOJ commitment to move ahead on this DOE initiative
for radiological cargo screening, a goal echoed by MLIT.
Implementation is a question of when, not if, Toyoda said.
Kohno noted the Diet should approve a supplementary budget by
March with a view to launch a pilot project by April. MLIT
too echoed GOJ determination to move forward on Megaports.
(Note: In separate meetings during the DHS and DOE visits in
November, MOFA, MLIT and MOF representatives suggested it
would take about two months to open the bid for the equipment
and installation and about four months to install, making the
pilot port operational around the end CY 2008. End note.)

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10. (SBU) DFM Kohno noted DHS and MLIT are cooperating well
in the production stages of the Maritime Asset Tag Tracking
System (MATTS) and moving toward initial tests (NOTE: MATT
devices will be used to determine if a container has been
tampered with while in transit. End note.)

11. (SBU) MLIT Deputy Minister Shibata reminded the U.S.
delegation that, during an IMO-organized meeting, Japan
invited the U.S. to contribute to a fund for the safety and
security of the Malacca Straits. It would be a collaborative
fund including, among others, Japan, the U.S., Malaysia,
Singapore, and Indonesia. Shibata noted the U.S. Coast
Guard had pledge to work on the issue. The U.S. side said
they would meet with the Coast Guard on the issue.

FTA Information Exchange
------------------------

12. (SBU) MOFA Economic Affairs DG Otabe reviewed progress
on the FTA information exchanges with the United States and
indicated an interim report on the process could be finalized
on December 7. According to DFM Kohno, the next set of
information exchanges should include discussions of how to
deal with resource-producing countries. Responding to DNSA
Price on the reasons behind this interest, DG Otabe noted
Japan has included provisions in its economic partnership
agreements (EPAs) with Brunei and Indonesia that require
signatories to be "transparent" with respect to introduction
of laws or regulations that might restrict the export of
energy or other resources. Observing the investment chapters
of U.S. FTAs would prevent such behavior without such
specific language, DNSA Price noted this Japanese clause
resembled those the United States had included in agreements
involving state enterprises of the former Soviet Union. METI
DM Toyoda responded that the clause reflects Japanese concern
over maintaining a stable energy supply and said the NAFTA
treaty contained similar language.

13. (SBU) Agreeing the FTA information exchanges have been
positive DUSTR Veroneau recommended the final report on the
core FTA chapters should be ready by the time of the July G-8
Summit. He suggested the next round of information exchanges
then focus on elements unique to Japanese and U.S. agreements
with third countries. The overall aim, Veroneau stressed,
should be to ensure the proliferation of trade agreements
have a positive trade-creating, not trade-distorting, effect.
In this regard the U.S. and Japan should show leadership and
negotiate high-standard agreements that can be a model for
other countries.

14. (SBU) Summarizing, DFM Kohno indicated while the report
on the current exercise would be completed by the Lake Toya
G-8 Summit, any further movement toward a U.S.-Japan free
trade agreement would require a political decision that may
need to wait until the next U.S. administration. After it
was clarified that the report on FTA exchanges would describe
the current state of each country's agreements without
prescriptions for subsequent steps, DNSA Price emphasized the
importance of developed economies maintaining high standards
in their free trade agreements so as to avoid precedents that
lower the bar for subsequent agreements worldwide. Although
future tariff reductions might occur, rules were unlikely to
change once an agreement was struck, he stressed.

15. (SBU) Deputy Trade Minister Toyoda responded that Japan
looks at its EPAs as part of an evolving process that takes
into account not only principles such as those in the WTO
agreements, but also the individual capacities and
sensitivities of the partner countries. One EPA does not

TOKYO 00005678 005 OF 017

necessarily preempt including something in a subsequent EPA
in Japan's view, Toyoda said. Noting Japan always seeks
high-standard agreements, Kohno cited recent experience with
the Japan-ASEAN EPA where special treatment for least
underdeveloped ASEAN members -- Cambodia, Laos, and Burma --
had been necessary in order to realize a successful
conclusion.

Intellectual Property Rights
----------------------------

16. (SBU) IPR discussions focused on cooperation and
advancing common interests. Kohno mentioned as examples the
Anti-counterfeiting Trade Agreement (ACTA) and the Patent
Prosecution Highway, and then discussion turned to China,
APEC and the WTO. On ACTA, Kohno noted the recent start of
meetings in Geneva among the twelve partners, which include
Japan, the U.S., the EU, and Canada. After successfully
coordinating the public launch, the U.S. and Japan must work
together to ensure we retain a high level of ambition and to
draw in new participants. Particularly with countries new to
the discussions, some of whom are skeptical and may prefer a
slow process, we also need to push to keep negotiations
moving quickly and steadily.

17. (SBU) GOJ officials noted the Patent Prosecution
Highway pilot project has achieved good initial results and
reporting Japan is developing a work plan it intends to
promote. The project is expected to reduce patent
examination periods from a current average of 26 months down
to three months. Toyoda reported Japan has also been working
to improve bilateral cooperation with the United Kingdom,
Korea, and Germany, and offered to assist with U.S.-U.K.
cooperation as needed. Kohno also expressed Japan's desire
to work jointly to promote the APEC Anti-Counterfeiting and
Piracy Initiative and other IP work in that forum.

18. (SBU) Both sides stressed the importance of improving
IPR protection in China, but described different approaches
to reaching that goal. DUSTR Veroneau stressed that China,s
IPR regime is a common concern and at times the U.S. has
worked alone to press China to improve, so he welcomed
support from Japan and the EU. Acting U/S Padilla noted
China suspended bilateral talks with the U.S. on intellectual
property because of U.S. dispute-settlement filings at the
WTO. It is important to stress to China, however, that
suspending the bilateral dialogue may simply convince
industry the only option is to push more problems into the
WTO dispute settlement mechanism, U/S Padilla observed.

19. (SBU) Toyoda stated that Japan does not seek to weaken
efforts on ACTA to encourage China on IPR, but recognizes
that legal systems differ. Japan wants to maintain a high
level of mutual respect with other countries, seeing this as
the most effective course in the long run and likely to
achieve the best results. The Japanese government, Toyoda
continued, fully agrees on the need to work toward high
standards. He hoped the U.S. would understand this point
given the importance of cooperating required to send a
consistent message to China and to maintain pressure on
Beijing as appropriate. Veroneau also emphasized the
importance of energizing our IPR work in APEC.

Transparency
------------

20. (SBU) Deputy FM Kohno reviewed the information sharing
on transparency issues and characterized the process as
highly beneficial from Japan's perspective. He noted
Japanese government efforts to promote transparency in other

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countries in Asia, in particular in China and Vietnam,
through official development assistance and suggested
boosting U.S.-Japan cooperation by using APEC as a forum to
improve transparency among member economies. METI Deputy
Minister Toyoda seconded Kohno's comments and recounted how
Japan had inserted transparency chapters in investment
agreements with Laos and Cambodia.

21. (SBU) DUSTR Veroneau emphasized that the USG still
hears many complaints from U.S. firms about the lack of
transparency in the Japanese government's advisory groups
that deliberate regulatory policy. The concern appears
across a number of sectors in the U.S.-Japan regulatory
reform initiative. He said the United States would like APEC
to examine the question of transparency within the region
and, responding to a question from Kohno, noted USTR has
created a trade capacity-building office to help countries
meet their WTO obligations, including with respect to
transparency. Kohno stated Japan has substantial experience
promoting transparency within Asia and cited public-private
joint efforts in China as an example. Treasury DAS Dohner
emphasized the need for transparency in regulating financial
services. Such transparency is especially important if Japan
is serious about bolstering Tokyo's role as an international
financial center.

22. (SBU) Price noted U.S. business representatives cite
the lack of sufficient transparency in regulatory matters as
a primary reason for the low stock of foreign direct
investment in Japan. Non-Japanese firms continue to lack
access to timely and accurate information on Japanese
government policies affecting their operations. Japan should
improve its own system to be an effective model for others in
the region, DNSA Price stressed. Asserting the level of
transparency in Japan's regulatory system is similar to that
of the U.S., Toyoda asked for examples of specific problems
U.S. companies have encountered. A/S Sullivan reported the
absence of a meaningful government notice and comment
procedure had been the top issue representatives of the
American Chamber of Commerce in Japan (ACCJ) had raised with
the U.S. delegation.

23. (SBU) MOF International Bureau Deputy Director Takehiko
Nakao said Japan, following the collapse of the 1980,s
"bubble economy," had abandoned much of the old system of
administrative guidance. Nevertheless, some bureaucratic
discretion is still needed for effective financial
regulation. It was important, Nakao continued, to look at
current cases and not to rely on impressions shaped by the
past. Japan's low level of FDI, he stated, also reflects a
high domestic savings rate and is not simply the result of
inadequate transparency. DNSA Price was doubtful opinions
U.S. business people had voiced that morning were based
purely on experience of earlier decades. DFM Kohno suggested
the United States provide a list of U.S. firms' specific
complaints on transparency to which the Japanese government
could then respond. DNSA Price agreed the U.S. should be
able to make concrete recommendations to Japan on
transparency, but stated Japan should also acknowledge the
linkage between transparency and its low level of foreign
investment.

Energy
------

24. (SBU) Both sides characterized cooperation on energy
security as excellent. Toyoda raised five points for further
work. First, Japan and the United States should look for
ways to deal with rising oil prices. Toyoda suggested
working together to send a coordinated message from consumer

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countries to leading oil producing states through the
International Energy Agency (IEA). Second, he proposed
cooperation between the United States and Japan in finding a
way to bring India and, more importantly, China into the IEA.
It would be difficult, Toyoda acknowledged, as neither
country is a member of the OECD, a requirement to join the
IEA. Third, Toyoda called for deepening cooperation between
METI and the U.S. Department of Energy, especially to address
developing country interest in peaceful uses of nuclear
energy. He also called for more systematized U.S.-Japan
collaboration on new energy technologies, a point, Toyoda
believed, could be discussed in the G-8.

25. (SBU) Finally, Toyoda emphasized the planned G-8 energy
ministerial in Aomori Prefecture, location of Japan's
advanced nuclear waste processing facility, where the U.S.
and Japan have an opportunity to send a joint message on
nuclear power development. DFM Kohno stated several Asian
countries -- notably Indonesia and Vietnam -- are interested
in nuclear energy, but lack the technological, legal, and
human resource infrastructures to pursue it. The U.S. and
Japan should find a way to help, Kohno said, and he indicated
Japan plans to introduce new initiatives on this issue.

26. (SBU) A/S Sullivan agreed U.S.-Japan cooperation on
energy has been excellent. He noted, as part of follow-up to
past G-8 meetings, the IEA has been asked to score countries
on fulfilling their G-8 commitments. In addition, he noted
the five-party energy outreach ministerial as a useful
exercise to enhance cooperation. The U.S. agrees with Japan
on looking at the possibilities for bringing China into the
IEA, a move that would be especially helpful in light of
increasing cooperation on strategic petroleum reserves.
Finally, on nuclear energy initiatives, Sullivan acknowledged
close U.S.-Japan cooperation in GNEP and stressed any
approach to developing countries needs to be based on GNEP
principles. DG Otabe followed up noting the G-8 members are
waiting for Germany to report the IEA "scorecard" and to
stress the importance of the work of the G-8's Nuclear Safety
and Security Group and Non-proliferation Directors' Group
with respect to nuclear energy discussions under the G-8.

Food Safety
-----------

27. (SBU) USDA U/S Keenum presented a proposal to establish
a working group of technical experts to exchange information
on food safety issues and report to the Sub-Cabinet in time
for the next meeting. Deputy Trade Minister Toyoda stated
METI and the Center for Disease Control (CDC) had agreed to
exchange information and facilitate personnel interaction
through a series of food safety seminars. The first of these
was held in November 2007 and was very successful, he said.
METI would like to see such exchanges continue.

28. (SBU) MAFF Counselor Yamashita said his ministry would
consider the proposal, but questioned the need for another
working group as many food safety issues are already
discussed in such groups as the U.S.-Japan Trade Forum and
the U.S.-Japan Regulatory Reform and Competition Policy
Initiative. MHLW,s Ueda, however, flatly stated his
Ministry would refuse to participate in this initiative as
food safety should be based on science and not discussed in
the context of trade or economics. The topic is sensitive
politically, he said, and MHLW fears discussing it in the
Sub-Cabinet framework would do more damage to the bilateral
relationship.

29. (SBU) DNSA Price said this rejection of the proposal
without due consideration is indicative of the Japanese

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government,s unwillingness to engage meaningfully on any
number of economic matters of importance to the bilateral
relationship. The idea behind the Sub-Cabinet is to be able
to discuss every economic issue of importance to the two
sides and to have all pertinent agencies present; the MHLW
reaction was outrageous. U/S Keenum too noted the USG intent
is to share science among experts so that commerce between
our two countries is not needlessly interrupted. What we
need to do is to learn when there is an incident that affects
food safety, how do we react and inform the public. Although
Kohno stressed that Japan wanted to communicate with the
United States on food safety matters, the MHLW Deputy
Minister continued to insist the Sub-Cabinet was not the
appropriate framework to discuss the question given Japan,s
domestic political situation.

---------------
Regional Issues
---------------

Regional Architecture
---------------------

30. (SBU) DFM Kohno opened by pointing to the historical
factors underpinning development of East Asia's regional
economic architecture. He emphasized the need for
institutions to develop not only in response to new regional
and global challenges, but also because of the continued need
for confidence-building measures and the tremendous
differences in wealth and overall development among countries
in the region. Creating current institutions -- the ASEAN
Regional Forum, ASEAN Plus 3, and the East Asian Summit (EAS)
-- had been a painstaking process realized only within the
past decade, Kohno said. The main proposals for a broader
economic architecture, he added, existed only in the form of
studies.

31. (SBU) METI Deputy Minister Toyoda explained Japan's
strategy is two-fold: a network of bilateral economic
partnership agreements promoting trade and investment
liberalization and a broader regional architecture addressing
the gaps in development among Asian economies. He added the
recently established Economic Research Institute for Asia
(ERIA) attached to ASEAN would support this effort. Toyoda
noted U.S. involvement in the region is still needed and
indicated APEC remains a good forum for U.S.-Japan
cooperation in this regard. The U.S.-proposed Free Trade
Area of the Asia-Pacific (FTAAP), based on APEC, is a future
goal toward which progress should be accelerated, Toyoda
stressed. Japan's bilateral agreements with APEC members,
along with regional initiatives based on ASEAN Plus 3 or the
EAS countries, could serve as "building blocks" for an FTAAP.
In addition, Toyoda suggested establishing more "horizontal"
agreements among some APEC member economies to lay groundwork
for an eventual FTA covering all of APEC.

32. (SBU) DNSA Price responded that Japan's approach to
regional architecture makes it appear that Japan does not
want a free trade agreement with the United States and is
pursuing agreements that exclude it even though the U.S.
market remains the main force for regional economic
integration in Asia. As a result, regional economic
integration is getting stronger at the expense of American
consumers. Japan, DNSA Price noted, says it will deal with
the United States on an FTAAP at some point in the future,
but the immediate fact is that the United States is not a
part of these emerging architectures. The two countries each
seem to be going their own way on this issue, he stressed.

33. (SBU) Assistant Secretary Sullivan added that close

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cooperation on regional security between Japan and the U.S.
seems to be lacking on the economic side. Commerce Acting
U/S Padilla observed Japan seems to believe it can deal with
the rise of China as an economic power on its own or with
just the assistance of other countries in Asia. Such an
approach is Japan's choice to make, but, in Padilla's view,
is not likely to succeed. Asking rhetorically whether the
United States and Japan were in an "FTA race," DNSA Price
pressed the Japanese side to indicate what, in their view,
the role of the United States in Asia-Pacific economic
integration should be.

34. (SBU) DFM Kohno, calling the U.S. side,s comments
"confrontational," said Japan wants regional architecture in
Asia to develop in a "balanced" way. In addition, Asians
want to find their own regional identity. Kohno noted Japan
will host APEC in 2010 and the United States will do so in
2011. Those years will be the opportunity to discuss broader
regional architecture, he stated. Finance Ministry DG Nakao,
citing the growing importance of intra-regional trade to
Japan, argued the Japan-proposed architectures for both trade
and financial issues were not designed to exclude the United
States (or the IMF). Nevertheless, during the Asian
Financial Crisis in 1997, it became clear Asian countries
lacked effective mechanisms for economic coordination in the
face of a "contagion" spreading through the increasingly
integrated regional economy.

35. (SBU) Noting ASEAN leaders had stressed to President
Bush the importance of the United States in driving regional
economic integration, DNSA Price pointed to an inconsistency
in Japan's approach between the goal of establishing a "soft"
regional architecture on political issues and hesitancy to
move ahead on FTAAP. Kohno cited the studies on different
regional architecture proposals underway and suggested they
would form the basis for discussions at APEC in 2010 and
2011. DG Otabe further postulated that ASEAN Plus 3, Japan's
"ASEAN Plus 6" proposal, and APEC can all complement each
other. Different fora, however, might be better suited to
different issues. North Korea, for example, is the topic in
the Six-party Talks and at the ARF, while the problem of
yellow dust originating in China is probably better handled
in the China-Japan-Korea trilateral meetings on environment
matters. This situation does make the existence of different
fora contradictory, Otabe stressed. Although FTAAP might not
be achievable in the near term, evolution toward such a goal,
as had been seen in the context of APEC's Bogor Declaration,
is possible.

36. (SBU) Summarizing, DFM Kohno noted the U.S. side had
registered its concern over Japan's regional architecture
proposals. DNSA Price added the recent first meeting between
PM Fukuda and President Bush had gone well because both sides
had sought such an outcome. Other issues might arise in
subsequent meetings between the two leaders where agreement
might be more difficult, Price suggested. Kohno responded PM
Fukuda had indicated he wants to find a way to build
synergies between Japan's relations with Asia and its ties to
the United States.

Burma
-----

37. (SBU) Assistant Secretary Sullivan expressed
appreciation for Japan's decisions to restrict assistance to
Burma following recent actions by the Burmese regime against
anti-government protesters and opposition parties. He noted
Japan had indicated it was reconsidering assistance programs
for Burma. The United States and Japan together had sent a
good message to the Burmese regime that it could not do

TOKYO 00005678 010 OF 017

"business as usual" following the suppression of its
opponents, A/S Sullivan observed.

38. (SBU) DFM Kohno agreed the U.S. and Japan should send
the same message to the Burmese regime and expressed
appreciation for the work of UN Special Envoy Gambari. ASEAN
was also making an effort to influence Burma,s regime, Kohno
added. He observed, however, Burma's natural gas resources
are a major source of income for the ruling junta and
multinational companies -- even U.S. firms -- are
participating in gas exploration projects there. Only a few
states, Kohno stated, have leverage on the Burmese regime:
China, India, Thailand, and -- on a diminishing basis --
Japan. Japan had traditionally enjoyed good relations with
Burma and canceling construction of a GOJ-funded human
resource development center as a part of new sanctions had
been a difficult decision because of the benefit the center
could have brought the Burmese people. The U.S. sanctions,
Kohno asserted, frequently made life more difficult for the
average Burmese, although he claimed to understand the U.S.
agenda and the high degree of political attention paid to the
Burma issue.

39. (SBU) A/S Sullivan responded that recent U.S. sanctions
had been targeted to put maximum pressure on the regime
without causing undue hardship for the Burmese people.
Regarding Kohno,s statement about U.S. companies operating
in Burma, the company concerned had found itself in a
situation where withdrawing from Burma would have resulted in
a substantial payment to the regime. Kohno observed Japanese
companies in Iran faced a similar situation. Kohno continued
that the Japanese government would provide only humanitarian
assistance to Burma along with canceling the human resources
center project. DNSA Price stated his understanding is that
only one U.S. energy company has interests in Burma and that
was through passive investment in a pipeline. He asked
whether Japan had information regarding U.S. companies
engaged in gas exploration in Burma as well as in Iran's
energy sector. A/S Sullivan asked whether Japan will ban new
private investment in Burma or in Iran. METI VFM Toyoda said
he would endeavor to confirm Japan's position on A/S
Sullivan's question.

Approaches to China
-------------------

40. (SBU) Kohno characterized Japan's December 1-2 High
Level Economic Dialogue with China as the first opportunity
for Japan to have cross-sectoral discussions with that
country. Contrary to expectations, he said, there had been a
"frank exchange" of views. Japan had reviewed its experience
with the "economic bubble" and urged China to revalue its
currency; Japan also raised future cooperation on trade and
investment. The Chinese side said economic overheating is a
concern. Kohno commented on the improved climate between
Japan and China and the positive political momentum the
meeting had established in advance of the upcoming visit by
the Japanese Prime Minister.

41. (SBU) Deputy Finance Minister Naoyuki Shinohara added he
had been surprised by the frankness of the talks and had
found them fruitful. While there was nothing new on exchange
rate issues, the two sides did talk about the need for
flexibility and the Japanese government raised the issue of
irresponsible lending, which elicited no response from the
Chinese side. The finance ministries had also met, he said.
China, Shinohara continued, is an area where Japan and the
U.S. could accomplish much more together than alone.

42. (SBU) Treasury Under Secretary McCormick agreed with

TOKYO 00005678 011 OF 017

Shinohara,s evaluation. At the upcoming Strategic Economic
Dialogue, the U.S. message would be that we were committed to
market-based currency valuation. U/S McCormick continued
that the Chinese did not feel they had adequate control over
monetary policy. The U.S. side reviewed areas of discussion
with China beyond financial regulation and currency
valuation, including product safety, energy and environment,
financial services liberalization, and investment. The U.S.
is actively exploring how to move forward on a Bilateral
Investment Treaty (BIT) with China and also sensed movement
on energy and environment with China.

43. (SBU) Commerce Acting U/S Padilla elaborated on the need
for dialogue and negotiation, appropriate WTO actions to
enforce rights, and, where justified, application of
anti-dumping measures. He said that the EU that day had
initiated its first anti-dumping action against China. The
U.S. side noted the EU had been extremely interested in
talking with us during the recent Transatlantic Economic
Council about working together on China. The U.S. side also
emphasized the long-term, strategic nature of the SED and
explained other fora such as the Joint Commission on Commerce
and Trade are used to take up issues such as China,s use of
industrial policy and technology standards to benefit Chinese
companies; product safety; and government procurement. The
United States saw areas of common interest with Japan,
perhaps working together in the WTO, but also noted that a
"gang-up approach" could be counterproductive in certain
cases.

44. (SBU) Toyoda agreed the U.S. and Japan should not "gang
up" on China, and that a "coordinated approach" would make
more sense than a "joint approach." He agreed that a number
of shared concerns exist. The East Asia Summit, however, is
not a good forum at which to discipline China, Toyoda
continued, because the United States is not a member.

Doha and WTO Issues
-------------------

45. (SBU) Opening on the Doha Development Agenda, Kohno
said he expected agreement on modalities no earlier than the
end of March 2008, by which time there should be a balanced
text, supported by a large number of partners. He asked what
the U.S. domestic context for a discussion of Doha would be
at that time. Regarding tariffs on environmental goods,
Kohno supported the U.S. position to end duties on imports of
such products. The U.S. concept was the same as Japan,s
suggestion to the United Nations in September, he claimed,
and both countries need to turn their attention to moving the
process forward.

46. (SBU) The METI Deputy Minister Toyoda added that
countries should look to complete the DDA during the current
U.S. administration; noting that "we are running out of
time." DNSA Price restated the message that all members of
the Sub-Cabinet had given during their meetings, i.e., that
successfully completing the DDA is President Bush,s highest
foreign economic policy priority.

47. (SBU) DUSTR Veroneau emphasized the need to gain
commitments by advanced developing countries, led by Brazil,
to trade liberalization, by focusing on substance and seeking
reasonable gains. Japan and the United States need to remain
coordinated in keeping the pressure on these partners.
Regarding trade promotion authority, WTO members need to
focus on their domestic situations respectively and on what
we can obtain in Geneva. The United States must see a good
substantive result in the next series of talks to keep the
DDA on track. If the United States and Japan and other key

TOKYO 00005678 012 OF 017

WTO partners work out agreements with demonstrable benefits
for our economies, legislatures would be reluctant to undo
those gains.

48. (SBU) DNSA Price expressed concern that Japan was
invoking Trade Promotion Authority (TPA) as an excuse for not
wanting to negotiate seriously. If the United States were to
get a good agreement, he assured, President Bush would sign
it. Commerce Acting U/S Padilla too said it would be hard
for Congress to walk away from a signed multilateral
agreement, adding that a deal needed to be concluded in the
current administration. By the end of January, he continued,
countries would be able to put together the big picture and
assess their overall interest.

49. (SBU) DNSA Price added he brought a letter for Prime
Minister Fukuda from the President which asked Japan to set a
high level of ambition for the Round. Agriculture U/S Keenum
added U.S. agricultural interests are ready to support a Doha
result that is ambitious on market access. The United
States, he continued, is putting real cuts in payments to
farmers on the table, but needs real market access to secure
U.S. farm sector support. He commended Japan,s support for
the U.S. position in support of in-kind food aid.

50. (SBU) Ministry of Agriculture, Forestry, and Fisheries
Counselor Yamashita said that Japan was a major food importer
and, despite differences, has a good relationship with the
United States. He hopes to sustain this through the
completion of the DDA.

Agricultural Reform
-------------------

51. (SBU) Turning to agricultural reform, Yamashita
continued that Japan remains engaged and had cut
trade-distorting subsidies, recalling measures approved in
April 2007 to stabilize farms. However, the opposition
Democratic Party of Japan sought to include legislative
measures to compensate farmers for differences between cost
and unit price. The LDP is reconsidering eligibility for
such payments. Still, he asserted, the Japanese government
wanted to advance reforms.

52. (SBU) U/S Keenum applauded Japan for the April 2007 farm
legislation to move toward "green box" (i.e.,
non-trade-distorting) payments. He noted a contradiction,
however, in that Japan wants to get away from small,
inefficient farms and to provide incentives to grow based on
subsidies, but to quality farmers must raise multiple crops.
With an average farm size of four hectares, raising multiple
crops would be difficult. Yamashita disagreed, saying
multiple crops were not a precondition for green box
supports. U/S Keenum acknowledged the USG faces its own
challenges in reconciling policy goals with farm legislation,
noting that the current draft Farm Bill includes subsidy
measures the U.S. Administration opposes. He added it seems
unlikely Congress will pass a farm bill in 2007. This
situation could have WTO ramifications if the United States
had to implement the 1949 farm bill in the absence of new
legislation.

Development Assistance/TICAD IV
-------------------------------

53. (SBU) MOFA Deputy Minister Kohno -- Japan's G-8 Sherpa
-- said development would be a major theme for Japan,s G-8
Presidency. Because progress toward the Millennium
Development Goals would be reviewed in 2008, Japan
anticipated criticism of the G-8 and asked how best to

TOKYO 00005678 013 OF 017

approach the topic. He suggested promoting G-8 cooperation
in global health, noting the exchange on this point between
President Bush and Prime Minister Fukuda. The issue had a
"vertical aspect" of dealing with specific diseases and a
"horizontal" aspect related to improving health systems. In
addition to attacking a disease like malaria, improving
water/sanitation as well as education was important.
Furthermore, Japan wants to approach issues related to Africa
through the TICAD conference, Kohno said, focusing on a)
sustainable development, through trade and investment
promotion, b) empowering Africans in post-conflict countries
to help themselves better, and c) peace consolidation or
peace-building. TICAD was based on the principles of respect
for African ownership of its development and demonstrating
donor support; Japan also wants to promote Asia-Africa
cooperation through the conference.

54. (SBU) On the future of the Strategic Development
Alliance (SDA), Kohno expressed concern over a perceived
decline in momentum. Positive outputs included case studies
on Pakistan and Indonesia; discussion of themes like disease
in Africa; and support in Pakistan,s FATA region for the
fight against terrorism. Still, the SDA, he said, needs
revitalization.

55. (SBU) Kohno also raised China,s activities in African
and other developing countries, saying its behavior, such as
lending to countries which had received debt relief and using
Chinese labor on infrastructure development projects rather
than local workers, undermined internationally agreed
approaches to furthering development. Moreover, China,s
approach toward resource-rich countries is not transparent.
He noted the Heiligendamm process would start soon and the
question of how to allow emerging countries to engage should
be considered.

56. (SBU) A/S Sullivan focused on the importance to the G-8
of follow-through on previous initiatives. He cited the
President,s announcement of an additional $30 billion over
five years in funding for global HIV/AIDS programs as an
example of U.S. follow through on a G-8 commitment. On the
SDA, A/S Sullivan invited Japan to offer suggestions on next
steps. He noted in some areas the SDA works well. The SDA
represents strategic coordination on aid and a sign of a
mature relationship between Japan and the United States.
Under the SDA, guidance came from the capitals, but
coordination needs to take place on the ground. Africa, A/S
Sullivan noted, also seems ripe for strategic coordination
and he asked for Japanese ideas. U/S McCormick added one
problem is Africa is not a two-way dialogue and suggested the
U.S. and Japan work together on a multilateral approach to
African development.

57. (SBU) Noting the U.S. and Japan are the largest donors in
Afghanistan, A/S Sullivan strongly urged Japan to complete
the Kandahar-Herat ring road. The project had been underway
for about three years, he emphasized, and Japan,s portion is
the last to be completed. He noted it was vital to enhancing
Afghan economic development and security. The project,s
completion would be a great deliverable for the G-8, and the
U.S. had offered to help Japan finish the road, if need be.
Kohno appeared unprepared on this point and said he would
look into the issue.

Climate Change
--------------

58. (SBU) Saying Japan is proactive on climate change, not
passive as some criticize, Deputy Foreign Minister Kohno
noted Japan had worked toward a post-Kyoto framework,

TOKYO 00005678 014 OF 017

collaborating with the U.S. in the process. He stated Prime
Minister Fukuda had carried on the Abe initiative, calling on
the world to cut emissions in half by 2050. Kohno reiterated
the three principles that drove Japan,s policy (all major
emitters should participate; the framework should be flexible
and diverse; and the framework must achieve compatibility
between environmental preservation and sustainable growth)
and highlighted Japan,s proposal to set up an ad hoc working
group in the UN Framework Convention on Climate Change
(UNFCCC)process to discuss mechanisms.

59. (SBU) Kohno emphasized Japan supports President Bush,s
Major Economies initiative. Japan would work closely with
the White House Council on Environmental Quality and others.
Kohno hoped the Major Economies process would make a
constructive contribution to the UNFCCC to complete a
post-Bali roadmap by end-2009. He stressed Japan,s support
of a sector-oriented approach such as that in the
Asia-Pacific Partnership on Clean Energy and Climate (APP).
The APP, he said, could be broadened and he hoped it would
have an impact on the process in the UNFCCC. Kohno concluded
stating the next half-year would be crucial and that he
wanted continuing cooperation with the United States.

60. (SBU) METI DM Toyoda emphasized three points. First,
Japan attempted to engage China and India bilaterally where
possible and had launched cooperative activities with each.
At the December 1-2 Japan-China ministerial talks, Japan
encouraged China to embrace the APP approach. China, he
said, wanted access to technology and finance and Japan
agreed to ten model projects involving technology transfer.
Toyoda stressed Japan was monitoring IPR protection in each
case. Second, Toyoda emphasized the importance of innovative
technology. METI had a draft plan for technological
innovation to achieve "Cool Earth 50." He noted Japan,s
interest in developing clean coal technologies and hoped to
use the Sub-Cabinet to encourage new cooperation for the G-8.
Toyoda hoped as well Energy Secretary Bodman would
participate in the P5 and G8 Energy Ministerials in 2008.
Third, he stressed that a framework to meet the challenges of
global warming must be effective, and to be effective would
need to be more than what has been suggested by the European
Union.

61. (SBU) DNSA Price noted the congruence between the U.S.
and Japan on climate change and stressed the two countries
need to articulate a joint vision to the G-8 and in the Major
Economies process. The joint fact sheet issued during Prime
Minister Fukuda,s visit to Washington laid out a common
approach to a post-2012 framework. The elements included a
focus on technology, compatible with DM Toyoda,s comments.
The key question, DNSA Price noted, was how to penetrate the
perceptions created by the EU and a number of NGOs that
traded "binding commitments" for inclusion of the major
emerging market economies in a program of action to reduce
greenhouse gases. What is the value of a judgment in a
possible lawsuit years later that says a country or countries
did not live up to an agreement, relative to the benefits of
getting India and China to act now?, Price queried.

62. (SBU) The USG agrees a post-2012 framework needs to
involve all countries, that all countries should articulate a
medium-term goal, that there needs to be flexibility in
measures, and that each country would develop an
environmentally effective and economically sustainable
national mix of policies and measures needed to reach the
medium term goal. The next question was, as each country
articulated its mix, how to fit this into the international
framework. The United States believes developed countries
must help finance developing country efforts, but that there

TOKYO 00005678 015 OF 017

must be a connection between financing and commitment. He
confirmed plans for a Major Economies meeting at the end of
January in Hawaii. Treasury U/S McCormick echoed the
importance of Japan and the U.S. standing together to ensure
China and India are part of the commitment.

63. (SBU) DNSA Price asked that Japan work with the United
States to develop a clean technology fund, which allows
donors to determine access to financing. He also reiterated
the need for Japan to support the US-EU proposal in the WTO
to eliminate tariff and non-tariff barriers in 40 products
that contributed to reducing GHG emissions. DNSA Price noted
the inconsistency between providing concessional financing
for technology, on the one hand, and governments taxing the
import of those technologies. The United States welcomes
voluntary liberalization of trade in such goods by individual
countries. (Note: Japan called at the September UN high
level meeting for voluntary elimination of tariffs on
environmentally friendly goods. End note.)

64. (SBU) A/S Sullivan further suggested Japan and the U.S.
could influence other countries by sending a joint team to
work with the OECD to develop "the economics of climate
change" which OECD Secretary General Gurria had proposed as
an agenda item for the upcoming OECD Ministerial. Kohno
suggested it would be difficult and said Japan wanted to
avoid a U.S.-Japan confrontation with the European Union.
However, the issue of including all major carbon emitters
must be resolved. He wanted to create a consensus with some
in the G-8. Noting the similarity of this idea with A/S
Sullivan,s suggestion, Kohno added further discussions on a
scenario for working with the OECD.

65. (SBU) MOF DM Shinohara pointed to the new financing
mechanism called for by Japan,s "Cool Earth 50" to
illustrate the potential in a multilateral approach to
financing, as opposed to the bilateral efforts undertaken to
date. He said the U.K. and U.S. approaches on the proposed
fund were somewhat different in scope and modality, but Japan
is interested in further exchanging views. U/S McCormick
explained a single issue remained unresolved between the two
approaches. The United Kingdom had endorsed the concept of a
fund supporting clean technology adoption, adaptation, and
deforestation, and for political reasons wanted to discuss
all three. The United States thought there should be a means
to resolve this slight difference.

----------------
Bilateral Issues
----------------

Beef
----

66. (SBU) DNSA Price urged the Japanese government not to
underestimate the importance of resolving the beef issue as
soon as possible. The United States is looking for a "prompt
and full" reopening of the Japanese market. U/S Keenum said
our understanding was that the two governments had convened
experts level meetings over the summer to work on a consensus
document. Coming out of those talks, however, the Japanese
government seemed more interested in recommending a 30-month
solution which fell short of international standards. Under
the OIE, Keenum continued, U.S. beef is safe to trade,
provided there is effective removal of specified risk
materials. The United States has implemented the necessary
safeguards. In continuing to put up barriers to U.S. beef,
Japan is "selectively" choosing not to abide by its WTO
obligations.

TOKYO 00005678 016 OF 017

67. (SBU) Kohno repeated that Japan's preferred approach to
resolve the beef issue is the same as that first stated at
the summer 2007 bilateral experts level meetings in Tokyo:
Japan wanted to recommend to Japan's Food Safety Commission
(FSC) a liberalization of trade to allow import of beef from
cattle up to 30 months. The government, Kohno continued, is
not ready to submit a recommendation at this stage that would
bring Japan into OIE compliance at a later stage. DNSA Price
underscored that the United States is looking for a "date
certain" on full reopening. U/S Keenum echoed the point,
noting that U.S. beef is being "held hostage" to Japan's
political situation. DUSTR Veroneau noted the level of
frustration in Washington over this issue. Kohno offered no
new information or insights. He concluded that the Japanese
government might move ahead "unilaterally" toward a 30-month
solution.

Postal Banking, Insurance and Express Delivery
--------------------------------------------- -

68. (SBU) The U.S. delegation congratulated Japan on its
efforts to privatize Japan Post. Veroneau stated adequate
risk management capabilities and a level playing field, such
as equal customs treatment in international express delivery,
are the most important issues to address in moving forward in
the privatization. MOF Deputy DG General Nakao said his
ministry would carefully monitor the new organizations to
ensure they maintain a proper risk management stance.

Pharmaceuticals and Medical Devices
-----------------------------------

69. (SBU) Commerce U/S Padilla urged Japan not to penalize
innovation by imposing low reimbursement caps on
pharmaceuticals and medical devices through its "Special
Re-pricing Rules for Market Expansion" measure. As Japan's
population ages, it will need more innovation and not fewer
medications, he said. More than 20 percent of the most
popular drugs currently available on the world market are not
available in Japan. MHLW,s Ueda responded while the GOJ
understands industry concerns, Japan faces tight fiscal
constraints and must manage healthcare costs. MHLW is
looking at the most equitable re-pricing policies for the
2008 revision and is considering subjecting all drugs within
a comparator category to the same re-pricing guideline, Ueda
explained. The Ministry welcomes industry feedback on this
proposal.

Investment
----------

70. (SBU) Japan continues to seek to double the amount of
foreign direct investment (FDI) coming into the country and
has been cooperating with the United States to attain that
goal, Toyoda stated. The U.S.-Japan Investment Initiative
has helped improve Japan,s business environment and the
governments have sponsored three seminars to promote
investment in both countries. Japan has relatively few
investment treaties with other countries due to its
insistence on high standards, Toyoda continued. Japan
started negotiations on an investment treaty with China in
March 2007 but the talks bogged down due to China,s
unwillingness to liberalize.

71. (SBU) DNSA Price suggested the United States and Japan
should work together in the OECD, G-8, and other fora to
ensure adequate rules are adopted to protect outward
investors, particularly in developing countries. Conversely,
the U.S.-Japan Business Council should launch an effort to

TOKYO 00005678 017 OF 017

educate the Japanese and American publics about the benefits
of FDI to the domestic economy. A/S Sullivan noted the
Heiligendamm G-8 statement on investment and the President,s
recent statement on the importance of foreign investment. It
would be useful, he continued, if the Fukuda government
reaffirmed the Koizumi and Abe goals of boosting foreign
investment in Japan. He also suggested reconvening the Japan
Investment Council; it has not met in over a year. Noting
the U.S. is pursuing bilateral investment treaties with a
number of countries, and the importance of presenting a
common front in demanding high standards, for example in
talks with China, he suggested it might be useful to include
a comparison of our treaties in the bilateral investment
dialogue. DNSA Price noted that cooperating to maintain high
standards for investment agreements is important for Japanese
global companies active and investing around the world, as
well as for U.S. firms.

Antidumping Act of 1916
-----------------------

72. (SBU) DFM Kohno stated a Japanese company faces a
possible injunction by a U.S. court for being in violation of
the Anti-Dumping Act of 1916 if the Supreme Court over-rules
the decision of the 8th Circuit Court of Appeals. The Act is
inconsistent with U.S. WTO commitments. The GOJ would like
the State Department to convey support for the 8th Circuit
Court,s ruling to the Supreme Court. A/S Padilla replied
the USG has repealed the anti-dumping act in question.
However, it is not appropriate for the Executive Branch to
offer an opinion to the Supreme Court if not specifically
asked by the Court to do so. It is also unclear whether the
Court would choose to hear the case. If the past is any
indication, the odds seem quite low.

100 Percent Container Scanning
-------------------------------

73. (SBU) METI DM Toyoda expressed concerns regarding the
potential disruption of the global supply chain should the
U.S. require 100 percent scanning of shipping containers.
The United States has heard Japan,s concerns, but the law
mandates the scanning, said U/S Padilla. The United States,
he continued, will establish practical and realistic measures
and timelines to implement the program. He also noted the
law allows for the implementation deadline to be extended in
two year increments, providing some flexibility, if warranted.
DONOVAN

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