VZCZCXRO7266
RR RUEHCHI RUEHFK RUEHHM RUEHKSO RUEHPB
DE RUEHKO #2130/01 1090624
ZNY CCCCC ZZH
R 190624Z APR 06
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC 1149
INFO RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION
RUEHNE/AMEMBASSY NEW DELHI 7950
RUEHFR/AMEMBASSY PARIS 4895
RUEHPF/AMEMBASSY PHNOM PENH 0567
RUEHGO/AMEMBASSY RANGOON 2074
RUEHVN/AMEMBASSY VIENTIANE 1475
RUEHGV/USMISSION GENEVA 2816
RUEHBS/USEU BRUSSELS

C O N F I D E N T I A L SECTION 01 OF 04 TOKYO 002130 
 
SIPDIS 
 
SIPDIS 
 
DEPARTMENT PASS USTR FOR CUTLER, NEUFFER, BEEMAN 
PARIS FOR USOECD 
GENEVA PASS USTR 
 
E.O. 12958: DECL: 04/19/2016 
TAGS: ECON ETRD PREL ASEAN APECO JA
SUBJECT: METI VICE MINISTER EXPLAINS REGIONAL FTA PROPOSAL 
 
REF: A. STATE 60291 
 
     ¶B. STATE 60256 
 
Classified By: Joseph R. Donovan, Deputy Chief of Mission. 
Reason: 1.4 (b,d) 
 
¶1.  (C)  Summary:  Trade Minister Nikai's recent 
proposal for an East Asian free trade agreement (FTA) 
aims to balance a less-inclusive Chinese initiative, 
according to METI Vice Minister Kusaka.  The proposal 
would also help to "neutralize" pressures within the 
Japanese business community for a bilateral Japan- 
China agreement, he claimed.  Kusaka acknowledged that 
opposition to a bilateral U.S.-Japan FTA remained 
strong in both countries but suggested that an 
informal "Track 2" process be launched at the upcoming 
summit meeting.  He also indicated GOJ -- and notably 
METI -- support for U.S. nonproliferation goals with 
Iran, despite continued Japanese reliance on Iranian 
oil.  End summary. 
 
--------------------------------------------- --- 
East Asian FTA Proposal Aimed at Curbing Chinese 
Influence 
--------------------------------------------- --- 
 
¶2.  (C)  Ministry of Economy Trade and Industry (METI) 
Minister Nikai's proposed "Comprehensive Economic 
Partnership in East Asia" (CEPEA) centered on floating 
a counterproposal to increased integration among the 
members of ASEAN plus Three, according to METI Vice 
Minister Kazumasa Kusaka.  Meeting with Deputy Chief 
of Mission Donovan on April 18, Kusaka indicated that 
Japan had hoped that the Korean hosting of the Asia 
Pacific Economic Cooperation forum (APEC) in 2005 
along with the possible creation of a regional forum 
consisting of the United States, Japan, South Korea, 
China, Russia on such issues as energy and the 
environment might strengthen U.S. engagement in 
Northeast Asia.  Problems such as Japan's ban on the 
import of U.S. beef, however, had thwarted Japanese 
expectations of greater bilateral cooperation with the 
United States on "geo-economic" issues. 
 
¶3.  (C)  In the meantime, "continental" economic 
integration centered on China had continued, Kusaka 
stressed.  China's growing economic strength was 
exerting a kind of centripetal force drawing in the 
other regional economies, including Japan.  Japan was 
seeking to counterbalance this force through building 
up the trans-Pacific economic ties of the region.  It 
had also been successful in bringing Australia, New 
Zealand, and India into the East Asian Summit as a way 
to oppose Chinese dominance of that event. Japan, 
Kusaka noted, was interested in promoting only an East 
Asian community "with a small 'c'."  Although some had 
proposed following the European pattern of 
integration, that model could not work in East Asia, 
Kusaka said, because of the lack of shared political 
and economic values among the countries of East Asia. 
At best, the region could achieve greater economic 
integration -- a de facto phenomenon that was 
occurring even without government intervention. 
 
-------------------------------------------- 
APEC Broad but Not Deep; Alternatives Needed 
-------------------------------------------- 
 
¶4.  (C)  Although the United States played an 
important role in APEC and elsewhere as a "stabilizing 
force" in the region, APEC itself had failed to deepen 
economic cooperation among East Asian countries, 
Kusaka claimed.  The idea of an East Asian free trade 
agreement, however, put forward by former South Korean 
President Kim Dae Jung had had substantial resonance 
within the region and the support not only of the 
Koreans but of the Chinese as well.  Minister Nikai's 
proposal, however, aimed at slowing the FTA process 
among the ASEAN Plus Three members by introducing the 
other EAS countries:  Australia, New Zealand, and 
India.  With 16 countries involved, the negotiating 
 
TOKYO 00002130  002 OF 004 
 
 
process would necessarily be much slower than if the 
proposed agreement were limited to ASEAN Plus Three 
members alone, he maintained. 
 
--------------------------------------------- ------ 
"Neutralizing" Japanese Business Pressures on China 
--------------------------------------------- ------ 
 
¶5.  (C)  Kusaka also noted that Japanese business was 
pressuring METI to begin FTA negotiations with China. 
(Comment: We have not heard Japanese businesses tell 
us that they are pushing the GOJ for an FTA with 
China. End comment.)  The Japanese Business Federation 
(Keidanren) had proposed such an agreement to the 
government, with the focus to be less on tariffs and 
other "border issues" and more on internal factors 
such as investment and intellectual property 
protection.  METI, however, was endeavoring to resist 
the Keidanren proposal and instead wanted to base an 
agreement with China on its existing investment treaty 
with South Korea.  The Chinese, for their part, were 
uninterested because the Japanese proposal did not 
allow enough "policy space" to allow China's own 
industries to develop.  Nevertheless, METI hoped that 
the proposal of a three-way investment agreement with 
Korea and China along with Minister Nikai's CEPEA 
proposal would neutralize proponents of a bilateral 
economic agreement with China while creating a "bigger 
and more balanced" framework for regional integration. 
 
¶6.  (C)  Kusaka acknowledged that Nikai's proposal was 
not interagency-agreed Japanese Government policy 
although it had been briefed to other ministries both 
individually and at the Cabinet's Council on Economic 
and Fiscal Policy (CEFP).  (Note: This argument is 
somewhat disingenuous as key trade policy ministries 
like Agriculture, Health, Labor and Welfare, and 
Foreign Affairs are not members of the CEFP.  Moreover 
this "briefing" occurred after Minister Nikai's 
announcement.  End note.)  He added, however, that the 
Minister's initiative, in being made public, had 
already achieved much of its desired effect of putting 
forward an alternative to an FTA among ASEAN Plus 
Three members alone.  Kusaka believed that formal GOJ 
adoption of Nikai's proposal could even wait for a 
decision by Junichiro Koizumi's replacement as Prime 
Minister in September.  Under current circumstances, 
Nikai could still take his proposal to the meeting of 
ASEAN Plus Three economic ministers in August.  If 
accepted by the other ASEAN Plus Three ministers, 
Nikai's proposal would "broaden the base of the 
mountain" of achieving a regional FTA and "make the 
summit higher," thus necessitating a longer climb 
through a series of "base camps" -- i.e., bilateral 
FTAs -- along the way.  As a result, Japan would seek 
to finalize the bilateral agreements it currently has 
under negotiation before being drawn into a 
multilateral exercise tied to ASEAN Plus Three. 
 
--------------------------------------------- ----- 
Suggestion for "Track 2" FTA Discussions with U.S. 
--------------------------------------------- ----- 
 
¶7.  (C)  Kusaka expressed the view that Japan should 
find a way to restart its stalled FTA talks with South 
Korea, particularly now that the United States had 
announced the launch of  negotiations with the 
Koreans.  Once the United States and Japan had both 
come to agreement with Korea, the missing part of the 
"triangle" would obviously be a U.S.-Japan FTA, he 
noted.  Kusaka admitted, however, that a "Track I" 
initiative for an FTA between the United States and 
Japan would face opposition in both countries.  He 
suggested encouraging a more robust "Track II" process 
that could involve academic and private sector 
representatives and develop ideas for an eventual 
agreement.  In addition, the Australians, Kusaka said, 
were eager to begin FTA negotiations with Japan and 
had started a Track II process with Japan.  Progress 
in the Doha Development Agenda negotiations in the 
World Trade Organization would also lower the barriers 
 
TOKYO 00002130  003 OF 004 
 
 
to further trade liberalization in bilateral talks. 
 
¶8.  (C)  Kusaka suggested that in the meantime, 
however, the United States and Japan could further 
economic cooperation in areas such as harmonization of 
standards, particularly in politically influential 
industries such as pharmaceuticals.  This could not 
only spur more activity in areas such as research and 
development but also potentially build up 
constituencies in both countries for greater bilateral 
economic cooperation.  The summit meeting between 
Prime Minister Koizumi and President Bush, Kusaka 
indicated, might also endorse the "Track II" process 
toward an eventual FTA he had outlined.  It would then 
fall to the new Prime Minister to launch a new 
initiative with the United States, should he choose to 
do so.  Kusaka expressed disappointment, though, that 
U.S. insistence on resolution of the ban on imports of 
U.S. beef had slowed preparatory work on the economic 
content on the summit agenda. 
 
¶9.  (SBU)  The DCM responded to Kusaka's extended 
monologue with the points provided ref A expressing 
U.S. concerns regarding the development of East Asian 
regional architecture and the potential to undermine 
the primacy of APEC.  He stressed that the launch of 
U.S. FTA negotiations with Korea highlights the 
ongoing extent of American engagement in Asia.  Kusaka 
reiterated Japan's desire to strengthen trans-Pacific 
ties even as it sought to deepen regional integration 
in East Asia. 
 
--------------------------------------------- --------- 
East China Sea:  China Uncharacteristically Reasonable 
--------------------------------------------- --------- 
 
¶10.  (C)  Noting that China's "correction" of an 
announcement regarding demarcation of an area in the 
East China Sea where sea traffic had been prohibited 
appeared to have prevented a quarrel with Japan, the 
DCM asked for Kusaka's view of the current situation. 
(By amending the latitude from 27 degrees 7 minutes to 
29 degrees 7 minutes, the prohibited area was moved 
across the disputed boundary line into China's 
exclusive economic zone.)  Kusaka replied that this 
constructive decision was "quite un-Beijing like."  He 
credited China's desire to avoid generating a 
controversy on the eve of President Hu's visit to 
Washington for Beijing's "reasonable action." 
 
--------------------------------------------- 
Iran:  Japan Shares U.S. Goals Despite Energy 
Dependence 
--------------------------------------------- 
 
¶11.  (C)  Turning to the issue of Iran, the DCM 
stressed that Japan should use its strong commercial 
relationship with Iran to encourage Iranian 
cooperation with the international community regarding 
its nuclear program.  Even though Japan imports a 
substantial portion of its oil from Iran, that fact 
should not get in the way of the shared political 
objective of obtaining Iranian cooperation, Kusaka 
responded.  He acknowledged Japan's commercial ties 
with Iran and the leverage that relationship provided. 
He said that Japan was "very much committed" to the 
nonproliferation goal and would continue to send the 
appropriate message on cooperation to Iran "as a 
friend." 
 
------- 
Comment 
------- 
 
¶12.  (C)  Kusaka was obviously on the defensive 
regarding Minister Nikai's unexpected proposals, and 
his extended remarks suggested well less than full 
acceptance, at least on his part, of the Minister's 
trial balloon.  Kusaka has clearly received the U.S. 
message that Japan needs to consult in advance with 
the United State prior to launching major new trade 
 
TOKYO 00002130  004 OF 004 
 
 
policy initiatives and that Japan also needs to 
consider the impact on organizations like APEC.  His 
comments on Iran represent the strongest support we 
have heard regarding that country from METI, which has 
traditionally sought to safeguard Japan's economic 
interests despite security concerns. 
SCHIEFFER