VZCZCXRO6154
RR RUEHCHI RUEHFK RUEHHM RUEHKSO RUEHPB
DE RUEHKO #2283/01 1170604
ZNY CCCCC ZZH
R 270604Z APR 06
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC 1422
INFO RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION
RUEHLO/AMEMBASSY LONDON 1464
RUEHNE/AMEMBASSY NEW DELHI 7959
RUEHFR/AMEMBASSY PARIS 4903
RUEHPF/AMEMBASSY PHNOM PENH 0571
RUEHGO/AMEMBASSY RANGOON 2078
RUEHVN/AMEMBASSY VIENTIANE 1479
RUYNAAC/COMNAVFORJAPAN YOKOSUKA JA
RUCNDT/USMISSION USUN NEW YORK 0006
RHMFISS/COMUSJAPAN YOKOTA AB JA
RUEHBS/USEU BRUSSELS
RHHMUNA/HQ USPACOM HONOLULU HI
RUEHGV/USMISSION GENEVA 2823

C O N F I D E N T I A L SECTION 01 OF 04 TOKYO 002283 
 
SIPDIS 
 
SIPDIS 
 
DEPARTMENT PASS USTR FOR CUTLER, NEUFFER, BEEMAN 
PARIS FOR USOECD 
GENEVA PASS USTR 
 
E.O. 12958: DECL: 04/27/2016 
TAGS: ECON ETRD EINV PREL ASEAN APECO JA
SUBJECT: METI'S ASIAN FTA PROPOSAL: TACTICS WITHOUT STRATEGY 
 
REF: A. TOKYO 2130 
     ¶B. TOKYO 2240 
 
Classified By: Joe Donovan, Charge d'Affaires, a.i. 
Reason:  1.4 (b,d) 
 
¶1.  (C)  Summary:  METI Minister Nikai's recent 
regional FTA proposal is a tactical move to counter an 
expected Chinese-backed regional FTA proposal to be 
presented to an August ASEAN Plus Three Economic 
Ministers' meeting.  METI however, seems not to have 
considered the longer-term implications of this 
proposal on APEC or on the U.S. presence in the region 
and largely ignored other GOJ agencies in formulating 
its proposal.  Nevertheless, because it has the strong 
backing of Minister Nikai, this proposal could gain 
momentum.  End summary. 
 
--------------------------------------------- --- 
METI Officials Stress Fears of Chinese Dominance 
--------------------------------------------- --- 
 
¶2.  (C)  In his meeting with the DCM on April 18 (ref 
A) Economy, Trade and Industry Vice Minister Kazumasa 
Kusaka explained that Minister Toshihiro Nikai's 
proposed "Comprehensive Economic Partnership in East 
Asia" (CEPEA) centered on countering ideas for 
increased regional integration limited to members of 
ASEAN Plus Three.  China's growing economic strength 
was exerting a kind of centripetal force drawing in 
the other regional economies, including Japan, Kusaka 
said.  Japan was seeking to counterbalance this force. 
Kusaka acknowledged that Nikai's proposal was not 
interagency-agreed Japanese Government policy but 
added that the Minister's initiative, in being made 
public, had already advanced an alternative to an FTA 
among ASEAN Plus Three members alone.  If accepted by 
the other ASEAN Plus Three Trade Ministers, Nikai's 
proposal would "broaden the base of the mountain" and 
"make the summit higher," thus necessitating a longer 
climb through a series of "base camps" -- i.e., 
bilateral FTAs -- along the way, according to Kusaka. 
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. 
 
¶3.  (SBU)  Meeting with EMIN on April 20, METI Trade 
Policy Director General Toshiaki Kitamura further 
stressed that Japan wants the United States to stay 
engaged in the Asia-Pacific region.  He explained that 
the genesis of METI's idea for an East Asian FTA was 
in response to Chinese moves in the region.  METI's 
proposal was driven by the need to table another 
proposal before the August ASEAN Plus Three Economic 
Ministers meeting which would discuss a study group 
report advocating an ASEAN Plus Three FTA.  METI saw 
the study group proposal as unacceptably limited both 
in terms of membership and coverage and as strongly 
influenced by the Chinese.  Japan would not be able to 
accept this proposal and therefore risked being left 
out of a possible China-Korea-ASEAN regional FTA 
attempt.  Kitamura also claimed that Japanese business 
strongly supported METI's approach.  Kitamura said 
Japanese businesses were not interested in an FTA with 
China but did seek stronger rules-based behavior by 
the Chinese. 
 
¶4.  (SBU)  With respect to the Asian Pacific Economic 
Cooperation forum (APEC), Kitamura felt that 2006, 
with Vietnam as host, would not be a good time to 
revitalize APEC.  He suggested that the United States, 
Australia, and Japan work together in preparation for 
Australia's turn to host in 2007 and devise a more 
systematic vision to guide APEC from 2007 to 2010, 
when Japan will host APEC. 
 
TOKYO 00002283  002 OF 004 
 
 
 
¶5.  (C)  Econoffs received a much less nuanced 
presentation of METI's thinking from Tetsuya Watanabe, 
the official in the Trade Policy Bureau tasked with 
drafting the METI "Global Economic Strategy" report on 
which the Minister's regional FTA proposal had been 
based.  METI did not propose using APEC as the channel 
for its regional FTA concept to avoid "frightening 
away" the ASEAN countries with the prospect of having 
the United States at the negotiating table, Watanabe 
said.  The Japanese proposal, he acknowledged, would 
also initially aim at a fairly low level of 
liberalization; it would be broad but not deep. 
METI's vision of East Asia's regional architecture was 
one of a set of different fora -- i.e., APEC, EAS, 
ASEAN Plus Three -- with overlapping membership.  On 
the other hand, China, Watanabe said, sought a more 
centralized EU-like architecture that it would 
dominate.  Watanabe stressed that the main substantive 
difference between what METI had proposed and what was 
likely to emerge from the ASEAN Plus Three study group 
was not the difference in scope or participation but 
rather that the former would be a Japanese initiative 
and the latter Chinese. 
 
---------------------------------------- 
Foreign Ministry Discounts METI Proposal 
---------------------------------------- 
 
¶6.  (C)  In a meeting with the Charge on April 24 (ref 
B), Deputy Foreign Minister for Economic Affairs 
Mitoji Yabunaka confirmed that Minister Nikai's 
proposal had not been coordinated with other 
ministries and that it was simply a "grand concept" 
yet to be organized and vetted within the Japanese 
government.  He noted, nevertheless, that there might 
be a case over the longer term to seek a regional FTA 
rather than a network of bilateral FTAs.  He went on 
to say that, even though APEC confirms the U.S. 
interest in East Asia and Japan appreciates the 
forum's inclusive nature, the United States and Japan 
needed to re-energize its activities. 
 
--------------------------------------------- - 
Academic Stresses Japanese Isolation in Region 
--------------------------------------------- - 
 
¶7.  (SBU)  Waseda University Professor Shujiro Urata, 
one of the Japanese academic participants in the ASEAN 
Plus Three study group on a regional FTA, told econoff 
on April 21 that participants in that exercise had 
only begun to exchange reference documents for the 
study at a meeting held in Tokyo the previous week. 
Urata noted that he is the only Japanese academic 
participating in the study who is not a former METI 
official and acknowledged that it had been rather 
awkward for his (former METI) colleagues at the latest 
meeting who felt obliged to advocate the METI position 
on additional membership in the proposed regional FTA. 
 
¶8.  (SBU)  In Urata's view, Japan's chief concern over 
Chinese dominance of the ASEAN Plus Three economic 
integration exercise stemmed from the tendency of 
major Chinese firms to base production and investment 
decisions on political rather than economic factors. 
This behavior, if extended throughout the region, 
would distort markets in East Asia.  (Comment: 
Professor Urata's concern over the influence of 
politically motivated Chinese corporate behavior in 
the region seems excessive and more an effort to 
rationalize Japanese fears than to postulate a 
probable outcome.  End comment.)  Japan, Urata 
stressed, was the only large developed economy in the 
ASEAN Plus Three group and was, consequently, 
isolated.  Developing countries dominated ASEAN, and 
they tended to focus on the near-term benefits of 
 
TOKYO 00002283  003 OF 004 
 
 
immediate liberalization in trade in goods with China 
rather than worry about long-term systemic distortions 
in the regional economy.  In addition, ASEAN's 
developing members themselves lacked solid market- 
based economic systems and were not as interested in 
establishing a comprehensive, rules-based regional 
economic regime as Japan. 
 
¶9.  (SBU)  Urata saw the Chinese as pursuing a 
gradualist strategy on economic integration, starting 
with liberalization on trade in goods and expanding 
step-by-step into other areas such as investment and 
intellectual property protection.  Urata acknowledged 
that this was the usual Chinese approach to reform and 
agreed that it made sense in the context of a 
developing country.  Japan, he noted, as a developed 
economy could not accept such an approach, however. 
There were too many important economic constituencies 
in Japan that would insist on more progress regarding 
investment and IPR for Japan to be satisfied with 
anything less than a much more comprehensive agreement 
than what the Chinese were advocating. 
 
¶10.  (SBU)  Urata believed that Japan would have no 
choice but to accept the report coming out of the 
ASEAN Plus Three study group in August but added that 
Japan should continue to advocate for expanding 
membership in the proposed regional FTA.  Keeping the 
door open for additional members like Australia and 
India was about all Japan could hope to accomplish in 
the near term, Urata said.  Nevertheless, he doubted 
the ASEAN Plus Three could negotiate any FTA agreement 
quickly.  He noted that some had said a regional 
agreement could be based on the separate agreements 
that China, South Korea, and Japan are all negotiating 
or have negotiated with ASEAN, with latter two 
expected to be completed by the end of 2007.  This 
concept was unlikely to work out, however, because all 
three agreements have substantially different content 
in such areas as rules of origin.  It would most 
likely be necessary to negotiate an ASEAN Plus Three 
agreement from scratch. 
 
--------------------------------------------- - 
Australians Also See Strategic Vacuity at METI 
--------------------------------------------- - 
 
¶11.  (SBU)  Our Australian Embassy counterparts share 
our assessment that METI's proposal is primarily 
tactical in nature in that it attempts to seize the 
initiative from China, but lacks a longer-term 
strategic vision for the region.  Australian Embassy 
Deputy Chief of Mission Penny Richards told EMIN April 
20 that her soundings of various Foreign Ministry, 
Agriculture Ministry, and METI officials had indicated 
strong opposition to METI's proposal.  METI Trade 
Policy Deputy Director General Akira Miwa (who is a 
former Japanese APEC Senior Official) had emphasized 
to Richards concerns over the report of the ASEAN Plus 
Three study group but had also failed to show any 
appreciation of the broader implications for APEC and 
other regional initiatives if the METI proposal were 
realized. 
 
------------------------------------- 
Comment:  Deck Chairs on the Titanic? 
------------------------------------- 
 
¶12.  (C)  METI has been somewhat taken aback by the 
strong negative interagency reaction to Minister 
Nikai's proposal and to U.S. expression of concern. 
In all of the above-mentioned meetings we have 
conveyed the strong view that the United States is an 
Asia-Pacific nation and we want to remain engaged in 
the region's economic architecture.  METI recognizes 
it committed a blunder by not utilizing a stream of 
 
TOKYO 00002283  004 OF 004 
 
 
high level visits (Vice Minister Kusaka's trip to 
Washington DC, Deputy USTR Bhatia's visit to Tokyo) to 
brief us on its thinking in advance of the Minister's 
announcement. 
 
¶13. (C)  Underpinning Minister Nikai's initiative is a 
visceral fear of ASEAN drifting too far into China's 
orbit.  Nikai's proposal, missed an opportunity to 
redirect regional integration energies toward more 
inclusive approaches that might include the United 
States into the regional economic architecture or 
revitalize APEC.  Neither does METI offer an answer 
for how Japan plans to handle the Taiwan problem in 
its Asian trade integration proposal.  The most benign 
assessment of METI's proposal could be that it 
attempts to delay changes to the status quo in East 
Asia by complicating the process of regional 
integration.  The Japanese probably would be content 
to see an ASEAN Plus Three trade liberalization 
process stall -- thereby avoiding having to choose 
between protecting domestic constituencies or regional 
isolation.  Other Asian countries, however, may not 
allow Japanese inertia to hinder continued, albeit 
limited regional trade liberalization.  Moreover, 
Nikai remains an influential figure in the ruling 
party and, with Japan facing a leadership change in 
September, his thinking could win over Prime Minister 
Koizumi's successor. 
DONOVAN