VZCZCXYZ0000
OO RUEHWEB

DE RUEHKO #2302/01 1170846
ZNR UUUUU ZZH
O 270846Z APR 06
FM AMEMBASSY TOKYO
TO RUEATRS/TREASURY DEPT WASHDC IMMEDIATE
RUEHC/SECSTATE WASHDC IMMEDIATE 1458
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC IMMEDIATE

UNCLAS TOKYO 002302 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE PLEASE PASS TO USTR/MICHAEL BEEMAN 
 
E.O. 12958: N/A 
TAGS: EAIR ECON EFIN EINV JA
SUBJECT: PSPC CHAIRMAN TANAKA WANTS TO END MARKET 
DISTORTIONS BUT ALSO ENSURE JAPAN POST CAN COMPETE 
 
¶1.  (SBU)  SUMMARY:  A level playing field should be 
established before the successor companies of Japan Post (JP) 
can expand their product offerings, Naoki TANAKA, chairman of 
the Postal Services Privatization Committee (PSPC) clearly 
stated to ECOUNS on April 21. He was also positive on the 
need for the PSPC to operate in a transparent manner.  He 
emphasized, however, that the committee also has a 
responsibility to ensure the postal companies are able to 
develop the capabilities to compete in the open market.  END 
SUMMARY 
 
¶2.  (SBU)  BACKGROUND:  The PSPC is provided for in the 
Postal Privatization Law as an outside panel of experts 
charged with considering applications for new products or 
expanded business from the privatizing postal companies.  As 
such, it is expected to play a critical role in advising on 
how to balance what the government calls management freedom 
for JP with concerns from the private sector (including many 
US companies) that the new companies will continue to enjoy 
preferential regulatory, tax or other treatment as they 
expand into new business areas.  US firms concerned over this 
possibility (including insurance and express delivery service 
providers) were buoyed by the appointment of Tanaka to the 
chairmanship.  Tanaka, a long-time proponent of Japan Post 
privatization, is the head of a think-tank, the 21st Century 
Institute, and is an economist with a strong belief in free 
markets. 
 
¶3.  (SBU)  Although Japan Post will privatize in October 
2007, the law specifically allows for the company to expand 
its business activities in the express delivery area from 
April 2006.   The first case came earlier this month, when 
the committee, after three closed-door meetings, quickly 
approved JP,s proposed joint venture with All Nippon Airways 
(ANA) to provide international express delivery services. 
Tanaka stated unambiguously that the committee did not 
believe the new company would unfairly harm private 
businesses competing in the express delivery market.  The 
committee received a detailed briefing from the Ministry of 
Internal Affairs and Communications (MIC) and JP on the 
proposal, but did not offer private industry a chance to air 
concerns over possible unfair competition.  In fact, a US 
express mail representative has told us that there was little 
concern about the joint venture and the PSPC stipulated that 
joint venture be periodically reviewed.  However, the lack of 
transparency in the process has also alarmed US firms; 
meeting minutes were released ex-post, but there was no 
opportunity for ex-ante input or provisions for public 
comment.  END BACKGROUND. 
 
¶4.  (SBU)  During a courtesy call by ECOUNS, Tanaka 
emphasized the importance of eliminating market distortions, 
which historically have plagued the Japanese economy.  The 
"dividends of reforms", that is, future increased economic 
efficiency for the benefit of consumers, will result from 
this emphasis on economic rationalization, and he added that 
Prime Minister Koizumi has emphasized to him the importance 
of this dividend in the case of Japan Post privatization. 
Tanaka was emphatic that Japan should be open to all market 
participants, including foreign ones.  Given Japan,s 
demographic challenge in the years to come, foreign companies 
should have access to Japan,s markets to enhance 
productivity and increase efficiency.  The way to do this, he 
added, is with a level regulatory playing field, an 
atmosphere of confidence for foreign investors, and 
transparent decision-making. 
 
¶5.  (SBU)  On transparency, he acknowledged that a rule-based 
system with ex-post and ex-ante transparency is critical for 
creating a good environment for investment.  He seemed to 
understand our concerns over the need for advance notice of 
meeting agendas and the opportunity for meaningful input from 
private sector stakeholders.  When urged to provide 
opportunity for stakeholders to submit their comments, and 
ample time for the committee to consider such comments, he 
stated simply, "I accept this."  He said the PSPC would hold 
an initial discussion of issues and then seek public comment 
before a final decision.  He noted that transparency would 
also be important for JP workers and unions. 
 
¶6.  (SBU)  However, Tanaka emphasized that there is another 
side to this equation: his responsibility to help the 
thousands of JP employees have an opportunity to enhance 
their capabilities to compete in the market.  The way to do 
so is by allowing development of new products and services. 
He strongly agreed, however, that the introduction of new 
products should be preceded by the creation of a level 
playing field and the elimination of monopoly protections, 
 
the possibilities for cross-subsidization arrangements 
between the JP companies, and tax and regulatory benefits. 
 
¶7.  (SBU)  When urged to establish transparently criteria for 
the PSPC to apply to its decisions, Tanaka insisted that to a 
certain extent, an ad hoc, case-by-case method was 
inevitable, because there is no textbook for how a 
privatization on this scale should be carried out.  Still, he 
acknowledged that the PSPC should define guidelines on how it 
will proceed, and lay out more specifically the scope of 
their work.  Tanaka also stated that the Regional and Social 
Contribution Fund, which was included as a compromise in the 
privatization law, will only be used to ensure universal mail 
delivery service, not for JP,s insurance or banking arms. 
 
COMMENT 
========== 
 
¶8.  (SBU)  Tanaka appears to be genuinely convinced of the 
importance of eliminating government-supported market 
distortions, and his call for participation in Japan,s 
market by foreign firms is encouraging.  As a free-market 
economist, he believes market efficiency is critical, as is 
seen in his call for an end to market distortions and his 
repetition of the phrase "the dividend of reform" as 
something of a mantra for his committee,s actions. 
 
¶9.  (SBU)  However, he also clearly believes he must bear 
responsibility for the postal employees and appears to be 
sincerely dedicated to providing opportunities to help them 
develop the skills they will need to survive in the market. 
Although he described this responsibility as "a big headache" 
he is evidently dedicated to carrying it out.  Also, as an 
economist perhaps more used to working with the theoretical, 
he seems to be feeling his way through transparency issues. 
After initial bemusement, he responded favorably to our push 
for transparency, public comment and stakeholder input, but 
his reaction suggests he did not expect this to become such a 
priority for us.  We also had the impression that he may have 
been thinking through some of the practical issues as we 
spoke.  Nonetheless, it is clear his general instincts on our 
concerns are favorable. 
DONOVAN