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RUYNAAC/COMNAVFORJAPAN YOKOSUKA JA
RHMFISS/COMUSJAPAN YOKOTA AB JA

C O N F I D E N T I A L SECTION 01 OF 03 TOKYO 003164 
 
SIPDIS 
 
SIPDIS 
 
DEPT PASS USTR FOR AUSTR CUTLER 
USTR ALSO FOR JNEUFFER, MBEEMAN 
GENEVA PASS USTR 
PARIS FOR USOECD 
 
E.O. 12958: DECL: 06/08/2016 
TAGS: ECON ETRD PREL APECO JA
SUBJECT: METI SAYS ASEAN PLUS 3 FTA "INEVITABLE" 
 
Classified By: Deputy Chief of Mission Joe Donovan. 
Reason: 1.4 (b/d) 
 
¶1.  (C)  Summary:  Japan is in no position to oppose an 
almost certain Chinese-led consensus among the other 12 
member countries of the ASEAN Plus Three to pursue a 
regional free trade agreement (FTA), according to a senior 
official of Japan's Ministry of Economy, Trade, and 
Industry (METI).  Therefore, the best outcome for Japan 
would be subsequently to broaden (by including India, 
Australia, and New Zealand) and deepen (by seeking coverage 
of sectors like IPR and investment) the proposed FTA.  The 
official acknowledged the need for close U.S.-Japan 
consultations on the Asian regional architecture and said 
that METI Vice Minister Kusaka looked forward to discussing 
this subject in Washington DC on June 14.  End summary. 
 
Relations with China Improving 
------------------------------ 
 
¶2.  (C)  The May 27 meeting in Kyoto between METI Minister 
Toshihiro Nikai and Chinese Commerce Minister Bo Xilai was 
significant as it marked the first ministerial-level 
exchange in Japan between China and Japan since the visit 
of Chinese Vice Premier Wu Yi a year earlier, according to 
METI Trade Policy Director Toshiaki Kitamura.  Meeting with 
U.S. Ambassador to APEC Michael Michalak on June 6, 
Kitamura said that Nikai had held the meeting in the State 
Guest House in Kyoto (where President Bush had stayed last 
November) at the urging of Prime Minister Koizumi.  Bo had 
been visiting Japan to attend a Sino-Japanese forum on 
energy saving and environmental protection, and Kitamura 
emphasized that China had sent an impressive delegation, 
including not only Minister Bo but also Vice Chairman Jiang 
Weixin of China's National Development and Reform 
Commission and the heads of a number of electric power and 
steel companies.  Kitamura indicated the forum signaled a 
turn for the better in relations between China and Japan. 
 
ASEAN Plus Three-based FTA Talks Inevitable 
------------------------------------------- 
 
¶3.  (C)  Turning to activities surrounding the recent APEC 
meeting of Ministers Related to Trade (MRT), Kitamura said 
that Trade Minister Nikai had characterized the June 2 
breakfast meeting of trade ministers from the United 
States, Japan, Australia, and Singapore as having been very 
helpful in allowing the ministers of those four key 
economies to discuss serious issues in an informal and less 
stilted setting than the main APEC meetings.  Kitamura, who 
had accompanied Nikai, noted that the remarks of Singapore 
Trade and Industry Minister Lim Hng Kiang on the dynamic 
surrounding regional free trade agreements deserved 
particularly close attention.  According to Kitamura, Lim 
had stated flatly that the report of the group of experts 
led by a Chinese academic on a framework for an ASEAN Plus 
Three FTA would receive the endorsement not only of the 
ASEAN Plus Three economic ministers in August but also of 
the leaders of the thirteen ASEAN Plus Three countries when 
they met at the end of the year.  Kitamura said Lim then 
outlined a three stage strategy in which the initial FTA 
negotiations among the 13 ASEAN Plus Three states would 
lead quickly to an "ASEAN Plus Six" negotiation including 
Australia, New Zealand, and India.  With the completion of 
that agreement, the stage would be set for a subsequent FTA 
negotiation to include all the economies of APEC.  Kitamura 
added that these remarks of Lim appeared to be the official 
position of the Government of Singapore as Singapore 
Foreign Minister George Yeo had outlined the same strategy 
in a separate meeting. 
 
¶4.  (C)  Kitamura said the mechanism by which the ASEAN 
Plus Three FTA negotiations would begin was unclear.  One 
possibility was that the 13 countries might initiate a 
joint study group; another was for negotiations to start 
directly at some appropriate time in 2007.  Whatever the 
mechanism, however, and despite Japan's reservations 
regarding the probable exclusion of issues important to 
 
TOKYO 00003164  002 OF 003 
 
 
Japan such as intellectual property protection and 
investment provisions, Japan, Kitamura stressed, was in no 
position to oppose the growing consensus within the ASEAN 
Plus Three to move forward on an agreement.  Both China and 
South Korea, he noted, had completed their own individual 
free trade agreements with ASEAN and, consequently, had no 
reservations regarding the establishment of a broader ASEAN 
Plus Three arrangement. 
 
China Not Interested in "Serious" FTA 
------------------------------------- 
 
¶5.  (C)  China, Kitamura stated, viewed these free trade 
agreements as more of a political than an economic exercise 
and were not interested in the creation of a serious, 
advanced regional free trade agreement.  The Chinese were 
enticing the ASEAN countries into their orbit with the lure 
of the vast Chinese domestic market.  Kitamura stressed 
that the recent proposal for a regional FTA that included 
Australia, New Zealand, and India raised by Minister Nikai 
had aimed at countering the Chinese-backed ASEAN Plus Three 
proposal.  As a result of Nikai's proposal, the ASEAN Plus 
Three experts group had now had to address the Nikai 
proposal's main points in their own report, which left the 
door open to expanding (through the addition of Australia, 
New Zealand, and Singapore) and deepening (by including 
provisions on intellectual property and investment) the 
ASEAN Plus Three-based initiative likely to be endorsed at 
the end of this year.  Kitamura indicated satisfaction that 
METI's action had positively affected the experts' group 
report, which is due to be completed at the end of June. 
Even the Chinese leadership had had to take note of 
Minister Nikai's proposal, Kitamura added. 
 
¶6.  (C)  Amb. Michalak commented that China had proffered a 
great deal of resistance to the FTA model measures being 
discussed in APEC and asked Kitamura for METI's analysis of 
the impact of the existing FTA between China and ASEAN. 
Kitamura responded that the China-ASEAN FTA had, in the 
near term, clearly benefited the ASEAN countries by 
offering increased access to the Chinese market for ASEAN- 
produced agricultural exports.  In the midterm, however, 
China would likely have the greater advantage because of 
increased access for its manufactured products to ASEAN. 
In addition, China, which had no significant investments in 
ASEAN, was not eager to expand the content of its existing 
FTA with ASEAN beyond trade in goods.  For Japan, which has 
extensive investment in Southeast Asia, however, it would 
be imperative for any agreement with ASEAN to include 
investment-related provisions such as IPR protection and 
dispute settlement mechanisms, Kitamura stressed. 
 
Leadership Transition Complicates Interagency Response 
--------------------------------------------- --------- 
 
¶7.  (C)  Kitamura indicated that interagency discussions by 
the GOJ on how to respond to the likelihood of the 
endorsement of the proposal for an ASEAN Plus Three FTA 
were progressing.  The fact that the ASEAN Plus Three 
economic ministers' meeting in August would take place 
during the term of the current Japanese Cabinet but that 
the leaders' meeting would take place following the 
installation of a new Prime Minister and Cabinet 
complicated these discussions, he added.  According to 
Kitamura, METI Vice Minister Kazumasa Kusaka was looking 
forward to discussing the issue of future economic 
architecture in East Asia in the June 14 sub-cabinet 
dialogue in Washington. 
 
Comment 
------- 
 
¶8.  (C)  Even as he noted the current improvement in 
relations with China, Kitamura highlighted once again 
Japan's fear of separating itself from other Asian 
countries in the face of China's growing influence -- and 
the degree to which it has proven incapable of addressing 
that concern.  Nikai's proposal for an ASEAN Plus Six FTA 
 
TOKYO 00003164  003 OF 003 
 
 
appears increasingly as a "face-saving" measure for the 
Minister.  It allows him to claim a minor victory -- the 
hope of eventual consideration of an expanded regional 
agreement including Australia, New Zealand, and India -- 
even as he accepts the consensus on an ASEAN Plus Three FTA 
proposal.  Although Kitamura criticized China for putting 
politics ahead of economics in its FTA strategy, the extent 
to which the Japanese seem prepared to put aside ostensible 
"imperatives" for any FTA in order to avoid isolation 
suggests the Chinese are not the only parties placing 
priority on their political interests in the region. 
 
¶9.  (U)  Ambassador Michalak did not have a chance to clear 
this message before his departure. 
SCHIEFFER