VZCZCXRO9859
PP RUEHCHI RUEHFK RUEHHM RUEHKSO RUEHPB
DE RUEHKO #4990/01 2430625
ZNY CCCCC ZZH
P 310625Z AUG 06
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC PRIORITY 5923
INFO RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION
RUEHNE/AMEMBASSY NEW DELHI 8096
RUEHFR/AMEMBASSY PARIS 5009
RUEHPF/AMEMBASSY PHNOM PENH 0609
RUEHGO/AMEMBASSY RANGOON 2153
RUEHVN/AMEMBASSY VIENTIANE 1547
RUEHGV/USMISSION GENEVA 2913

C O N F I D E N T I A L SECTION 01 OF 03 TOKYO 004990 
 
SIPDIS 
 
SIPDIS 
 
DEPARTMENT PASS USTR FOR AUSTR CUTLER 
USTR ALSO FOR JNEUFFER, MBEEMAN AND RMEYERS 
PARIS FOR USOECD 
GENEVA FOR USTR 
 
E.O. 12958: DECL: 08/31/2016 
TAGS: ECON ETRD EINV PREL JA APECO
SUBJECT: METI VICE MINISTER CITES BUSINESS NETWORKS,  CHINA 
COMPETITION AS REASONS FOR FTA INITIATIVE 
 
 
Classified By: Charge d'Affaires Joe Donovan. 
Reason:  1.4 (b,d) 
 
¶1.  (C)  Summary: Japan feels a need for legal protections 
for its companies' integrated production facilities and 
trade flows throughout East Asia.  That and Japan's desire 
to stop or slow China efforts to assume a leadership role 
in the process of regional economic integration had spurred 
Japan's own proposal for an ASEAN plus 6 FTA at the recent 
ASEAN Economic Ministers' meeting, according to Japanese 
Ministry of Economy, Trade, and Industry (METI) Vice 
Minister Toshiaki Kitamura.  Meeting with U.S. APEC Senior 
Official Amb. Michael Michalak on August 29, Kitamura 
indicated that APEC's lack of binding decisions and rules 
had led to Japan's decision to turn to other forums to 
protect its interests.  According to Kitamura, what Japan 
hoped for most was to be able to buy time in order to craft 
a better response to the accelerating process of regional 
integration in order to protect its main economic interests 
in the region, which center on Japanese integrated 
investments, intra-company trade and intellectual property. 
End summary. 
 
Doha and China 
-------------- 
 
¶2.  (C)  Amb. Michalak opened by congratulating Kitamura on 
his promotion to Vice Minister and asked Kitamura about his 
current work priorities.  (Until July, Kitamura had been 
Director-General of METI's Trade Policy Bureau.)  Kitamura 
indicated that, in terms of the global economy, the 
suspension of the Doha Development Agenda negotiations in 
the World Trade Organization (WTO) was a very serious 
situation.  Michalak cited U.S. Trade Representative 
Schwab's recent remarks in Kuala Lumpur where she advocated 
restarting the negotiations in the near future.  Kitamura 
then noted that Amb. Schwab had gone to China following her 
visit to Malaysia and had met with Chinese Commerce 
Minister Bo Xilai.  The television coverage of that 
meeting, Kitamura said, indicated that the United States 
and China had agreed to collaborate in an effort to restart 
the Doha talks.  He expressed the concern that Amb. 
Schwab's visit represented a U.S. belief that the "Group of 
Six" discussions (the United States, the European Union, 
Brazil, India, and Japan) had failed as a negotiating forum 
and that China would now need to be brought in as a partner 
in the effort to restart the stalled talks. 
 
Vision of Regional Architecture 
------------------------------- 
 
¶3.  (C)  Michalak then asked Kitamura for his vision for 
the future of Japan's relations with the international 
economy in light of the difficulties at the WTO.  Kitamura 
said that further economic integration with Asia aimed at 
benefiting Japan's growth was the priority goal.  That was 
the thinking behind the recent proposals for regional 
integration presented by METI Minister Toshihiro Nikai at 
the ASEAN Economic Minister meeting in Kuala Lumpur during 
the week of August 21.  Kitamura asked for U.S. support for 
this proposal as a friend of Japan.  In particular, the 
United States could provide "intellectual support" for 
Japan with respect to establishing a sound legal framework 
for trade and investment in Asia.  The United States could 
exercise this influence most readily through its 
participation in APEC. 
 
¶4.  (C)  Michalak indicated his agreement with Kitamura's 
comments but added that the United States had recently seen 
Japan committing far more resources to non-APEC regional 
institutions than to APEC itself.  This had led many 
observers in Washington to believe that, although Japan was 
interested in maintaining a robust security relationship 
with the United States, it was less inclined toward greater 
economic integration with the U.S. and instead was focusing 
on Asia. 
 
Japan's Main Aim to Counter China 
--------------------------------- 
 
 
TOKYO 00004990  002 OF 003 
 
 
¶5.  (C)  Kitamura then responded to Michalak's observation 
by noting Japanese concerns regarding China.  What Japan 
wants from regional integration, he stressed, was different 
from what China wants.  Japanese investment, Kitamura said, 
had helped to fuel greater economic integration in Asia 
because Japanese companies located production of various 
components throughout the region. China is focused on trade 
and its contribution in terms of investment is small. 
Japanese companies had created production networks 
throughout Southeast Asia.  This meant that Japan's 
priorities centered on protection of investment, intra- 
company trade flows and intellectual property.  China had 
no interest in those issues, according to Kitamura.  As a 
result, Japan had felt compelled to launch its own 
initiative for greater regional integration for 
consideration at the ASEAN Economic Ministers' meeting. 
 
¶6.  (C)  When Michalak questioned whether Japan might have 
been able to address the same concerns through APEC, 
Kitamura replied that the main problem was that APEC's 
agreements were non-binding, unlike those that could be 
achieved through a free trade agreement (FTA).  When 
Michalak noted that steps could be taken in APEC to meet 
these concerns, Kitamura reposted that Japan had supported 
U.S. initiatives with respect to intellectual property 
protection and investment issues.  Michalak clarified his 
view that Japan had not been active on organizational 
initiatives such as those aimed at strengthening the APEC 
Secretariat, streamlining procedures, and even establishing 
 
SIPDIS 
a binding decision-making structure.  Kitamura replied that 
these ideas were all new and that Japan was still 
considering their merit. 
 
¶7.  (C)  Michalak commented that Japan's position had, in 
fact, seemed quite clear:  in APEC, it had taken a 
generally reactive posture; but in other forums like the 
East Asian Summit and ASEAN Plus Three, it had proactively 
sought to strengthen the institution concerned.  This 
latter type of cooperation from Japan had been noticeably 
lacking in APEC.  Kitamura seemed surprised by this 
conclusion. The United States, Michalak added, had major 
economic interests in Asia.  U.S. firms as well had 
production networks in Asia of the kind Kitamura had 
described, and the flows of trade and investment between 
the United States and Asia meant that the United States 
still had to be considered as an important economic 
partner. 
 
FTA Proliferation a Factor in Japanese Proposal 
--------------------------------------------- -- 
 
¶8.  (C)  Kitamura pointed to the burgeoning development of 
free trade agreements in Asia, particularly between the 
ASEAN countries and other major regional economies.  That, 
he stressed, had been the context of the proposal for a 
free trade agreement among the 13 ASEAN Plus Three 
countries (the ten ASEAN states plus Japan, China, and 
South Korea) that China had supported at the Kuala Lumpur 
meeting.  ASEAN, Kitamura asserted, needed an alternative 
to the ASEAN Plus Three proposal.  As a result of Japan's 
efforts, the ASEAN Economic Ministers had agreed to study 
Japan's ASEAN Plus Six (the 13 ASEAN Plus Three countries, 
Australia, New Zealand, and India) proposal.  Japan's main 
goal, according to Kitamura, was to stop the Chinese-backed 
ASEAN Plus Three FTA initiative, to halt Chinese dominance 
of ASEAN, and to buy time for Japan to craft a response to 
the process of regional integration. 
 
¶9.  (C)  Michalak again questioned why APEC could not be 
the forum for these efforts to counter Chinese influence. 
Kitamura posited that Japan's present initiative could be a 
building block for a future APEC-wide FTA.  Michalak noted 
that the FTAs currently existing in Asia tended to have too 
many exceptions to allow for economically significant trade 
liberalization.  He expressed the hope that the Japan-ASEAN 
FTA under negotiation would be more ambitious than previous 
agreements.  If countries like the United, States, 
Australia, Singapore, and Japan could work together, 
Michalak said, better quality FTAs could be achieved. 
APEC, he indicated, would be working on a united response 
 
TOKYO 00004990  003 OF 003 
 
 
to the proliferation of FTAs in Asia but acknowledged that 
this effort demanded substantial resources even to assess 
the possible benefits of proposed agreements.  Kitamura 
replied that METI planned to devote substantial resources 
to APEC in the foreseeable future. 
 
¶10.  Comment: Kitamura's point about Japan's needing to 
protect its companies' integrated networks, which other 
METI and Foreign Ministry officials also made to Amb. 
Michalak is a new rational for the ASEAN plus Six proposal 
that the GOJ had not advanced before.  It fits in well with 
growing discussion in Japan on the need to increase 
productivity through investment abroad as one measure of 
keeping Japan prosperous in the face of an aging and 
declining population and a cultural antipathy to 
immigration.  End comment. 
 
¶11.  (U)  Ambassador Michalak has cleared this message. 
DONOVAN