VZCZCXRO4271
RR RUEHFK RUEHKSO RUEHNAG RUEHNH
DE RUEHKO #5686/01 2720620
ZNR UUUUU ZZH
R 290620Z SEP 06
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC 6935
INFO RUEHFK/AMCONSUL FUKUOKA 8254
RUEHNAG/AMCONSUL NAGOYA 7978
RUEHNH/AMCONSUL NAHA 0803
RUEHOK/AMCONSUL OSAKA KOBE 1617
RUEHKSO/AMCONSUL SAPPORO 9336
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/TREASURY DEPT WASHDC

UNCLAS SECTION 01 OF 02 TOKYO 005686 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
USTR FOR AUSTR CUTLER AND M. BEEMAN 
 
E.O. 12958: N/A 
TAGS: ECON EFIN JA
SUBJECT: POSTAL PRIVATIZATION: GOJ RESPONSE TO U.S. 
CONCERNS ABOUT IMPLEMENTATION FRAMEWORK 
 
REF: BEEMAN-FANTOZZI EMAIL 8/9/06 
 
Summary 
------- 
¶1.  (SBU)  A round of meetings with GOJ officials involved 
with postal privatization indicates gradual progress toward 
the goals of greater transparency and a level playing field. 
Contacts assured us that the Japan Post Corporation (JPC) 
could not obtain approval for new products through its July 
submission of a framework implementation plan and that each 
new product request would be reviewed individually.  The 
officials (except from JPC) voiced support for the need for 
transparency and a level playing field, but most also 
balanced this with a perceived need for new products to make 
JP0pFZhrvices during the privatization.  End summary. 
 
Demarche Delivered on Japan Post Corp. Plan 
------------------------------------------- 
¶2.  (U) In response to reference request, ECOUNS delivered 
talking points regarding the Japan Post Corporation's July 
release of a framework implementation plan for postal 
privatization in the following meetings to listed 
participants. 
 
Financial Services Agency (FSA), August 23 
Insurance Business Division Director Toshiyuki Yasui 
 
Office of the Privatization of Japan Post (OPJP), August 30 
Acting Director Masayuki Tokushige 
 
Ministry of Internal Affairs and Communications, August 30 
Postal Life Insurance Policy Planning Division Deputy 
Director Yukio Teramura 
International Affairs Office Principal Deputy Director 
Atsushi Ozu 
General Management Office Deputy Director Shingo Okamura 
Postal Policy Planning Division Operation Systems Manager 
Yasunari Ueno 
 
Postal Service Privatization Committee (PSPC), August 31 
Chairman Naoki Tanaka 
 
Japan Post Corporation (JPC), September 22 
Postal Life Insurance Company Division General Manager 
Nobuyasu Katou 
General Affairs Division General Manger Akihito Nishiguchi 
Postal Life Insurance Company Division official Takao Furusawa 
General Affairs Division official Yasuto Takano 
 
EMIN also highlighted USG concerns for OPJP President 
Watanabe during an August 21 courtesy call.  A detailed 
memorandum of conversation for each meeting has been emailed 
to USTR and EAP/J. 
 
New Product and Level Playing Field Concerns 
-------------------------------------------- 
¶3.  (SBU) Our interlocutors uniformly said it was not 
possible for the Japan Post Corporation to use the framework 
implementation plan to seek implicit or explicit approval for 
new products, noting that the framework was neither an 
official document nor binding on ministries.  The FSA's Yasui 
went so far as to say the framework had "nothing to do" with 
official approval for new product applications.  All contacts 
agreed that new products would still have to be examined, one 
by one, by the PSPC and MIC, and, for financial products 
including insurance, by FSA. 
 
¶4.  (SBU) Our interlocutors were also familiar with and 
generally accepting of the idea that no new products should 
be introduced before a level playing field has been 
established.  Many also expressed in various ways that this 
objective needed to be balanced against the perceived need 
for new products to make privatization a success.  PSPC 
Chairman Tanaka, for example, vigorously endorsed the idea 
that equal footing for companies is important not only for 
fairness's sake, but that it is essential to preventing the 
privatization process from distorting resource allocation 
across the wider Japanese economy.  But he also argued that 
the new postal banking and insurance entities would have to 
introduce new products before their IPOs.  That, he 
 
TOKYO 00005686  002 OF 002 
 
 
explained, would be necessary for the entities to gain 
experience in the marketplace and show potential investors 
thei:J}ml]=QQqs.  Others interlocutors, like the FSA's 
Yasui, stressed equal regulatory conditions when conversation 
turned to level playing field issues. 
 
¶5.  (SBU) Tanaka's point that the new postal entities will 
need to introduce new products to gain experience and show 
their market potential was echoed in several of the other 
discussions, often with reference to the principles embedded 
in the privatization laws (that privatization should not 
distort the marketplace, but that the new entities' 
management need the freedom to succeed).  The need for the 
new entities to improve their risk-management capabilities, 
both to satisfy regulatory requirements and be successful in 
the marketplace, was also a common theme.  (Note: Only one 
person, Kazuhiko Toyama, a PSPC member to whom we spoke 
earlier, has recognized that new products could actually lose 
money and hence hurt the JPC's IPOs.) 
 
Cross-subsidization and Transparency 
------------------------------------ 
¶6.  (SBU) In response to questions about the potential for 
cross-subsidization among the new postal entities, our 
interlocutors generally stressed that regulatory approval and 
disclosure practices would allow the contracts among the 
companies to be scrutinized and would ensure arm's-length 
contracting prevailed.  MIC's Teramura, for example, noted 
that contracts between the new insurance entity and the 
Public Successor Corporation would have to be disclosed under 
negotiated terms of the Regulatory Reform Initiative.  More 
proactively, Chairman Tanaka stated that arm's-length 
transactions were important to keep companies from taking 
unnecessary risks and that the PSPC would actively monitor 
transactions to ensure they were market-based.  JPC officials 
agreed that such contracts would be scrutinized by the PSPC, 
but noted they would be addenda to the Implementation Plan. 
 
Express Mail Service (EMS) 
-------------------------- 
¶7.  (SBU) The largest difference of opinions surfaced 
regarding EMS, ranging from MIC's Ozu claiming that EMS 
services fell under Japan's postal universal service 
obligations (and thus are not subject to equal footing 
concerns) to PSPC Chairman Tanaka's view that EMS is subject 
to the same equal footing concerns that affect insurance and 
banking services.  Separate discussions suggest Ozu's 
statement may reflect his personal, rather than the 
ministry's, view; the Embassy will be following up to 
determine whether that is the case. 
 
Comment 
------- 
¶8.  (SBU) With the possible exception of EMS, what we heard 
was broadly supportive of our goals to ensure transparency 
and a level playing field througout postal privatization.  We 
note in particular that PSPC Chairman Tanaka, in a press 
conference on the same day of our meeting, announced that the 
PSPC would formulate guidelines for the introduction of new 
products, as well as a series of Fall hearings for 
stakeholders, and that PSPC member Toyama has told us he 
supports those actions.  We take the iterative feedback 
process Tanaka is proposing as a positive sign0"4"YFXQ_increased transparency and the establishment of a level 
playing field.  We also note that as the privatization law 
comes more fully into effect, our concerns are being more 
specifically addressed.  While we cannot let our guard down, 
we are generally in a better position than a year ago. 
DONOVAN