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RR RUEHFK RUEHKSO RUEHNAG RUEHNH
DE RUEHKO #5887/01 2840217
ZNR UUUUU ZZH
R 110217Z OCT 06
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC 7266
RHEHAAA/WHITE HOUSE WASHDC
INFO RUEHFR/AMEMBASSY PARIS 5057
RUEHOK/AMCONSUL OSAKA KOBE 1761
RUEHKSO/AMCONSUL SAPPORO 9466
RUEHNAG/AMCONSUL NAGOYA 8095
RUEHFK/AMCONSUL FUKUOKA 8390
RUEHNH/AMCONSUL NAHA 0931
RUCPDOC/USDOC WASHDC

UNCLAS SECTION 01 OF 04 TOKYO 005887 
 
SIPDIS 
 
SIPDIS 
 
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E.O. 12958: N/A 
TAGS: ETRD ECON JA ZO EAGR
SUBJECT: The Japan Economic Scope - Economic News At- 
A-Glance. 
 
 
Sensitive but unclassified.  Please protect 
accordingly. 
 
¶1. (SBU) Table of Contents 
 
3 - EB DAS Moore Discusses IPR, Economic Relationship 
    in Tokyo 
4 - Investment Initiative Looks Toward Future under 
    Abe Government 
7 - Michalak Meetings Signal Progress on Some 
    Investment Issues 
11 - AIG flags interest in Japan Post, retirement 
     services and annuities market in Japan 
12 - U.S. Beef Caravan Comes to Sapporo 
13 - Gradual Progress as Postal Privatization Proceeds 
14 - Rejuvenating Hokkaido through Niche Marketing 
15 - Kobe Airport (UKB) finally launches international 
     business jet service 
17 - A380 Unlikely to Have Large Impact on Japanese 
     Airports 
20 - Sapphire Prince Cruise Ship Docks in Muroran, 
     Hokkaido 
 
¶2.  (U) The Japan Economic Scope (JES) is a weekly e- 
newsletter produced by Embassy Tokyo's ECON section in 
collaboration with other sections and constituent 
Posts and published every Friday.  It provides a brief 
overview of recent economic developments, insights 
gleaned from contacts, summaries of the latest cables 
and a list of upcoming visitors.  This cable contains 
the October 6, 2006, JES, minus the attachments that 
accompany many of the individual stories in the e-mail 
version.  To be added to the e-mail list, please email 
ProgarJ@state.gov. 
 
EB DAS Moore Discusses IPR, Economic Relationship in 
Tokyo 
----- 
 
¶3.  (U) EB DAS Chris Moore covered a range of issues 
during meetings with government and business leaders 
during a visit to Tokyo September 21-22.  He pressed 
for more cooperation on IPR, including for a "Gold 
Standard" agreement on anti-counterfeiting.  For more 
details on his visit please see Tokyo 5773 and Tokyo 
¶5805. 
 
Investment Initiative Looks Toward Future under Abe 
Government 
---------- 
 
¶4.  (SBU) Ambassador Mike Michalak, in Tokyo from 
September 27 - October 3, met with a range of 
government officials and private sector 
representatives to discuss the future direction of the 
bilateral U.S.-Japan Investment Initiative under the 
new Abe government.  He reached tentative agreement 
with Initiative co-chair, METI Director General 
Tsunehiro Ogawa, on holding the next investment 
 
SIPDIS 
working group meeting in mid October, via DVC. 
 
¶5.  (SBU) The U.S. proposed agenda for the DVC 
includes status reports on pending regulations on 
triangular merger and related tax deferral; ongoing 
problems with taxation of local branches of foreign 
universities, labor mobility issues and discussion on 
a future program of work. 
 
¶6.  (SBU) The two chairs discussed a number of ideas 
for the future work plan.   Americas Director Mita, 
also at the meeting ,liked the U.S. idea of 
undertaking a review of investment chapters in 
existing FTAs to identify whether an improved 
bilateral investment text was needed.  He balked, 
however, at explicitly linking this effort to a 
"building block" approach for a future US-Japan FTA, 
saying this risked a backlash among more protectionist 
 
TOKYO 00005887  002 OF 004 
 
 
elements in the GOJ.  METI officials were more 
interested in using the review to push regional 
integration efforts and encourage potential future FTA 
partners to consider stronger investment provisions. 
METI officials admitted ruefully that Japan had failed 
to get strong enough investment language in several 
recently concluded Economic Partnership Agreements 
with Southeast Asian countries.  Ogawa also suggested 
the investment discussion in the working group might 
draw on work already underway in APEC on model 
investment guidelines, an effort led by Japan. 
 
Michalak Meetings Signal Progress on Some Investment 
Issues 
------ 
 
¶7.  (SBU) In discussions with visiting APEC Senior 
Official Mike Michalak, METI and MOF both confirmed 
that revisions in the commercial code allowing mergers 
using foreign stock as consideration ("triangular 
mergers") are likely to go into effect as planned in 
April 2007 without the highly restrictive definitions 
under consideration last Spring.  The LDP Tax 
Committee will be asked this fall to decide on 
deferral of taxes on such mergers. 
 
¶8.  (SBU) Efforts to gain tax exemption for U.S. 
university branch campuses in Japan have been less 
successful.  Since their earlier suggestion that 
Temple University seek to obtain tax exemption by 
applying to Tokyo regional government for vocational 
school status has now failed, Education Ministry 
officials told Michalak they were now willing to meet 
again with Temple to seek a national-level solution. 
On labor mobility issues, several interlocutors agreed 
that it could be advantageous to position our issues 
(pension portability, layoff compensation, management 
flexibility) in the context of PM Abe's "second- 
chance" initiative for those disadvantaged by economic 
reform.  One economist told Michalak that Japan's 
labor force is under increasing "strain" and MHLW will 
have to take action to improve training and labor 
policies if Japan is to avoid serious economic 
consequences in the next few years. 
 
¶9.  (SBU) Michalak received a positive reaction from 
both the public and private sector to the idea of 
promoting investment by strengthening ties between 
U.S. state investment promotion offices and 
prefectural level economic development officials in 
Japan who might benefit from the U.S. states' 
experience in this area.  Japanese business 
organizations that promote inward FDI lamented lack of 
effectiveness of many Japanese regional government 
investment programs. 
 
¶10.  (SBU) Business leaders also welcomed Michalak's 
idea of inviting the Industrial Revitalization 
Corporation of Japan to a future working group meeting 
to brief both governments on "lessons learned" in 
dealing with corporate failures and to discuss how 
investment funds can act as "change agents" in efforts 
to improve corporate governance and the investment 
environment in Japan. 
 
AIG flags interest in Japan Post, retirement services 
and annuities markets in Japan 
------------------------------ 
 
¶11.  (SBU) The CEO of insurance giant AIG, Martin 
Sullivan, flew into Kobe for meetings to mark 
subsidary AIU's 15th anniversary and to give a speech 
on October 2 in Kobe, where AIG has a call center and 
financial operations.  At a private lunch hosted by 
the Hyogo Governor, CG Russel raised the issue of 
privatization of the Japan Post.  Sullivan said AIG 
was very focused on creating a level playing field in 
 
TOKYO 00005887  003 OF 004 
 
 
the insurance market and welcomed help from all 
quarters, including judicious lobbying by local 
Japanese stakeholders.  He promised to send company 
briefing material to the governor and CG. Sullivan 
added that in light of AIG's financial services 
operations he was tremendously interested in access to 
the $1.7 trillion in Postal Savings assets (1/4 of 
Japanese household assets) that were being "wasted." 
Sullivan told CG that Japan is tremendously important 
to AIG, noting that nearly a third of the global 
giant's workforce is in Japan.  He said one "takeaway" 
from his visit was the sense of opportunities in the 
retirement services and annuities market, particularly 
in light of the skepticism by many younger Japanese 
that the national pension system will be solvent when 
their turn comes. 
 
US Beef Caravan Comes to Sapporo 
-------------------------------- 
 
¶12.  (U) As part of a Japan-wide campaign, the US Meat 
Export Federation (USMEF) hosted a series of events in 
Sapporo on September 29-30 to promote the safety and 
overall great taste of US beef.  USMEF organized a 
trade/marketing seminar and reception for wholesalers, 
trading companies, meat processing companies, and 
hotels interested in learning more about U.S. beef. 
The U.S. Consulate General supported these events, 
with Consul General Marrie Schaefer encouraging the 
seminar attendees to resume US beef purchases.  At the 
same time, the "We Care" kitchen car set up in front 
of Sapporo Station and at a local supermarket gave 
away more than 500 free samples of U.S. beef. 
 
Gradual Progress as Postal Privatization Proceeds 
--------------------------------------------- ---- 
 
¶13.  (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 JP companies' IPOs successful.  Of 
possible concern is that the GOJ has yet to come to 
consensus on how to handle express mail services 
during the privatization.  Details can be found in 
Tokyo 5686. 
 
Rejuvenating Hokkaido through Niche Marketing 
--------------------------------------------- 
 
¶14.  (U) With Hokkaido continuing to experience 
economic difficulties, government, business and 
citizen groups are encouraging Hokkaido residents to 
reinvent the island's economy by pursuing new 
strategies.  Some private businesses have answered the 
local government's call for diversification by 
investing in non-traditional sectors and pursuing 
niche-marketing approaches.  For more information, see 
Sapporo 00084. 
 
Kobe Airport (UKB) finally launches international 
business jet service 
-------------------- 
 
¶15. (U) Dropping the fig leaf that UKB would serve 
solely as a domestic airport -- used to quell 
opposition from nearby Kansai International Airport 
and the Ministry of Land, Infrastructure and 
Transportation during construction -- Kobe City 
Government announced that the first international 
 
TOKYO 00005887  004 OF 004 
 
 
business jet would fly from UKB to Busan, Korea on 
September 28.  The maiden voyage is being chartered by 
the Japan Business Jet Association for its chairman 
and members.  Japan Aerospace, affiliated with Itochu 
Corporation, will operate the flight.  On October 1, 
executives from AIG will arrive at Kobe Airport by 
business jet from the Untied States to attend the 
Hyogo Management Seminar on October 3.  The landing 
fee for business jets with less than 10 passengers is 
approximately 6,000 yen.  Kobe hopes to capitalize on 
the increased PR from its charter flights, still rare 
in Japan, to further expand its international business 
portfolio.  The city expects at least 30 business jets 
a year. 
 
¶16.  (U) Hideo Etani, Director General of the Kobe 
Branch of the Bank of Japan commented that although 
the city concentrates on tourist passenger use of the 
airport, the low load factor for UKB is a warning sign 
that Kobe needs to focus even more on increasing 
business traveler use of Kobe Airport. 
 
A380 Unlikely to Have Large Impact on Japanese 
Airports 
-------- 
 
¶17.  (SBU) U.S. Government Accountability Office (GAO) 
Physical Infrastructure specialists visited Tokyo from 
Oct. 4 - 6 to discuss various topics related to the 
introduction of the Airbus 380 operations. Officials 
from the Japan Civil Aviation Bureau's (JCAB) 
Construction, Airworthiness, Air Traffic Control, 
International Air Transport, and General Affairs 
Divisions discussed their role in regulating and 
certifying the new aircraft, as well as in modifying 
airport infrastructure and flight operations. 
 
¶18.  (SBU) JCAB officials stated that airports such as 
Tokyo Narita, Nagoya Central Japan (Chubu), and Osaka 
Kansai anticipate receiving the A380.  As far as 
airport infrastructure is concerned, runways at these 
airports meet ICAO standards, but some taxiways must 
be expanded to accommodate the A380.  JCAB admitted 
that while certain operational restrictions would be 
imposed on the ground, they do not anticipate 
significant impact on airspace utilization or capacity 
at major Japanese airports.  JCAB airports would 
adhere to the interim flight separation standards set 
forth by the ICAO for the A380 aircraft.  They believe 
that initial impact would seem to be minimal, since no 
Japanese air carriers intend to purchase the A380 in 
the foreseeable future. 
 
¶19.  (SBU) However, officials from Japan Airlines 
(JAL) told the GAO that they feared longer flight 
separation requirements would reduce flight slots and 
cause flight delays. 
 
Sapphire Prince Cruise Ship Docks in Muroran, Hokkaido 
--------------------------------------------- --------- 
 
¶20.  (U) The Sapphire Princess, one of Princess 
Cruises largest vessels, arrived in the Hokkaido port 
of Muroran on September 26.  This was only the second 
time in recent years that a cruise ship from the 
United States has visited Muroran. Some 2600 
passengers, most of them American, received a warm 
welcome in English from Mayor Masashi Shinguu before 
spending the day touring around the old steel town of 
Muroran and other nearby areas of Hokkaido, including 
Sapporo. The one day visit was part of a larger 
Northeast Asia cruise that left Whittier, Alaska in 
late September for stops in Russia (Petropavlosk), 
Japan (Muroran, Yokohama and Nagasaki) and China 
(Tianjin). 
 
SCHIEFFER