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UNCLAS SECTION 01 OF 07 TOKYO 006294 
 
SIPDIS 
 
SIPDIS 
 
SENSITIVE 
 
DEPT PASS USTR 
 
PARIS PLEASE PASS USOECD 
 
E.O. 12958: N/A 
TAGS: ETRD ECON JA ZO EAGR
SUBJECT: The Japan Economic Scope Q- Economic News At- 
A-Glance. 
 
Sensitive but unclassified.  Please protect 
accordingly. 
 
¶1. (SBU) Table of Contents 
 
¶3. Keidanran Signals Renewed Opposition to Foreign 
Triangular Merger 
¶4. Japan Ag: More Talk About Reform? 
¶5. Unblocking Beef in Japan's Pipeline 
¶6. Japan's Annual Southern Bluefin Tuna Catch Halved 
¶7. Azadegan:  EMIN Calls on METI, MOFA to Discuss 
Contract Change 
¶8.  Sakhalin 2 Partner Confident Project Will Not Be 
Canceled 
¶9.  Kyushu Making Biomass Environmental Friendly Ahead 
of New Restrictions 
¶10. Mutual Recognition Agreement Talks Resume in Tokyo 
¶11. Wal-Mart Makes A Go Of It In Japan (U) 
¶12. Motion Picture Association Chairman Dan Glickman 
Visits Japan (SBU) 
¶13. Labor Legislation Slated for 2007 Diet Despite 
Little Progress in Negotiations (SBU) 
¶14.  A380 Unlikely to Have Large Impact on Japanese 
Airports (SBU) 
¶15. Shimizu Port: 7th Largest in Japan, and Shizuoka 
Airport Plans (U) 
 
 
¶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 27, 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. 
 
¶3. (SBU) Keidanran Signals Renewed Opposition to 
Foreign Triangular Merger 
------------------------- 
 
According to recent media reports,  Keidanren is 
gearing up to oppose GOJ plans to finalize rules 
allowing foreign triangular mergers. 
 
In an October 20 Yomiuri article, Keidanren VP 
Miyahara is quoted as saying the Federation is urging 
the GOJ to adopt "stricter" regulations of mergers 
using foreign stock, specifically asking that stocks 
used must be listed on Japanese exchanges. 
 
METI officials responsible for promoting investment 
met with Embassy officials on October 23 to express 
their concerns about this development and urge us to 
lobby Diet members and LDP officials more actively. 
 
METI met separately with EU diplomats and U.S. and 
European business groups to deliver the same message. 
 
Embassy is coordinating with the American Chamber of 
Commerce Japan (ACCJ) and EU colleagues on an advocacy 
strategy emphasizing the damage to Japan's FDI climate 
if Keidanren's proposal is accepted. 
 
We will also raise this as our top agenda item at the 
next bilateral Investment Working Group meeting set 
for October 31. 
 
ACCJ and the European Business Council issued a 
strongly worded joint press statement on October 27 
opposing Keidanren's position  (see: 
http://www.accj.or.jp/). 
 
¶4. (U) Japan Ag: More Talk About Reform 
--------------------------------------- 
 
TOKYO 00006294  002 OF 007 
 
 
 
According to press reports, some members of Prime 
Minister Abe's Council on Economic and Fiscal Policy 
(CEFP) are clamoring to break up elements of Japan 
Agriculture (JA), the pillar of the country's 
protectionist farm sector. 
 
An unidentified Council member told reporters that he 
would favor breaking off JA's banking and insurance 
businesses from its other more traditional agriculture 
cooperative services, including marketing of 
agriculture products and sales to farmers of material 
and equipment. 
 
The banking and insurance businesses make money for JA 
and in effect cross-subsidize some of its other 
activities. 
 
There has been talk of such reform in the past, but 
little progress to show for it.  Restructuring JA 
would be touching a third rail for LDP politicians -- 
many of whom have made careers out of pandering to 
farm sector interests. 
 
When asked by reporters about the anonymous suggestion 
to restructure JA, new Agriculture Minister Toshikatsu 
Matsukoka showed little stomach for pushing sweeping 
reforms, claiming to be more interested in 
"streamlining" JA's inefficient distribution system. 
 
The success of the ruling coalition last year in 
passing land mark postal privatization reform, 
however, may have prompted the CEFP member's apparent 
trial balloon on JA restructuring at this time.  A 
CEFP member EMIN talked to October 20 underscored his 
desire to see the Council play an active role 
continuing to push a reform agenda. 
 
¶5. (U) Unblocking Beef in Japan's Pipeline 
------------------------------------------ 
 
After getting the green light from the ruling Liberal 
Democratic Party in the Diet, the GOJ is set to resume 
import processing of the U.S. beef held up in the 
import pipeline since January. 
 
Agriculture Minister Toshikatsu Matsuoka declared last 
week that the U.S. beef in question, over 900 tons, 
will be processed beginning October 27 and take 
several weeks to complete. 
 
The Embassy has worked extensively with GOJ 
authorities to free up the shipments. 
 
According to terms of the decision to allow the beef 
in, all boxes will be opened to see that no specified 
risk material  -- banned under the bilateral agreement 
-- are included. 
 
A U.S. exporter told us on October 22 he welcomed the 
decision, which he suggested could help raise consumer 
confidence. 
 
Also see: MAFF's Japanese press release on this 
subject 
 
¶6. (U) Japan's Annual Southern Bluefin Tuna Catch 
Halved 
------ 
 
At the 13th meeting of the Commission for the 
Conservation of Southern Bluefin Tuna held October 10- 
13, Japan accepted a reduction in its annual fishing 
quota of southern bluefin tuna due to the Commission's 
conclusion that Japan had been overfishing the tuna 
for years. 
 
The Panel is said to have estimated the total 
 
TOKYO 00006294  003 OF 007 
 
 
overcatch at 178,000 MT over the past 20 odd years. 
 
The new annual quota for Japan will be down by half to 
3,000 metric tons and will be applied for five years 
from 2007. 
 
A longer report will be available on the FAS website. 
 
¶7.  (SBU) Azadegan:  EMIN Calls on METI, MOFA to 
Discuss Contract Change 
----------------------- 
 
EMIN met with METI Agency for Natural Resources and 
Energy Director General Harufumi Mochizuki and MOFA 
Deputy Director General for Middle Eastern Affairs 
Hideki Ito on October 13 and October 20 respectively 
to discuss the change in status of Japan's oil major 
Inpex vis-`-vis the Iranian oil field Azadegan. 
 
For a complete readout of these two meetings, see 
Tokyo Cables 6074 and 6160. 
 
¶8. (SBU) Sakhalin 2 Partner Confident Project Will Not 
Be Canceled 
----------- 
 
Former Japanese Ambassador to Russia Takehiro Togo, 
currently senior counselor at Mitsui and Co., which is 
part of the Sakhalin 2 consortium, told Econoff on 
October 17 that the Russian government had no desire 
to pull the plug on the Sakhalin 2 project despite 
environmental concerns surrounding it. 
 
The Russian government was currently pursuing a number 
of natural resource investigations, not just Sakhalin 
¶2.  Togo suggested that talks between Royal Dutch 
Shell and Russian oil major Gazprom over swapping 
shares in different projects were not going well and 
that may have played a role. 
 
He strongly suggested that the inclusion of Gazprom in 
the consortium would benefit all concerned while 
noting Russian government concern over the ballooning 
cost of the project. 
 
Togo also highlighted the mutually beneficial 
relationship of Russia and Japan in the energy field. 
 
For a complete readout of this meeting, see Tokyo 
¶6163. 
 
¶9. (U) Kyushu Making Biomass Environmental Friendly 
Ahead of New Restrictions 
------------------------- 
 
The southern Kyushu prefectures of Miyazaki and 
Kagoshima are among Japan's top three producers of 
cattle, pigs, poultry, and shochu (a distilled spirit 
made out of sweet potato, rice or barley).  For years, 
the resultant livestock and shochu waste was left 
untreated and disposed of to the point where it began 
to contaminate local ground water sources.  In an 
effort to reduce these industries' environmental 
impact and take advantage of financial incentives for 
recycling, various local companies began converting 
the biomass waste into energy and animal feed. 
 
Two Miyazaki facilities generate electric power from 
poultry manure produced in the prefecture.  A small 
portion of this electric power is used to operate the 
plants, and the surplus is bought by Kyushu Electric 
Power Company. 
 
In addition, a consortium of industry, academia and 
government agencies in Miyakonojo City is developing 
an incinerator that will use pig excrement and waste 
wood to generate heat for the drying of locally 
harvested timber.  This pilot program is not expected 
 
TOKYO 00006294  004 OF 007 
 
 
to become operational for at least two years, and 
there are currently no plans for recycling waste from 
cattle. 
 
The local shochu industry, 90 percent of which is 
produced from sweet potato, has traditionally 
discharged shochu lees directly into the ocean or 
sprayed the waste as fertilizer for farming 
Approximately 90 percent of Japan's shochu distillery 
waste is generated in southern Kyushu, and Kagoshima 
prefecture, the country's largest shochu producer, 
continues to release one-third of its shochu waste 
directly into the ocean. 
 
Although Japan has yet to become a party to the London 
Convention, starting April 1, 2007, the Ministry of 
Environment will prohibit the discharge of shochu lees 
and other waste into the ocean as preparation for 
possible future accession to the protocol. 
 
In response to the Ministry of Environment's pending 
restrictions as well as the increased amount of waste 
generated due to the "Shochu Boom," several 
manufacturers are now recycling waste products derived 
from fermenting shochu. 
 
Miyazaki's largest shochu producer, Kirishima Shuzo 
Co., is utilizing sweet potato shochu waste to produce 
dry livestock feed.  In addition, Mitsui Engineering & 
Shipbuilding of Tokyo recently announced plans to 
build a plant in Miyazaki prefecture for the recycling 
of shochu lees into animal feed and ethanol fuel. 
Upon completion of the plant next March, the company 
expects to receive orders worth 1.2 billion yen from a 
cooperative of five local shochu distillers. 
 
¶10. (U) Mutual Recognition Agreement Talks Resume in 
Tokyo 
----- 
 
After an almost one-year pause, talks on a Mutual 
Recognition Agreement on testing of telecommunications 
equipment restarted in Tokyo on October 19.  While few 
substantive issues remain, the negotiating team, lead 
by Deputy Assistant U.S. Trade Representative Jonathan 
McHale, expects it will still take some time to 
finalize an agreed text.  Both sides anticipate that 
they will need to follow up this week's meetings with 
videoconferences. 
 
Director of the Foreign Ministry's 2nd North American 
Division, Koichi Mizushima stated at the start of the 
talks that the GOJ would like to have the agreement 
signed before the end of the year and submitted to the 
Diet before the end of their fiscal year in March 
¶2007.  Before the agreement can be signed, the GOJ 
needs to translate the agreed text into Japanese, 
which will become the official text for the GOJ.  The 
Cabinet legislative office also needs to go over the 
agreed text to ensure consistency with previous 
conventions and treaties.  In turn, the State 
Department will have to take the official Japanese 
text, translate it back into English, and certify the 
text.  On the U.S. side, the agreement will take 
effect after an exchange of letters. 
 
¶11. (U) Wal-Mart Makes A Go Of It In Japan 
------------------------------------------ 
 
In August 2006, Wal-Mart's Japanese subsidiary 
announced an operating loss of US$465 million for the 
first six months of 2006, a fivefold jump over first 
half 2005.  The company attributed the losses to one- 
time write-offs for assets and cited same-store sales 
increases of 1.4 percent as proof it will succeed in 
the market long-term. 
 
The largest retailer in the world (its retail sales 
 
TOKYO 00006294  005 OF 007 
 
 
compared on a GDP basis would rank it #21 behind 
Sweden and ahead of Saudi Arabia), Wal-Mart entered 
Japan in 2002 when it purchased a 42 percent stake in 
Japanese retailer Seiyu.  It has since increased its 
share to 53 percent. 
 
Despite the losses, Wal-Mart continues to invest in 
the market and recently opened a Distribution Center 
(DC) that combines Wal-Mart know-how with Japanese 
technology to address business and logistical 
challenges particular to Japan.  Built on three 
stories and consisting of 514 thousand square feet, 
the DC is one-of-a-kind in the Wal-Mart system. 
Company officials showcased the distribution center 
for EMIN during his recent tour. 
 
It remains to be seen, however, whether the facility 
will help Wal-Mart Japan to realize the efficiencies 
needed to achieve its "Every Day Low Price" strategy. 
 
For more information, see Tokyo 06175. 
 
¶12. (SBU) Motion Picture Association Chairman Dan 
Glickman Visits Japan 
--------------------- 
 
Motion Picture Association (MPA) Chairman Dan Glickman 
told an anti-piracy seminar this week that losses due 
to piracy in Japan reach hundreds of millions of 
dollars mainly from peer-to-peer (P2P) piracy and 
illegal file exchange over broadband internet sites. 
 
There are also increasing numbers of cases of 
criminals camcording movies inside theaters in Japan, 
copies of which are then illegally distributed through 
internet file exchange networks or sold in open-air 
markets as pirated DVDs. 
 
MPA submitted a statement to the GOJ asking for 
changes in copyright laws to make camcording in 
theatres illegal. 
 
Glickman and other seminar participants also called 
for changes in Japanese laws which make uploading but 
not downloading copyrighted materials a crime and 
allow an exception for "personal use." 
 
Nonetheless, Glickman told the Ambassador that 
problems in Japan pale compared to the situation 
elsewhere in Asia. 
 
He praised METI and JETRO funding for IPR enforcement 
training for Chinese officials and would like the 
Japanese to continue and expand its' training programs 
to other countries. 
 
Glickman lauded Japanese solidarity with the USG and 
Switzerland in its Article 63 request to China at WTO 
in 2005. 
 
Glickman criticized USTR for plans to pursue a narrow 
a case against China at the WTO and called for a more 
comprehensive approach. 
 
Glickman told Ambassador Schieffer that Japan is #2 
market in the world (after the U.S.) for box office 
receipts and #4 if DVDs and videos are included. 
 
This is remarkable considering that Japan has only 
about 3000 screens (compared to 37,000 in the U.S.) 
and people attend only 1 movie a year on average in 
Japan (vs. 5 in the U.S.) and underscores that the 
price of admission is very high here (usually 1800 
yen). 
 
Of over 16 billion dollars in gross box office 
receipts in Japan in 2005, about 60% came from foreign 
films, predominantly American movies. 
 
TOKYO 00006294  006 OF 007 
 
 
 
¶13. (SBU) Labor Legislation Slated for 2007 Diet 
Despite Little Progress in Negotiations 
--------------------------------------- 
 
Current efforts to foster labor mobility in Japan are 
centered around two pieces of legislation: a new Labor 
Contracts Law and a revised Labor Standards Law. 
 
An advisory committee to the Ministry of Health, 
Labor, and Welfare continues to prepare the 
legislation with the goal of submitting it to the 
regular 2007 Diet, but a contact on the committee told 
us that the labor and employer positions on key 
provisions -- including creating a white-collar 
exemption from overtime and a provision for monetary 
compensation in lieu of re-instating employees who 
have disputed dismissal -- remain distant and 
entrenched. 
 
Tokyo 6250 (classified) gives a detailed readout of 
the situation and its political context. 
 
¶14. (SBU) A380 Unlikely to Have Large Impact on 
Japanese Airports 
----------------- 
 
U.S. Government Accountability Office (GAO) Physical 
Infrastructure specialists visited Tokyo October 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. 
 
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 aircraft. 
 
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. 
 
They believe that initial impact would seem to be 
minimal, since no Japanese air carriers intend to 
purchase the A380 in the foreseeable future. 
 
However, officials from Japan Airlines (JAL) told the 
GAO that they feared the A380 would have a negative 
impact on JAL's business. 
 
Specifically, they were concerned that the increased 
time for interim flight separations will cause flight 
delays and could even affect flight slots. 
 
The officials also wondered if already high airport 
user and landing fees would be hiked even higher to 
cover the costs of airport modifications. 
 
JAL said they had not and will not voice these 
concerns with JCAB as there is no forum to do so and 
as JCAB has sole decision-making authority. 
 
¶15. (U) Shimizu Port: 7th Largest in Japan, and 
Shizuoka Airport Plans 
 
TOKYO 00006294  007 OF 007 
 
 
---------------------- 
 
At the invitation of local officials, Econ Officer 
visited the Port of Shimizu in Shizuoka Prefecture, 
located an hour southwest of Tokyo by Shinkansen, on 
October 13 to receive briefings on the port, view its 
container operations, and get a general pitch on doing 
business in Shizuoka prefecture. 
 
Officials from the Chinese, Indian, Philippine, 
Vietnamese, Canadian, and Burmese embassies or trade 
offices were part of the tour as were representatives 
from the Japanese offices of the states of Kansas, 
Mississippi, and West Virginia. 
 
Shimizu port is the 7th largest in Japan by TEU 
container volume shipping, some 500,000+  TEUs a year, 
and it has plans to expand its container capacity. 
Port officials said it handles on average 5-6 
container ships a day. It also has bulk loading and 
LNG wharfs. 
 
Exports are shipped to 50 ports around the world in 
Asia, Europe, and North America while South Korea is 
its leading source of imported containers. 
 
It was the first Japanese port to offer 24 hour 
service, operates 364 days a year, has lower port fees 
than the 5 major Japanese ports, is conveniently 
located mid-way between Nagoya and Tokyo, and is fully 
compliant with the SOLAS treaty.  Japanese customs 
uses a large X-ray inspection system to inspect 
containers without opening them. 
 
Shimizu Port was designated a Foreign Access Zone in 
1996 and put into operation a facility in 1998 for 
handling, storing and distributing imported goods. 
 
Major clients who have moved to the area to take 
advantage of the good distribution network include: 
Office Depot, Lands End, Herman Miller (MI, USA, 
office furniture), Porsche, Peugeot, and Molten 
(rubber products). 
 
Port officials only raised one major problem during 
the visit:  more containers are being exported than 
imported.  Port officials are looking for ways to 
increase imports to address the imbalance. 
 
In Q&A, local officials discussed plans for the 
Shizuoka airport, scheduled for opening in March 2009. 
The officials hope to use the single 2,500m runway to 
connect to airports in Japan, China, Korea, SE Asia, 
Guam, Saipan, and Honolulu. 
 
The Shinkansen line passes under the airport and the 
Prefectural government intends to build a station 
making it the only airport in Japan with a direct 
connection to the train. 
 
See also: Port of Shimizu website;  Shizuoka airport 
website; and Shizuoka Prefecture website. 
SCHIEFFER