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UNCLAS SECTION 01 OF 08 TOKYO 006488 
 
SIPDIS 
 
SIPDIS 
 
SENSITIVE 
 
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. Civair Talks: Beginnings of a Deal? 
¶4. Canada-Japan FTA Off the Rails 
¶5. MAFF Acknowledges Rough Going On Japan-Australia 
FTA 
¶6. Treasury DepSec Talks Iraq Compact 
¶7. Allgeier Pushes for Doha Round During DVC with 
Tokyo 
¶8. MOFA Pushes Ahead With Asia Regional Information 
Sharing Proposal 
¶9. Kyoto Chamber to EMIN; Kansai Wants 2008 G-8 
Summit, Good Local Economic Situation 
¶10. KIX - Record Number Of International Flights In 
The Winter 
¶11. Visa Policy Relaxed; Tourism Up In Osaka 
¶12. Wakayama Governor Resigns Over Bid-Rigging 
¶13. Local Governments Adopt Competitive Bidding 
¶14. Special Zones Reforms 
¶15. Hyogo Prefecture No. 1 In Attracting New 
Businesses In Japan 
¶16. Kansai Volume Of Trade Continues To Grow; Chinese 
Cell Phones Lead Imports 
¶17. State Of Idaho Opens An Office In Kobe 
¶18. Nichiha invests $68 million in Georgia 
¶19. Rokkasho Produces Japan's First Commercially 
Reprocessed Nuclear Fuel 
¶20. Ehime Governor Accepts Pluthermal MOX Fuel for 
Ikata Nuclear Power Plant 
¶21. Japanese Research Whaling Ships Return to Kushiro 
With Smaller Catch 
 
¶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 November 9, 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) Civair Talks: Beginnings of a Deal? 
-------------------------------------------- 
 
 EB DAS John Byerly and MLIT DDG Maeda agreed in 
informal talks in Tokyo on November 7 and 8 to hold 
formal civair negotiations in Washington in the first 
part of 2007. 
 
For the first time in over two years, the United 
States laid out in some detail our desired 
liberalization in the areas of all-cargo route rights, 
pricing, codeshare, and change of gauge without being 
told by MLIT to "prioritize" our needs by limiting 
them to cargo rights of use only to UPS. 
 
MLIT indicated it would study our country of origin 
pricing request but linked new cargo rights to 
"correcting" U.S. airline slot "abuses" at Narita, and 
found our other requests unnecessary or impossible. 
 
Nevertheless, the atmosphere was amicable, and 
agreeing to hold formal negotiations after a hiatus of 
two and a half years indicates that MLIT believes a 
deal acceptable to both sides is possible. 
 
4.(SBU) Canada-Japan FTA Off the Rails 
-------------------------------------- 
 
A contact at the Canadian Embassy told us last week 
that although the Japanese and Canadian governments 
may be about to wrap up a year-long joint study on a 
bilateral FTA, the short term prospects for moving 
ahead on negotiations are very bleak. 
 
TOKYO 00006488  002 OF 008 
 
 
 
The joint study was launched at a prime ministerial 
session at the 2005 APEC meeting and is scheduled to 
be concluded at a similar get-together in Hanoi this 
month. 
 
Already in June 2006, at a senior level officials 
meeting in Vancouver, GOJ reps told their Canadian 
colleagues that conditions were not ripe in at least 
the short term to begin negotiations.  The reason: 
agricultural products make up too high a share of 
Canadian exports to Japan. 
 
Our contact told us that even if the study is 
concluded on time, he expects the GOJ in Hanoi to 
again say "no" to the Canadians on trade talks. 
In the absence of FTA negotiations, the two sides are 
reportedly at a loss on where to take their bilateral 
economic relationship next. 
 
¶5. (SBU) MAFF Acknowledges Rough Going On Japan- 
Australia FTA 
------------- 
 
A director in MAFF's ministerial secretariat told 
AgMin and EMIN on November 9 that closure on a study 
of a bilateral Japan Australia FTA remains very 
difficult. 
 
The official confirmed MAFF's position that the study 
must state that sensitive agricultural products will 
not be a subject of possible future negotiations. 
 
While willing to show some flexibility on how 
sensitive products will be treated, the Australian 
position remains that nothing be excluded prior to the 
initiation of actual negotiations. 
 
Shaking his head in astonishment, the MAFF official 
said the Australians actually seem intent on 
liberalizing agricultural trade via an FTA. 
 
Local newspapers reported earlier that talks last week 
in Canberra made some progress towards bridging the 
gap and that the countries' two prime ministers may 
yet be able to announce the opening of negotiations 
when they meet in Manila at the December East Asian 
Summit. 
 
¶6. (SBU) Treasury DepSec Talks Iraq Compact 
------------------------------------------- 
 
In visits with Finance Minister Omi, Foreign Minister 
Aso, Bank of Japan Governor Fukui, and the senior 
management of Japan's mega-banks, Treasury Deputy 
Secretary Robert Kimmitt discussed details of the Iraq 
 
SIPDIS 
Compact, Treasury's measures against the DPRK, and 
concerns about financial ties with Iran. 
 
On the first leg of a Tokyo-Seoul trip in his capacity 
as Presidential Emissary for the International Compact 
for Iraq, Deputy Secretary Kimmitt outlined key 
objectives leading up the Compact's signing at the end 
of this month, including talking points on debt 
forgiveness and allaying concerns about Iraq's 2007 CY 
budget's funding gap. 
 
With regard to Treasury measures taken against the 
DPRK, Deputy Secretary Kimmitt was careful to 
reinforce the distinction between political sanctions, 
such as those exemplified by UNSCR 1718, and those 
steps taken in a law-enforcement context, as seen in 
last year's freezing of DPRK Banco Delta Asia assets 
by Macanese authorities. 
 
Deputy Secretary Kimmitt further emphasized the 
financial and reputation risks facing Japanese 
institutions doing business with Iranian counterparts, 
while lauding the close cooperation with Japanese 
authorities evident in all these matters. 
 
TOKYO 00006488  003 OF 008 
 
 
 
¶7.  (U) Allgeier Pushes for Doha Round During DVC with 
Tokyo 
--------- 
 
During a DVC from Geneva with Tokyo press and opinion 
shapers, U.S. Ambassador to the World Trade 
Organization, Peter Allgeier, said Washington wants a 
"Doha right and not Doha light" in the Doha Round of 
talks. 
 
He was pleased with Prime Minister Shinzo Abe's recent 
words of support for the trade talks, and encouraged 
the GOJ to take a greater leadership role in the 
round. 
 
He underscored the importance of reaching a successful 
conclusion, particularly for developing countries, but 
noted all countries needed to show a high level of 
ambition. 
 
Asked about the mid-term elections in the United 
States and their effect on the round, Allgeier made no 
predictions, but pointed to the "enduring interests" 
of the United States in seeing a successful and open 
world trading system. 
 
The Japanese press picked up on his suggestion that 
the Congress may agree to extend fast track trade 
promotion authority if there is an appealingly 
ambitious deal on the table. 
 
Some press reports in Japan have suggested that the 
talks may not pick up again until 2008 if the 
Democrats win the mid-term elections. 
 
The DVC at the Tokyo American Center was well attended 
by press, academic, and government officials. 
 
¶8. (U) MOFA Pushes Ahead With Asia Regional 
Information Sharing Proposal 
---------------------------- 
 
Co-hosts MOFA and Kyoto University cobbled together a 
consensus to further explore their "Economic 
information Sharing Mechanism of the Asia-Pacific 
Region (EiSMAP)" concept at a November 6-7 meeting in 
Kyoto attended by representatives of the ADB, IMF, 
World Bank and more than fifteen regional governments 
or research institutes. 
 
Despite considerable skepticism voiced at the 
conference regarding the concept's objectives, utility 
and potential duplication with the work of other 
organizations, there was general agreement that 
serious gaps in the quality, reliability and 
accountability of regional economic data exist. 
 
As these gaps may undermine investor confidence and 
create negative spillover effects in the event of an 
economic or environmental crisis in the region, 
participants supported the further development of 
EiSMAP. 
 
MOFA will seek to fund a pilot program -- to begin, a 
web portal assembling currently available economic 
data -- and agreed to explore associating the project 
with APEC. 
 
The elephant not in the room was China.  Beijing's 
delegates cancelled their participation on the eve of 
the conference after MOFA failed to resolve a dispute 
regarding the presence of researchers from Taiwan. 
 
¶9. (U) Japan's Core Consumer Price Growth Decelerates 
Slightly to 0.2% in September 
----------------------------- 
 
Japan's nationwide "core" CPI (excluding perishable 
food items), rose 0.2 percent in September from the 
 
TOKYO 00006488  004 OF 008 
 
 
year before, having increased 0.3 percent in August, 
the Ministry of Internal Affairs and Communication 
(MIC) announced October 27. 
 
¶10. (U) Kyoto Chamber to EMIN; Kansai Wants 2008 G-8 
Summit, Good Local Economic Situation 
------------------------------------- 
 
In an introductory meeting with Kyoto Chamber of 
Commerce and Industry Chairman Jun'ichi Murata, EMIN 
Hans Klemm heard about Kyoto's strong interest in 
hosting the next G-8 Summit presided over by Japan in 
¶2008. 
 
He hoped that the summit would focus on global 
environment issues and Asian peace and development. 
 
Although EMIN noted that the USG had no decision- 
making power in the matter, Murata emphasized the 
importance of generating "buzz" for the summit venue 
and recalled the role played by Amb. Foley before the 
last Japanese G-8 summit (held in 2000 in Okinawa) in 
regard to sensitivities over U.S. base issues. 
Regarding the economic situation in Kyoto, Murata 
described the city as a place where traditional craft 
techniques have been successfully applied to high tech 
industries. 
 
Although some Kyoto leading firms (e.g., Kyocera and 
Nintendo) lack the name recognition of their 
competitors in Osaka or Nagoya, more than 20 strong 
SMEs and larger firms manufacture unique products, and 
Kyoto's 32 universities offer a young and vibrant 
population of 100,000 students, many of whom are 
focused on entrepreneurship and venture businesses. 
Kyoto's national Center of Excellence focuses on 
nanotechnology. 
 
 
¶11. (U) KIX - Record Number Of International Flights 
In The Winter 
------------- 
 
Kansai International Airport Company (KIAC) announced 
that the number of international flights planned for 
the winter will be a record 733 flights a week, a 57 
flight increase from winter 2005. 
 
Increased China routes following a civil aviation 
agreement to expand routes between Japan and China 
makes up for a decline in KIX - U.S. routes. 
KIX - China routes will have 275 flights a week out of 
the 733 total. 
 
KIAC President Atsushi Murayama said KIAC aims to 
raise domestic flights and flights to U.S to achieve 
an MLIT target of 130,000 flights a year in 2007, in 
order to secure GOJ funding for a 2nd runway. 
 
KIAC's manager of international affairs said that the 
airport would like to halt the continuing shift of 
U.S. routes to Narita. 
 
¶12. (U) Visa Policy Relaxed; Tourism Up In Osaka 
--------------------------------------------- --- 
 
According to the Osaka Prefectural Government, 
attendance at major sightseeing facilities such as 
Osaka Castle, Osaka Aquarium, and Tsutenkaku Tower in 
Osaka during the summer increased 9.4 percent from a 
year earlier. 
 
Immigration from overseas to Kansai International 
Airport in July also increased 10.8 percent from 2005. 
 
The director of the Kansai International Public 
Relations Promotion Office said that the number of 
regional inbound tourists from Taiwan, Korea, and the 
PRC has rapidly increased due to the relaxation of 
Japanese tourist visa policy, and KIX customers from 
 
TOKYO 00006488  005 OF 008 
 
 
the Asian mainland have flocked to Osaka. 
 
There has also been an increase in public and private 
PR spending as part of the GOJ "Visit Japan" campaign. 
 
Although local governments didn't recognize tourism as 
one of the "major industries" of Osaka in the past, 
now they have begun to embrace tourism. 
 
A director of International Affairs at the Osaka 
Chamber of Commerce and Industry (OCCI) indicated that 
although OCCI has neglected the tourism industry, it 
has begun to promote Osaka's tourist resources in 
earnest.  He emphasized that there still is much more 
to do to grow the tourism field. 
 
 
¶13. (SBU) Wakayama Governor Resigns Over Bid-Rigging 
--------------------------------------------- ------- 
 
Wakayama Governor Kimura announced his resignation 
over an unfolding public works bid rigging scandal. 
 
Rumors are circulating that Kimura's troubles began 
when he fell out of grace with ex-METI Minister Nikai, 
a powerful Wakayama Dietman, and alienated vested 
interests upset with the governor's ambitious economic 
reform plan. 
 
A by-election will be held December 17 and will likely 
go to a conservative successor. 
 
Kimura and his wife had close personal relations with 
Florida Governor Jeb Bush and his wife.  For more 
details please see Osaka Kobe 00633. 
 
¶14. (SBU) Local Governments Adopt Competitive Bidding 
--------------------------------------------- -------- 
 
After the Public Service Reform Law ("Market Testing 
Law") was passed in May 2006, local governments began 
to look at competitive bidding as a method to improve 
their services and to cut costs as part of their 
administrative reform efforts.  According to the 
Ministry of Internal Affairs and Communications, 26 
local governments will adopt market testing by April 
¶2010. 
 
While the competitive bidding process is aimed at 
cutting costs for local governments facing fiscal 
difficulties, it is also aimed at soliciting greater 
involvement of civil society organizations and the 
private sector in local policy-making. 
 
Saga Prefecture will be the first to review all of its 
2,027 services (excluding core public services such as 
policing) in the coming months in order to decide with 
civil society and private sector participation who can 
best provide these services, and to reflect the 
results of consultations on who can best provide 
public services in its budget for the next fiscal 
year. 
 
¶15. (U) Special Zones Reforms 
----------------------------- 
 
On November 1, Econoff met with representatives from 
the office of Special Zone Reforms to receive an 
update on progress made-to-date and plans for Special 
Zones (SZ) going forward. 
 
Special Zones were established in 2003 as a means to 
revitalize local economies by 
implementing experimental economic measures at a local 
level, but with an eye toward using successful 
measures nationwide when possible. 
 
The estimated economic impact of special zones has 
been significant. 
 
 
TOKYO 00006488  006 OF 008 
 
 
¶16. (SBU) Hyogo Prefecture No. 1 In Attracting New 
Businesses In Japan 
------------------- 
 
In the fierce competition over business promotion 
subsidies among Japanese prefectures, the gap between 
successful and unsuccessful prefectures is growing in 
the Kansai district. 
 
Hyogo Prefecture got 57 new business cases, which is 
the largest number in the first half of 2006 in Japan, 
and almost half the total number of the region's 
business starts with 125 cases. Osaka had 19 cases, 
and Kyoto had 12 cases in the same period. 
 
The subsidy race in the Kansai heated up after Osaka- 
based Sharp Corp. set up a new LCD plant in Kameyama 
City, Mie Prefecture in 2002. 
 
Former Mie Governor Masayasu Kitagawa is said to have 
been successful in drawing the firm out of Osaka by 
offering a 9 billion yen subsidy. 
 
¶17. (U) Kansai Volume Of Trade Continues To Grow; 
Chinese Cell Phones Lead Imports 
-------------------------------- 
 
Osaka Customs announced that the volume of trade in 
September 2006 for the Kansai hit a record.  The 
export amount is 1.38 trillion yen, up 13.3 percent 
from the same month last year. There were eight months 
of continuous double-digit growth in exports. Imports 
also surged to 1.61 trillion yen, a record 13.8 
percent increase. 
 
Export of audio and visual appliances, mainly plasma 
display panels, to the EU and Central America 
increased 63 percent from the previous year. 
The largest import item is communication equipment, 
mainly cellular phones, from China - which doubled 
from 2005. 
 
A METI Kinki Bureau official said that the high demand 
for cellular phones is still continuing, due to 
increased competition in the domestic market, and 
China is rapidly developing its own cell technology. 
China is trying to shift from labor-intensive 
manufacturing to advanced technology business, so 
analysts predict Chinese imports of communication 
technology to continue for the next year or two. 
 
¶18. (U) State Of Idaho Opens An Office In Kobe 
--------------------------------------------- - 
 
On October 18, the State of Idaho opened its second 
Japan office in Kobe, bucking the trend of U.S. State 
offices is to close or consolidate their Japan 
operations. 
 
Idaho Lieutenant Governor Mark Ricks visited Japan for 
the opening and emphasized that Idaho was not only an 
agricultural State, but also a leading location for 
high-tech industry. 
 
Idaho-based Micron Technology, a top firm for 
semiconductor memory products, purchased its local 
subsidiary company in Nishiwaki City in Hyogo from 
Nippon Steel. 
 
¶19. (U) Nichiha invests $68 million in Georgia 
--------------------------------------------- - 
 
Nikkei Shimbun's Central Japan edition reported 
November 9 that Nichiha Corporation, Nagoya's leading 
manufacturer of exterior housing materials (fiber 
cement products) will invest approx. $68 million in 
Georgia to build a new plant through its U.S. 
subsidiary and begin production in October 2007. 
 
The company president said he wants to start a new 
 
TOKYO 00006488  007 OF 008 
 
 
business growth model with this new investment in the 
United States. 
 
¶20. (U) Rokkasho Produces Japan's First Commercially 
Reprocessed Nuclear Fuel 
------------------------ 
 
The Japan Nuclear Fuel Ltd. (JNFL)'s Rokkasho 
plutonium reprocessing plant in Aomori Prefecture 
produced its first batch of uranium-plutonium mixed- 
oxide (MOX) fuel solution in early November during its 
initial test run. 
 
The MOX solution will be reprocessed several times 
until it reaches a powder form that can then be used 
as a basic ingredient for nuclear fuel production. 
JNFL announced that they plan to finish the first 
batch of MOX powder at Rokkasho by mid-November. 
 
The Rokkasho plant began this test run on March 31st 
with a goal of extracting four tons of plutonium from 
430 tons of spent nuclear fuel. 
 
When the plant begins regular operations in August 
2007, it plans to reprocess 800 tons of spent nuclear 
fuel to extract eight tons of plutonium a year. 
 
It remains to be seen where this large amount of 
extracted MOX plutonium will be put to use.  Japanese 
electric companies aim to have 16 to 18 reactors that 
can utilize the MOX plutonium in place by 2010. As of 
today, there are only two: Genkai reactor of Kyushu 
Electric in Saga prefecture and Ikata reactor in Ehime 
prefecture. 
 
¶20. (U) Ehime Governor Accepts Pluthermal MOX Fuel for 
Ikata Nuclear Power Plant 
------------------------- 
 
Ehime Governor Moriyuki Kato and Ikata Town Mayor 
Kazuhiko Yamashita officially accepted a proposal by 
Shikoku Electric Power to use "pluthermal" MOX fuel. 
The project seeks to start operation in 2010. 
 
Governor Kato mentioned that local people now 
understand the safety and importance of the project. 
Although, according to Mr. Kozo Kondo, a supporter and 
Honorary Chairman of the Shikoku Economic Federation, 
an advisor to Shikoku Electric Power Co., Inc. and the 
engineer who designed Ikata, there are still many 
voices opposed to the project. 
 
¶21. (U) Japanese Research Whaling Ships Return to 
Kushiro With Smaller Catch 
-------------------------- 
 
Japan's whaling research vessels returned to Kushiro, 
Hokkaido, with a catch of only 35 minke whales as the 
country's northern Pacific Ocean whale research 
program came to a close at the end of October. 
 
This was far fewer than the 60 whales authorized for 
research purposes by the International Whaling 
Commission. 
Researchers blamed bad weather, including a late 
September typhoon, and a smaller than usual supply of 
Pacific saury (the minke whales' preferred food 
source) for the reduced catch. 
 
Head researcher Hidehiro Kato, professor at the Tokyo 
University of Marine Science and Technology, said in 
an Asahi Shimbun interview that because the size of 
the research area is limited, reduced catches are 
unavoidable. 
He stated it is necessary to make the research area 
much wider to estimate correctly the total number of 
whales in the region. 
 
Without providing details, Dr. Kato also mentioned 
that they acquired some peculiar data during this 
 
TOKYO 00006488  008 OF 008 
 
 
year's research program. 
 
The findings will be presented at next year's IWC 
meeting in Anchorage. 
 
SCHIEFFER