VZCZCXRO1751
RR RUEHFK RUEHKSO RUEHNAG
DE RUEHKO #6584/01 3210521
ZNR UUUUU ZZH
R 170521Z NOV 06
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC 8389
INFO RUEHOK/AMCONSUL OSAKA KOBE 2246
RUEHFK/AMCONSUL FUKUOKA 8839
RUEHKSO/AMCONSUL SAPPORO 9887
RUEHNAG/AMCONSUL NAGOYA 8459
RUEAWJA/USDOJ WASHDC
RUCPDOC/USDOC WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 06 TOKYO 006584 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
FOR EAP, EAP/J AND EB/IFD/OIA 
USDOC FOR 4410/ITA/MAC/OJ/NMELCHER 
STATE PASS USTR FOR WCUTLER, MBEEMAN, RMEYERS 
 
E.O. 12958: N/A 
TAGS: EINV ECON ELAB ETRD CVIS JA
SUBJECT: INVESTMENT WORKING GROUP REVIEWS PAST ISSUES, SETS FUTURE 
AGENDA 
 
 
SENSITIVE BUT UNCLASSIFIED - PROTECT ACCORDINGLY 
 
¶1. (U) SUMMARY:  The U.S.-Japan Investment Working Group (IWG), a 
joint undertaking of the bilateral Investment Initiative, held its 
semi-annual meeting on October 31 via digital video-conference. 
After a review of ongoing investment-related concerns on both sides, 
most prominently, the final implementation of triangular merger 
regulations in Japan, the two sides agreed to a future program of 
work that includes a review of investment chapters in trade 
agreements and model investment treaties and a regional exchange of 
"best practices" of local and region governments in promoting 
investment.  END SUMMARY 
 
¶2.  (U) The bilateral IWG, co-chaired by U.S. Ambassador for APEC 
Michael Michalak and Ministry of Economy, Trade and Industry (METI) 
Director-General for Multilateral Trade Systems Tsunehiro Ogawa, 
held its semi-annual meeting via digital video-conference on October 
31 (October 30 Washington time.)  The full list of participants in 
both Tokyo and Washington appears in paragraphs 17-18.  Ogawa, who 
was co-chairing the IWG for the first time, praised the past work of 
the Initiative in creating a "deeper understanding of the importance 
of foreign direct investment and the investment environment in our 
two countries."  Japan has benefited from this initiative, he said, 
not least through a doubling of the country's stock of FDI in the 
past five years but also from the various joint investment promotion 
activities under the Initiative.  In his opening remarks, Ambassador 
Michalak praised the concrete cooperative programs of the 
Initiative, including recent investment promotion seminars in Sendai 
and Yokohama and a forthcoming program in Santa Clara, California. 
Michalak opined that at this five-year anniversary of the Initiative 
and in light of ongoing discussions at the sub-cabinet level on how 
to renew the bilateral economic relationship, this was the 
appropriate time for the IWG to review its current work and set a 
medium-term agenda for future activities. 
 
Review of U.S. Concerns: Triangular Mergers 
------------------------------------------- 
 
¶3.  (SBU) Ambassador Michalak expressed U.S. concerns about recent 
media reports that the Japan Business Federation (Keidanren) planned 
to formally oppose draft Ministry of Justice (MOJ) rules that would 
allow foreign companies to undertake triangular mergers in Japan. 
This liberalization of Japan's M&A regime was included in the 2005 
Company Law but the GOJ delayed final implementation until May 2007. 
 Ambassador Michalak requested an update on the status of the new 
draft regulations.  MOJ's Senior Attorney explained the Ministry was 
following the wide range of public discussion on this issue as well 
as awaiting possible future discussions within the ruling Liberal 
Democratic Party.  Once those discussions were complete, he said, 
the ministry would review the existing draft but he would not say 
whether any changes might be necessary.  He assured the U.S. that 
MOJ had no particular conclusions in mind at this point in time. 
 
¶4.  (SBU) METI's Director of the Industrial Organizations Division 
addressed the issue more directly.  He affirmed that METI believed 
its interpretation of the Company Law was the same as MOJ, namely 
that, under the spirit of the law, only a general shareholders' 
meeting "special resolution" (tokubetsu ketsugi) should be required 
for corporate reorganization or M&A activity such as triangular 
mergers.  Keidanren's desire for a more stringent condition - an 
extraordinary resolution (tokushu ketsugi) - was unreasonable.  "If 
we implement the law as written, we do not need to add any onerous 
conditions (for triangular mergers)," he added.  MOJ's attorney 
again noted that the final form of the implementing regulations 
"depended upon the discussion going forward."  After listening to 
those discussions, MOJ would decide if a review was necessary but 
"can not exclude the possibility that the result would be in line 
with Keidanren's position," he concluded.  METI's Director reported 
further that METI Minister Amari met with Keidanren Chairman Mitarai 
a day earlier (October 30.)  At that time, Amari told Keidanren that 
it was particularly important to consider the triangular merger 
issue in light of the "international environment" and "in 
particular, to take heed of the government's stated policy of 
seeking to encourage inward FDI."  In view of that, Amari told 
Keidanren that METI could not support the Federation's position. 
 
¶5.  (SBU) Ambassador Michalak repeated the U.S. view of the 
importance of an open M&A regime for promoting FDI.  For that 
reason, implementing the triangular merger regulations on schedule 
was an important sign of Japan's ongoing commitment to improving its 
 
TOKYO 00006584  002 OF 006 
 
 
investment climate.  Since the government had already delayed 
implementation of the triangular merger provision one year to allow 
companies to implement defensive measures, Michalak asked whether 
METI or the Tokyo Stock Exchange had undertaken a study of the 
effects of new defensive measures on the M&A environment.  METI 
Industrial Organizations Director noted that METI had sponsored a 
study group in 2005, which drafted model guidelines for defensive 
measures.  Since then, 160 companies (or about 5% of all Japanese 
listed companies) had implemented such measures.  METI's Director 
agreed with Ambassador Michalak's observation that one year should 
be sufficient to allow companies to implement defensive measures. 
In response to a final question on the status of amendments to the 
tax law that would provide tax deferral for stock swaps and other 
non-cash transactions, METI noted that it was coordinating with 
Ministry of Finance (MOF) on this proposal. (Note: Subsequent to the 
DVC, MOF officials met informally with U.S. business representatives 
to discuss the details of the tax deferral proposals. End note.) 
 
Review of U.S. Concerns: Educational Services 
--------------------------------------------- 
 
¶6.  (SBU) Ambassador Michalak thanked the Ministry of Education, 
Culture, Sports, Science and Technology (MEXT) for its recent 
designation of a fourth U.S. institution (Columbia University 
Teachers College) as a Foreign University Japan Campus. (FUJC).  He 
asked for an update on MEXT's discussion with Temple University 
(TUJ) on its taxation concerns.  MEXT's Deputy-Director of the 
Higher Education Policy Planning Division said MEXT officials had 
met with TUJ on October 4 to explain the various requirements under 
Japanese law and regulations for designation as a Japanese 
university.  TUJ had expressed interest in continuing the 
discussions and MEXT hoped it would be able "to provide appropriate 
answers."  MEXT also promised to inform the Embassy of whether there 
would be a public comment period for proposed regulations that would 
loosen requirements on institutions of higher education to own land 
and buildings.  Subsequent to the DVC, MEXT informed the Embassy 
that it had already determined to implement nation-wide the 
provisions of the special deregulation zone ("tokku") that would 
liberalize ownership requirements.  Nation-wide implementation and 
application procedures for approval of the establishment of 
universities under the new rules could begin in FY2007 (April 2007.) 
 MEXT is working on a detailed study of the implementing regulations 
for this new proposal and planned to ask for public comments.  When 
the results of the public comments are available, MEXT will inform 
the Embassy. 
 
Review of U.S. Concerns: Labor Mobility 
--------------------------------------- 
 
¶7.  (SBU) Ministry of Health, Labor and Welfare (MHLW) Assistant 
Director of International Affairs told the IWG that the Ministry was 
undertaking a five year review of the defined contribution pension 
schemes as called for in the 2001 law authorizing such schemes.  The 
review would verify how companies are implementing these programs. 
As part of that study, MHLW had received requests from companies to 
raise the contribution ceilings and it would study that input before 
making a final decision.  On the issue of allowing monetary 
settlements in disputed dismissals, the Chief of the Inspection 
Division of the Labor Standards Bureau said the Labor Affairs 
Council was now deliberating on possible revision of the Labor 
Standards Law and Labor Contracts Law.  Currently, in Japan only one 
provision of the Labor Standards Law (Article 18.2) deals with 
dismissals. Most of the legal framework in this area rests on case 
law and precedents from local and Supreme Court rulings.  The 
Council is now studying the precedents to determine what might be 
included in the revised law.  The guiding principle is that the 
amended rules should encourage early resolution of any problems and 
meet the concerns of both employers and workers. 
 
¶8.  (SBU) On the issue of the white-collar exemption, MHLW was less 
responsive.  Japan's labor situation differed from the U.S.' system 
and it was difficult, therefore, to introduce such a scheme. 
Nevertheless, he explained, the Council was aware of the "increasing 
diversity of Japan's white-collar sector" and the Council was 
looking for ways to reform the system to "enable white collar 
workers to better use their skills and talents to the maximum extent 
possible."  On the worker dispatch law, the Chief of the Private 
Employment Service Division of the Employment and Security Bureau 
said the government had undertaken a substantial review of the 
worker dispatch law in 2003. At that time, the government extended 
 
TOKYO 00006584  003 OF 006 
 
 
the allowed dispatch period for 26 categories of workers from one to 
three years.  This reflected the need for increased flexibility in 
the labor market required by both employers and workers.  Since 
then, the government had received additional demands from employers 
to eliminate all limits on dispatch periods.  Labor representatives, 
however, opposed this proposal, insisting that companies that wished 
to employ workers for a longer period should hire them as full time 
workers.  With such a large gap between the two sides the government 
did not plan further changes to the dispatch rules. 
 
¶9.  (SBU) In response to a U.S. request for a briefing on the 
government's "second chance" programs (a top priority of the new Abe 
Cabinet), METI explained that a number of GOJ ministries were 
working on these proposals under the guidance of a Cabinet Office 
task force.  They were reviewing a multitude of issues including 
measures that would address the problems of the unemployed, young 
persons unable to find full-time employment ("freeters"), as well as 
businessmen whose companies had failed and who were trying to start 
new ones.  METI hoped to arrange a detailed briefing on the 
government's proposals at a later date. 
 
Review of Japanese Concerns: Visas 
---------------------------------- 
 
¶10.  (SBU) Noting that timely issuance of visas is essential to 
efficient business operations, METI reiterated its ongoing concerns 
about renewals of U.S. visas and again requested the U.S. to 
consider increasing the number of visa-issuing posts in Japan, in 
particular, adding Fukuoka and Nagoya.  A representative of the 
Second North American Division of the Ministry of Foreign Affairs 
(MOFA) noted that, in the June 2006 Regulatory Reform report, the 
U.S. had said it was studying the possibility of resuming domestic 
visa renewals and asked for an update on that study.  METI also 
requested an update on plans to increase the number of posts in 
countries near the U.S. that could renew E-visas and the possibility 
of revising visa validity periods. 
 
¶11.  (SBU) Ambassador Michalak responded by noting the success of 
the program to accept visa applications in Sapporo that began in 
April 2006.  At present, he noted, there were no plans to extend 
that program to Fukuoka in light of the "significant physical 
limitations" and workload constraints at that post.  Nagoya on the 
other hand had never been intended as a visa issuing post.  So there 
were no current plans to extend the number of visa issuing posts in 
Japan.  However, as new technology becomes available, the U.S. will 
re-evaluate the situation.  The U.S. was deeply interested in 
exploring ways to use technology to enhance security and facilitate 
visa issuance.  Through discussions between Secretary Rice and 
Foreign Minister Aso and between Homeland Security Secretary 
Chertoff and Aso, our two countries had discussed the visa issue at 
the highest levels.  At the same time, we continue to have regular 
working level discussion on visa issues.  On the question of visa 
validity, Ambassador Michalak noted that this needed to be discussed 
on a reciprocal basis between consular representatives.  He promised 
to pass Japan's proposal to U.S. consular officials and, if Japanese 
consular counterparts were interested, perhaps expert discussions 
could be held. 
 
¶12.  (SBU) On the issue of domestic and third country renewals, the 
U.S. "remains committed to making E-visa renewals for qualified 
Japanese applicants as convenient as possible."  In an effort to 
address this issue, State Department's Consular Bureau met 
internally in May 2006, with the participation of visa officials 
from Embassy Tokyo and Consulate General Osaka.  The U.S. is 
continuing to work on a mechanism to share E-visa information 
between posts.  There was, however, no new information to report and 
no plans to resume renewals of visa in the United States.  METI 
concluded the discussion by reaffirming the importance of this issue 
to Japan and expressing the wish to see greater efficiencies in the 
visa issuance process.  Japan was willing to do whatever possible to 
help the U.S obtain additional resources to address this issue.  The 
Japanese side also asked to be "educated in detail" through other 
channels as to why visa renewal in the U.S. was not possible. 
 
Review of Japanese Concerns: Secure Trade 
------------------------------------------ 
 
¶13.  (SBU) METI's Americas Desk Director opened the discussion by 
distributing a diagram that he had prepared for the sub-cabinet 
meeting the week before entitled "Supply Chain and Security 
 
TOKYO 00006584  004 OF 006 
 
 
Measures."  In examining the issue of secure trade, he said, the 
entire chain "must be put on the radar screen" and borne in mind as 
either side considered or implemented new programs in this area. 
The Japan side continued to have concerns about DHS' "24-hour rule" 
which, he claimed, had increased shipping lead times by up to two 
days. Shipping lead-time was something that Japanese business had 
worked very hard in recent years to reduce.  Citing industry 
figures, he claimed that the 24-hour rule has resulted in increased 
inventory levels of USD 300 million in bilateral trade and USD 3 
billion worldwide.  Between Japan and the U.S., Japan wished to 
ensure security while maintaining efficiency.  It also sought to 
ensure the integrity and harmonization of secure trade programs 
worldwide. Finally, Japan believed the U.S. and Japan, as two of the 
world's leading trading nations, must take the initiative to improve 
secure trade standards throughout the world.  As Japan had 
previously noted in the sub-cabinet meetings, this was not a request 
but a proposal on which the U.S. and Japan could work together. 
Ambassador Michalak strongly agreed and noted that this forum may 
not be the best place to take up the issues in detail.  The two 
sides should raise this within the general framework of broadening 
U.S.-Japan relations; if issues were identified that would be 
appropriate for this group, then we could discuss details at a 
future time. 
 
Review of Japanese Concerns: Exon-Florio 
------------------------------------------ 
 
¶14.  (SBU) At Japan's request, the Bureau of Economic and Business 
Affairs Office of Investment Affairs (OIA) provided a brief summary 
of the progress of Congressional consideration of amendments to the 
Exon-Florio law.  The U.S. remains committed to maintaining an open 
investment policy while managing a process to identify and address 
possible threats to national security.  The administration supports 
amendment of the Exon-Florio law to reflect the post 9/11 security 
environment.  On July 26, the House of Representatives, with 
administration support, passed a bill to amend the CFIUS process. 
The Senate passed a similar bill the following day.  However, 
neither side has appointed conferees to reconcile the drafts and the 
Administration did not expect Congress would take up this 
legislation in the post-election "lame-duck" session. 
 
¶15.  (SBU) The Administration has enunciated to Congress several 
principles it believed should guide Congress' deliberations.  These 
include integration of national security concerns in a post-9/11 
environment, continuing to welcome FDI, and keeping what is working 
well in the law while making improvement and maintaining the 
integrity of the decision-making process.  In addition, the 
Administration has committed to working to preserve the 
professionalism and independence of the process, strengthen the 
scrutiny of cases involving state-owned enterprises and increasing 
transparency to Congress.  OIA noted that the Treasury Department 
maintains a website which explains the CFIUS process, and both 
Treasury and OIA work closely with companies involved in the process 
to understand their concerns and address them.  In conclusion, the 
Japanese side asked the U.S. to keep it informed as the reform 
process continues. 
 
Future Program of Work 
---------------------- 
 
¶16.  (SBU) The two sides agreed to take up the following items in a 
future program of work: 
 
- Continue discussion of existing agenda items. 
 
- Subject to further discussion, begin an examination of investment 
chapters in existing bilateral Free Trade and Economic Partnership 
agreements and model bilateral investment Treaties with a view to 
identifying best practices and what might be gained by adopting them 
for future bilateral and/or regional agreements.  Japan proposed 
that within a short period of time, perhaps by the end of the year, 
an expert group from both sides could begin to gather material for 
this research.  The two sides could then intersessionally coordinate 
on how best to proceed and make recommendations at the next working 
group meeting. 
 
- Promote an exchange of best practices among State, Prefectural and 
Local governments on how to promote investment at local levels. 
 
- Sponsor a "Lessons-Learned" Briefing from the Industrial 
 
TOKYO 00006584  005 OF 006 
 
 
Reconstruction Corporation of Japan on how outside investors can 
promote investment and economic and corporate governance reform. 
 
- Seek direction from the sub-cabinet level on how to proceed in the 
area of secure trade and whether to continue discussions in this 
forum or in a new forum under the sub-cabinet process. 
 
Video-conference Participants 
---------------------------- 
 
¶17.  (U) IN TOKYO: 
 
JAPANESE SIDE: 
 
MINISTRY OF ECONOMY, TRADE AND INDUSTRY 
 
Co-Chair: 
Tsunehiro Ogawa, Director-General, Multilateral Trade System 
 
SIPDIS 
Department, Trade Policy Bureau 
 
Noriyuki Mita, Director, Americas Division, Trade Policy Bureau 
 
Takeo Ijuin, Deputy-Director, Americas Division, Trade Policy 
Bureau 
 
Teppei Uemura, Section Chief, Americas Division, Trade Policy 
Bureau 
 
Keiichi Kawakami, Director, Trade and Investment Facilitation 
Division, Trade and Economic Cooperation Bureau 
 
Hiroyuki Kago, Chief, Trade and Investment Facilitation Division 
 
Mitsutoshi Okabe, Chief, Trade and Investment Facilitation Division 
 
Emi Numata, Chief, Trade and Investment Facilitation Division 
 
Kenji Goto, Director, Industrial Organization Division, Economic and 
Industrial Policy Bureau 
 
MINISTRY OF FOREIGN AFFAIRS 
 
Junichi Takahashi, Official, Second North America Division, North 
American Affairs Bureau 
 
Hidenari Inamoto, Researcher, Economic Policy Division, Economic 
Affairs Bureau 
 
MINISTRY OF JUSTICE 
 
Shin Matsumoto, Attorney, Civil Affairs Bureau 
 
Tsuyoshi Shimizu, Attorney, Civil Affairs Bureau 
 
SIPDIS 
 
MINISTRY OF EDUCATION, CULTURE, SPORTS, SCIENCE AND TECHNOLOGY 
 
Kazuhiro Kotani, Deputy-Director, Higher Education Policy Planning 
Division, Higher Education Bureau 
 
Ryoei Chijiiwa, Unit Chief, Office for international Planning, 
Higher Education Policy Planning Division, Higher Education Bureau 
 
Masaki Uemura, Unit Chief, Office of Director General for 
International Affairs 
 
MINISTRY OF HEALTH, LABOR AND WELFARE 
 
Atsushi Kawai, Chief, Inspection Division, Labor Standards Bureau 
 
Chiaki Miyazaki, Chief, Corporate Pension and National Pension Fund 
Division, Pension Bureau 
 
Kosaku Sano, Chief, Private Employment Service Division, Employment 
and Security Bureau 
 
Yoshihiko Sano, Assistant Director, International Affairs Division, 
Minister's Secretariat 
 
U.S. SIDE: 
 
 
TOKYO 00006584  006 OF 006 
 
 
Daniel Fantozzi, Economic Counselor, U.S. Embassy Tokyo 
 
David DiGiovanna, First Secretary, Economic Section, U.S. Embassy 
Tokyo 
 
Michael Garrote, Consul, U.S. Embassy Tokyo 
 
Michael R. Cox, Attach and Department of Homeland Security 
Senior Representative. U.S. Embassy Tokyo 
 
Marc Dillard, First Secretary, Economic Section 
U.S. Embassy Tokyo 
 
Mateo Ayala, Deputy Financial Attach, U.S. Embassy Tokyo 
 
 
Satoshi Hattori, Economic Specialist, U.S. Embassy Tokyo 
 
¶18.  (U) IN WASHINGTON: 
 
U.S. SIDE 
 
Co-Chair: 
Ambassador Michael Michalak U.S. Ambassador for APEC, U. S. 
Department of State 
 
Ann Kambara, Deputy Director, Office of Investment Affairs, U.S. 
Department of State 
 
Jessica Webster, Chief, Economic Unit, Office of Japanese Affairs, 
Department of State 
 
Robert Winship, Economic Officer, Office of Japanese Affairs, U.S. 
Department of State 
 
Ronald Meyers, Director, Japan Affairs, Office of the U.S. Trade 
Representative 
 
JAPANESE SIDE 
 
Atsushi Taketani, First Secretary, Embassy of Japan 
 
Keiji Hattori, First Secretary, Embassy of Japan 
 
¶19. (U) Ambassador Michalak has cleared this cable. 
 
DONOVAN