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RR RUEHFK RUEHKSO RUEHNAG RUEHNH
DE RUEHKO #6614/01 3240738
ZNR UUUUU ZZH
R 200738Z NOV 06
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC 8436
RHEHAAA/WHITE HOUSE WASHDC
INFO RUEHFR/AMEMBASSY PARIS 5124
RUEHOK/AMCONSUL OSAKA KOBE 2276
RUEHKSO/AMCONSUL SAPPORO 9910
RUEHNAG/AMCONSUL NAGOYA 8465
RUEHFK/AMCONSUL FUKUOKA 8866
RUEHNH/AMCONSUL NAHA 1355
RUCPDOC/USDOC WASHDC

UNCLAS SECTION 01 OF 07 TOKYO 006614 
 
SIPDIS 
 
SIPDIS 
 
SENSITIVE 
 
PARIS PLEASE PASS USOECD 
STATE PLEASE PASS USTR 
 
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. METI Minister Calls for Deepening of U.S.-Japan 
Economic Relations 
¶4. Keidanren Joins Call for a U.S.-Japan FTA 
¶5. ACCJ Business White Paper Says Economic Integration 
Agreement Is Needed 
¶6. Kansai Business Leaders Meet Finance Minister in 
Osaka; FTAs, EPAs Stressed 
¶7. Indonesia EPA Negotiators Near Agreement "In 
Principle, on Major Elements" 
¶8. Triangular Merger Issue Still Being Debated 
¶9. Toyota To EMIN: Major North American Production 
Increase; Focus on Hybrids Not Flex-Fuel 
¶10. EMIN Discusses Nagoya's Central Japan 
International Airport 
¶11. Commercial MC Peters' Nagoya Visit Highlights 
Business Aviation and Consumer Products 
¶12. Dreamliner Production Takes Off in Central Japan 
¶13. Mitsui & Co. Confident Russia Will Allow Sakhalin 
2 to Continue 
¶14. Union Leader Says Most Labor Legislation Won't Be 
Ready for 2007 Diet 
¶15. Patent Harmonization Progress 
¶16. Foreign Investment in the Regions:  Seattle-Based 
Lindal Cedar Homes Establishes Presence in Hokkaido 
¶17. Q3 GDP Data Released 
 
¶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 17, 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) METI Minister Calls for Deepening of U.S.- 
Japan Economic Relations 
------------------------ 
 
METI Minister Akira Amari highlighted three ways to 
deepen U.S.-Japan economic relations at a November 13 
lunch held by the U.S.-Japan Business Council. 
 
First, Amari suggested using APEC as a mechanism for 
strengthening ties.  Regarding an APEC-based regional 
free trade agreement, he repeated the METI line that 
the Ministry's own "ASEAN+6" concept of regional 
integration could facilitate the goal of an eventual 
APEC-wide agreement. 
 
Second, Amari pointed out areas of greater direct 
bilateral cooperation between the United States and 
Japan on promoting common interests in East Asia such 
as in energy and intellectual property protection. 
 
Finally, in response to the Business Council's support 
for a "high-level, comprehensive, and commercially 
meaningful" free trade agreement between the United 
States and Japan, Amari thanked the Council for its 
proposal and indicated it was worth further study. 
 
Ambassador Schieffer, in remarks following the lunch, 
stressed that any agreement between the Untied States 
and Japan would need to be comprehensive and include 
agriculture. 
 
4.(U) Keidanren Joins Call for a U.S.-Japan FTA 
--------------------------------------------- -- 
 
Keidanren, Japan's leading business and industrial 
association, said it would formally join the recent 
 
TOKYO 00006614  002 OF 007 
 
 
chorus for a U.S.-Japan bilateral FTA on November 21. 
Keikichi Honda, chairman of the Keidanren committee 
that handles relations with the United States, told 
EMIN November 17 that their announcement will 
encourage the two governments to begin work as soon as 
possible towards a broad economic partnership 
agreement. 
 
Honda said the scope of Keidanren's vision is 
comprehensive, including agriculture and services, but 
falls short of his personal hope to also incorporate 
mutual recognition of the professional certification 
of lawyers, CPAs, and even doctors. 
 
Keidanren follows the ACCJ and the U.S.-Japan Business 
Council among private sector organizations that 
publicly are encouraging the USG and GOJ to begin work 
towards a comprehensive economic cooperation 
agreement. 
 
¶5. (U) ACCJ Business White Paper Says Economic 
Integration Agreement Is Needed 
------------------------------- 
 
The American Chamber of Commerce in Japan (ACCJ) 
released its "ACCJ Business White Paper: 'Working 
Together, Winning Together'" last week in Tokyo, 
calling for further reform and recommending the U.S. 
and Japan initiate talks leading to an Economic 
Integration Agreement (EIA). 
 
A first step toward the EIA, the report says, should 
be to "restructure and reinvigorate" the Economic 
Partnership for Growth by creating a cabinet level 
ministerial economic forum to discuss bilateral, 
regional, global strategic issues concerning the two 
countries and which offer opportunities for 
cooperation. 
 
The report also calls for the U.S. and Japan to 
establish a new set of U.S.-Japan Economic Cooperation 
Working Groups to address possibilities for further 
bilateral economic cooperation, particularly in the 
areas covered by the White Paper. 
 
The White Paper provides analyses and recommendations 
on specific reforms in the following areas: 
macroeconomic issues; the financial system; the 
healthcare system; physical infrastructure and air 
transport; information technology and communications; 
consumer products and food; the legal system; human 
resources; and government reform, procurement, and 
privatization; Japan in an integrating Asian economy; 
and international systems and bilateral economic 
dialogue. 
 
The last ACCJ white paper on these issues was released 
in 2001. 
 
For more information see the ACCJ's press release. 
The full report will be put on the web later. 
 
¶6. (SBU) Kansai Business Leaders Meet Finance Minister 
in Osaka; FTAs, EPAs Stressed 
----------------------------- 
 
Representatives of Kansai's major economic 
organizations had their first meeting with new 
Financial Minister Koji Omi in Osaka. 
 
Kansai Economic Federation (Kankeiren) Chairman 
Yoshihisa Akiyama emphasized to Omi that the 
importance of the economic relationship between Kansai 
businesses and the Asian economy, and requested the 
Minister to consider FTAs and EPAs with Asian 
countries. 
 
Kansai Association of Corporate Executives (Kansai 
Keizai Doyukai) Co-chairman, Shunzo Morishita also 
 
TOKYO 00006614  003 OF 007 
 
 
requested the Minister to promote decentralization 
(doshuseido) and tax resource transfer from the 
national governments to local governments, important 
factors for activating local economies. 
 
FinMin Omi mentioned that it would be a priority for 
GOJ to fix disparities among local governments. 
 
One Doyukai staffer said that it was meaningful to 
bring the GOJ up to speed on the economic situation in 
the Kansai and to make requests of the GOJ, but it is 
more important for the Kansai economy in the long run 
for business people to strengthen day-to-day relations 
with the national government to increase central 
government bureaucrats' understanding of the needs of 
the region. 
 
Unfortunately, the clout of Kansai business leaders 
with the GOJ continues to decrease, according to our 
contact. 
 
¶7.  (SBU) Indonesia EPA Negotiators Near Agreement "In 
Principle, on Major Elements" 
----------------------------- 
 
Japan and Indonesia are near agreement "in principle, 
on major elements" to an Economic Partnership 
Agreement (EPA), Indonesian Embassy officials told us 
November 16. 
 
The Indonesian president's impending November 26 
arrival -- PM Abe's first state visit -- have kept 
negotiators motivated. 
 
The officials stated the agreement will include an 
unprecedented energy chapter on oil and gas industry 
transparency, which they called a priority for Japan, 
and added that Indonesia is looking to improve upon 
provisions in the Japan-Philippine agreement that 
allow entry for some nurses and caregivers. 
 
Market access continues to be tough for negotiators, 
according to the officials, but steady progress has 
been realized in areas such as services, investment, 
IPR, government procurement, competition policy, 
dispute settlement, and improving the business 
environment. 
 
Although the goal had been to wrap up negotiations by 
the end of 2006, the officials speculated that the 
agreement would not be signed before mid-2007, as the 
Indonesian parliament must finalize new investment 
legislation before the EPA can be concluded. 
 
 
¶8. (SBU) Triangular Merger Issue Still Being Debated 
--------------------------------------------- ------- 
 
The debate over triangular mergers continues to be a 
daily topic in the press with the tide beginning to 
turn against Keidanren. 
 
The Nikkei, Japan's leading business daily, in a 
November 16 editorial, criticized Keidanren's 
proposals as placing "unfair restrictions on use of 
the merger formula." 
 
Nikkei said there were "no reasonable justification 
for taking any further steps to protect shareholders", 
and rightly noted that cash takeover bids (TOB) 
constitute a greater threat of hostile moves against 
Japanese companies than triangular mergers. 
 
The tone of Keidanren public statements has also 
shifted in recent days. 
Vice Chairman Miyahara on November 13 said the 
Federation "basically supports triangular mergers" but 
called for "necessary policy measures before the 
implementation." 
 
TOKYO 00006614  004 OF 007 
 
 
 
In our many meetings with ministerial officials and 
Diet members on this issue over the last few weeks, we 
have detected little sympathy for Keidanren' views. 
Descriptions of Keidanren's position within the 
bureaucracy range from "unreasonable" to "eccentric" 
and Diet members express to us support for increased 
FDI. 
 
European contacts report similar generally positive 
reactions to their outreach. 
EU Ambassador Richardson wrote to Mitarai and all 15 
Keidanren Vice-Chairmen warning them of the damage to 
Japan's investment climate if the government adopts 
Keidanren's position. 
 
We will continue to call on members of the LDP 
Judicial Affairs Committee in the coming days. 
 
Meanwhile, the Government's Tax Commission agreed to a 
basic framework for introducing tax deferral for 
triangular mergers starting May 2007. 
 
The commission noted that without such deferral these 
deals would not occur. 
 
¶9. (SBU) Toyota To EMIN: Major North American 
Production Increase; Focus on Hybrids Not Flex-Fuel 
--------------------------------------------- ------ 
 
EMIN Hans Klemm visited Toyota's Tsutsumi Plant and 
met with the Central Japan Economic Federation 
(Chukeiren) on November 8. 
 
Toyota Managing Officer Masayuki Nakai said that the 
opening of the San Antonio Tundra pick-up plant this 
month, which Amb. Schieffer attended, along with a new 
factory in Canada and expansion elsewhere will raise 
Toyota's North American production capacity by 700,000 
per year.  In 2005, Toyota built 1.55 million vehicles 
in North America. 
 
 Although pursuing flex-fuel vehicle technology, 
Toyota continues to stress hybrids, assuming that the 
standard level of ethanol in American gasoline will 
not rise above 10% in the next decade. 
 
¶10. (SBU) EMIN Discusses Nagoya's Central Japan 
International Airport 
--------------------- 
 
In Nagoya, EMIN also met with the Central Japan 
Economic Federation (Chukeiren) on November 8. 
 
Chukeiren Director General Kiyoh Kinoshita made a 
strong pitch for increased passenger service from 
Nagoya's Central Japan International Airport to U.S. 
destinations and lamented American Airlines' decision 
to suspend their Nagoya-Chicago route last fall. 
 
EMIN explained the USG's efforts in bilateral talks to 
gain new Nagoya-U.S. and Nagoya-Asia cargo routes for 
two American cargo carriers.  Kinoshita expressed the 
Chukeiren's support for that objective. 
 
 
¶11. (SBU) Commercial MC Peters' Nagoya Visit 
Highlights Business Aviation and Consumer Products 
--------------------------------------------- ----- 
 
 While in Nagoya November 7 to give a speech to the 
Central Japan chapter of the American Chamber of 
Commerce in Japan, Commercial Minister Counselor John 
Peters met with the head of Oaklawn Marketing and 
JETRO and Prefectural Officials. 
 
Oaklawn COO Harry Hill explained how, in just over a 
decade, the local American-owned television-marketing 
firm had grown from zero to $200 million sales per 
 
TOKYO 00006614  005 OF 007 
 
 
year and the largest purchaser of television time in 
Japan. 
 
Hill expressed enthusiasm for working with the 
Commercial Service to find more ways to present 
American products, particularly from SMEs, to Japanese 
consumers. 
 
During a call by MC Peters, Nagoya JETRO Chief 
Director Hiroki Matsumoto detailed the strong state of 
the regional economy and said that, despite JETRO's 
current focus on increasing inbound FDI, the 
organization continues to promote imports of goods and 
services, not least for their positive impact on 
investment. 
 
Peters also met with Aichi Prefecture Vice Governor 
Makoto Nishimura to move forward with planning for the 
February 9, 2007, National Business Aviation 
Association (NBAA) Air Exhibition in Nagoya to be co- 
organized by the Commercial Service and Aichi 
Prefecture. 
 
Vice Governor Nishimura, who attended the NBAA 
convention in Orlando this month, pledged to work 
whole-heartedly to make this joint enterprise a 
success and to expand the business aviation market in 
Japan. 
 
¶12. (SBU) Dreamliner Production Takes Off in Central 
Japan 
----- 
 
"The biggest industrial project ever undertaken by an 
American firm in Japan," is Boeing's description of 
787 Dreamliner fuselage section and wing production by 
its Japanese partners in the Nagoya area. 
 
During separate visits, Ambassador Schieffer and EMIN 
saw and discussed how production of major 787 
components in Central Japan is getting underway using 
first-ever processes for carbon composite aircraft. 
 
Those components will be flown on the world's largest 
cargo aircraft to Everett, Washington, where, starting 
next year, final assembly of each Dreamliner is to 
take place in just three days using an adaptation of 
Toyota's just-in-time production system. 
 
¶13. (SBU) Mitsui & Co. Confident Russia Will Allow 
Sakhalin 2 to Continue 
---------------------- 
 
On October 27 Econoff met with Mitsui & Co. General 
Manager of Planning Ken Yamaguchi and General Manager 
of Sakhalin Development Toru Matsui to discuss Mitsui 
& Co.'s investments in the Russian Sakhalin 2 oil and 
gas project. 
(Note: Sakhalin 2 is owned by Sakhalin Energy, a 
consortium consisting of Royal Dutch Shell, which 
holds a 55 percent stake, Mitsui & Co. with 25 
percent, and Mitsubishi Corp. with 20 percent. 
Sakhalin 1's primary shareholder is ExxonMobil.) 
 
Matsui believes that the Russian Ministry of Natural 
Resources and Energy has no intention of nullifying 
the Sakhalin 2 project over environmental violations. 
He identified the real issues as the huge cost 
overruns of the project and Russian gas major 
Gazprom's desire to become part of the project. 
 
Matsui also commented that the term "energy 
nationalism" did not apply to Japan, adding that the 
Japanese government has very little influence in 
Japan's energy market. 
 
 
¶14. (SBU) Union Leader Says Most Labor Legislation 
Won't Be Ready for 2007 Diet 
 
TOKYO 00006614  006 OF 007 
 
 
---------------------------- 
 
Of the major pieces of labor legislation the Ministry 
of Health, Labor, and Welfare (MHLW) wishes to present 
in the regular 2007 Diet session, only the new Labor 
Contracts Law is likely to be ready for consideration, 
a senior official of one of Japan's largest labor 
unions told Econoff November 13. 
 
The official, who sits on MHLW's Labor Policy Council, 
said that differences between union and management 
positions remain too large to be resolved in time. 
 
He singled out two issues as key sticking points in 
negotiations to revise the Labor Standards Law: white 
collar exemptions and monetary settlements in lieu of 
employee re-instatement. 
 
Both are top priorities of the American Chamber of 
Commerce in Japan (ACCJ). 
 
¶15. (U) Patent Harmonization Progress 
------------------------------------- 
 
At the annual Trilateral Meeting of the U.S. Patent 
Office (USPTO), the Japan Patent Office  (JPO) and 
European Patent Office (EPO) in Tokyo on November 16, 
the three agencies announced several small but 
significant initiatives that will save time and money 
for patent applicants, including agreeing to 
standardize the format for patent applications among 
all three offices starting in 2007 and electronic 
exchange of some of the documents needed to file in a 
second or third patent office. 
 
The three Patent offices agreed to conduct a 
comparative study on examination practices, an 
important step towards the goal of harmonization of 
patent examinations. 
 
They recognized the strategic importance of access to 
Chinese patent documentation and the three agencies 
agreed to urgently consider how make this access 
efficient and easy. 
 
The USPTO and JPO are able to move more quickly than 
the EPO can, and the two offices are actively working 
towards the mechanisms that will permit mutual 
recognition of patent examinations. 
 
USPTO experts, however, said privately that the 
Japanese press has consistently misrepresented the 
U.S. position by wrongly reporting that the USPTO has 
already agreed to shift from a first to invent to 
first to file system. 
 
¶16. (U) Foreign Investment in the Regions:  Seattle- 
Based Lindal Cedar Homes Establishes Presence in 
Hokkaido 
-------- 
 
In late October, Robert W. Lindal, CEO of Seattle- 
based Lindal Cedar Homes, visited Niseko village, 
located about 100km southwest of Sapporo, to survey 
the construction of four U.S.-style vacation homes. 
 
The construction of the homes uses natural materials 
imported from North America to help the buildings 
blend in with their environment. 
 
Consul Hillman and EconFSN Baba accompanied Mr. 
Lindal, and the Hokkaido Shimbun interviewed Mr. 
Lindal and Consul Hillman. 
 
The newspaper ran an article based on the interviews 
that highlighted the homebuilding project as an 
example of increased U.S. investment in the region. 
 
The company plans to build four more homes on 1.6 
 
TOKYO 00006614  007 OF 007 
 
 
hectors of land it has already purchased next to the 
current development zone. 
 
¶17. (U) Q3 GDP Data Released 
---------------------------- 
 
While headline GDP figures were higher than expected, 
at two percent annualized, final domestic demand 
contributed -0.9 percentage points, due primarily to 
weak consumption. 
 
Significant contributors to growth were net imports 
(1.6 percentage points) and inventory accumulation 
(1.2 percentage points). 
 
 
SCHIEFFER