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UNCLAS SECTION 01 OF 12 TOKYO 006943 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR E, P, EB, EAP/J, EAP/P, EAP/PD, PA; 
WHITE HOUSE/NSC/NEC; JUSTICE FOR STU CHEMTOB IN ANTI-TRUST DIVISION; 
TREASURY/OASIA/IMI/JAPAN; DEPT PASS USTR/PUBLIC AFFAIRS OFFICE; 
SECDEF FOR JCS-J-5/JAPAN, 
DASD/ISA/EAPR/JAPAN; DEPT PASS ELECTRONICALLY TO USDA 
FAS/ITP FOR SCHROETER; PACOM HONOLULU FOR PUBLIC DIPLOMACY ADVISOR; 
CINCPAC FLT/PA/ COMNAVFORJAPAN/PA. 
 
E.O. 12958: N/A 
TAGS: OIIP KMDR KPAO PGOV PINR ECON ELAB JA
 
SUBJECT: JAPANESE MORNING PRESS HIGHLIGHTS 12/13/06 
 
 
Index: 
 
1) Top headlines 
2) Editorials 
3) Prime Minister's daily schedule 
 
Political agenda: 
4) Abe camp hit by the "support rate shock" as all polls show 
plummeting popularity 
5) LDP split on significance of Abe's sudden drop in popularity 
6) Opposition camp readying no-confidence motion against Foreign 
Minister Aso over nuclear flap 
7) Ambiguities remain in Minshuto's just-completed set of basic 
policies 
8) LDP's Koga still making pitch for re-examining issue of Class A 
war criminals at Yasukuni Shrine 
 
9) Prime Minister Abe intends to attend the postponed E. Asian 
Summit 
 
10) Japan, Australia agree formally to start negotiations to sign an 
EPA 
 
11) Japan Fair Trade Commission and Justice Ministry looking into 
cartel of LDC makers, including US, Japanese, South Korean companies 
 
 
Defense and security issues: 
12) To speed up closing down of Futenma airfield, JDA chief wants to 
shorten construction period for alternate site 
13) Two police officers being sent to E.Timor for PKO duty 
 
Triangular mergers issue: 
14) Keidanren (Japan Business Federation) seeking M&A legislation 
that would deal with problem of triangular mergers 
15) Government negative about taking severe legal stance toward 
triangular mergers 
 
16) Tax reform council readies recommendation that center around 
giving business tax breaks 
 
Articles: 
 
1) TOP HEADLINES 
 
Asahi & Yomiuri: 
Japanese, South Korean, US authorities investigating possible 
anticompetitive practices in LCD market 
 
Mainichi: 
Poor maintenance of truck hubs found at Mitsubishi Fuso 
 
Nihon Keizai: 
Reform of Social Insurance Agency: Government, ruling coalition plan 
to entrust premium collection to private companies 
 
Sankei: 
Most arctic ice to disappear by summer of 2040 
 
Tokyo Shimbun: 
Outline of tax system reform by ruling coalition: Outline focuses on 
corporate tax cut; cap on depreciation to be removed 
 
TOKYO 00006943  002 OF 012 
 
 
 
Akahata: 
Public calls for thorough deliberations on bill amending the Basic 
Education Law 
 
2) EDITORIALS 
 
Asahi: 
(1) Doubts about bill amending the Basic Education Law 
(2) Taiwanese politics: Looking for way out of dead end 
 
Mainichi: 
(1) Resumption of six-party talks: North Korea should take sincere 
action to abandon its nuclear weapons 
(2) Failure of schools to teach compulsory subjects: Don't twist the 
truth 
 
Yomiuri: 
(1) Lending law revision: Speed up forming "security net" for 
borrowers 
(2) Cell phone companies: FTC warns against exaggerated 
advertisements 
 
Nihon Keizai: 
(1) Japan-China-ROK investment agreement needed for more 
transparency in China 
(2) Taiwan moving toward post-Chen era 
 
Sankei: 
(1) Relationship between Japan and India is significant 
strategically 
(2) Failure of schools to teach compulsory subjects: Don't stop 
reform of Tokyo high schools 
 
Tokyo Shimbun: 
(1) Reconstruction of local governments: Lack of regional 
perspective 
(2) Nuclear power plants: Long-term personnel training 
indispensable 
 
Akahata: 
(1) Road construction tax revenues: Times demand using road 
construction tax revenues for general purposes 
 
3) Prime Minister's Official Residence (Kantei) 
 
Prime Minister's schedule, December 12 
 
NIHON KEIZAI (Page 2)  (Full) 
December 13, 2006 
 
09:01 
Cabinet meeting in the Diet 
 
09:17 
Arrived at the Kantei. 
 
10:06 
Met with Tomoko Tazawa, wife of the late former Justice Minister 
Tomoharu Tazawa, former Financial Services Revitalization Committee 
Chairman Ochi. 
 
 
TOKYO 00006943  003 OF 012 
 
 
13:18 
Met LDP Secretary General Nakagawa. 
 
14:03 
Met Special Advisor to the Prime Minister Koike, followed by 
Internal Affairs and Communications Minister Suga. 
 
15:00 
Telephone conversation with Australian Prime Minister Howard. 
Special Advisor to the Prime Minister Seko was present. 
 
17:55 
Met Special Advisor to the Prime Minister Nemoto. 
 
18:43 
Arrived at the official residence. 
 
4) Slide in Abe cabinet's approval ratings draw mixed responses 
among cabinet members 
 
MAINICHI (Page 5) (Full) 
December 13, 2006 
 
Shinichiro Nishida 
 
The mass media, including the Mainichi Shimbun, yesterday 
simultaneously reported on a plunge in the Abe cabinet's approval 
ratings. These news reports created quite a stir. The emergence of 
the Abe cabinet is primarily attributable to its high popularity 
among the public, but the pace of the falling support rates was 
beyond what cabinet officials had assumed. Some were apparently 
"shocked by a slide in the approval rates. 
 
At a press briefing yesterday after a cabinet meeting, one member 
referred to the slide in the cabinet's approval rates calmly: "We 
shouldn't feel that it is up or down." On the other hand, another 
cabinet member mentioned the need to "have a system to make the 
prime minister's leadership felt directly by the public." 
 
Minister of Internal Affairs and Communications Yoshihide Suga 
commented: "The approval ratings are something that fluctuate, so we 
shouldn't swing between optimism and despair. I think the right 
course for us to follow is to implement our pledged policies and 
wait for the public's judgment." Justice Minister Jinen Nagase, too, 
made this comment: "I think we don't have to become serious about 
the dip this time in the approval ratings. It is my firm belief that 
we can obtain public understanding if we continue to work hard." 
 
In contrast, Environment Minister Masatoshi Wakabayashi analyzed the 
reason this way: "Perhaps, the prime minister's initiative may not 
be clear in the public's eyes." "For instance," he continued, "there 
was the lack of the demonstration that such pending issues that have 
been carried over from the Koizumi cabinet to the Abe cabinet as the 
revenue for road construction were finalized owing to the prime 
minister's instructions." 
 
Prime minister emphasizes his leadership by excitedly saying, "My 
instructions" or "my decision" 
 
Yu Koyama 
 
Prime Minister Shinzo Abe yesterday repeatedly emphasized his 
 
TOKYO 00006943  004 OF 012 
 
 
initiatives to reporters at the Prime Minister's Official Residence 
by saying, "In line with my instructions" and "I will make a 
decision." He appeared desperate to dispel the criticism that he 
lacks leadership. 
 
Referring to a planned cut in the issuance of government bonds in 
the next fiscal year, Abe stated, "In line with my instructions, 
difficult negotiations will be held at various sectors." When asked 
about whether to extend the Diet session, he commented, "I'll make a 
final decision." During a five-minute conversation with reporters to 
answer a total of seven questions, the prime minister employed the 
word "instructions" three times. 
 
5) LDP split over dropping support rate; Sense of urgency prevalent 
 
ASAHI (Page 4) (Excerpts) 
December 13, 2006 
 
Views in the Liberal Democratic Party are split over the fact that 
the Abe cabinet's support rating plunged below 50%. The group 
actively supporting Prime Minister Abe is calling for the cabinet to 
revamp its reform posture, thinking the administration's image has 
been damaged by the reinstatement of the so-called postal rebels and 
the question of road-related tax revenues. Senior Upper House 
members are determined not to fluctuate between hope and despair. 
But they all share the view that a serious situation would occur if 
the support rate continues dropping. 
 
In yesterday's meeting of the Parliamentary League to Support Second 
Chances that had paved the way for Abe's big lead in the latest LDP 
presidential race, Yuji Yamamoto, state minister in charge of the 
so-called "second-chance initiative," emphatically said: "When the 
support rate drops below 50%, media criticism triples or quadruples. 
I will work hard to raise it over the 50% line." 
 
One said: "Backward reform moves in the party have become clear and 
that has taken a toll on the support rate." Another noted: "The 
cabinet is suffering from adverse effects from the road revenue 
issue and other matters. The administration must send out messages 
about its policies." Concerned voices dominated the meeting. 
 
Former Secretary General Tsutomu Takebe, an opponent to readmitting 
postal rebels in the party, also told the Asahi Shimbun: "I feel a 
sense of urgency. I have been worried that a situation like this 
would occur. I am keenly aware of the severity of public opinion." 
 
In an Asahi Shimbun opinion poll in December, the support rate stood 
at 47%, down from 53% in November. A common view in the party was 
that the reinstatement issue would inevitably push down the 
cabinet's popularity. "I was even prepared to see the figure drop as 
much as 15 points. I was relieved that it did not go down that 
much," a senior LDP member noted. 
 
6) Four opposition parties considering to jointly file no-confidence 
motion against foreign minister 
 
ASAHI (Page 4) (Full) 
December 13, 2006 
 
The Diet affairs chiefs of four opposition parties -- Minshuto 
(Democratic Party of Japan), the Japanese Communist Party, the 
Social Democratic Party, and the People's New Party -- discussed 
 
TOKYO 00006943  005 OF 012 
 
 
yesterday their response to the current Diet session which is to end 
shortly and reconfirmed their plan to stop the bill amending the 
Basic Education Law. 
 
Minshuto has also begun studying the option of filing a 
no-confidence motion with the Lower House against Foreign Minister 
Taro Aso, who has repeatedly called for debate about possessing 
nuclear weapons, in collaboration with the three other opposition 
parties. The party intends to use it to block the enactment of the 
education reform bill. 
 
But the JCP objected, saying that a decision must wait until after 
the Lower House education law special committee intensively 
deliberated on the bill on Dec. 13. As a result, Minshuto decided to 
discuss the question of jointly filing a no-confidence motion at a 
later date. Even a senior Upper House Minshuto member called the 
no-confidence motion plan "premature." The party now intends to 
carefully determine the optimum timing. 
 
Meanwhile, People's New Party Secretary General Hisaoki Kamei, after 
his meeting with his Minshuto and SDP counterparts, took this view 
about filing a no-confidence motion against the Abe: "In view of the 
cabinet's dropping support rating, we must take some kind of action. 
It is only natural that we file such a motion." 
 
But a senior Minshuto member said, "If a motion were rejected, it 
might be taken as the cabinet winning public confidence." Cautious 
views are dominant in the party. There is also a view in the party 
that a no-confidence motion against the Abe cabinet must wait until 
next year's regular Diet session when the Upper House election next 
summer is close. 
 
7) DPJ platform: Ambiguity left over collective security 
 
YOMIURI (Page 4) (Abridged) 
December 13, 2006 
 
The leading opposition Democratic Party of Japan (Minshuto) 
informally decided yesterday to adopt its new platform. Its planks, 
however, leave ambiguity when it comes to collective self-defense. 
 
The DPJ has been split over the question of whether to allow 
collective self-defense. In the party, a chasm exists between a 
group of conservative lawmakers in favor of Japan's participation in 
collective self-defense and a group of cautious lawmakers who hail 
from the now-defunct Socialist Party. Their divergence has cast a 
shadow on the party's security planks. 
 
In its new platform, the DPJ allows Japan to exercise its right to 
self-defense "without getting caught up in arguments over the rights 
of individual self-defense and collective self-defense," thereby 
paving the way for Japan to participate in collective self-defense. 
However, the platform, heeding its socialist lawmakers, says Japan 
may do so only in the event of an attack on Japan. 
 
In the DPJ's policy debate, its conservative lawmakers criticized 
such a precondition, with former DPJ President Seiji Maehara 
claiming that there will be no case for collective self-defense 
under such a condition. However, the party leadership did not 
retouch the draft's wording that is somehow convincing to the right 
and left wings. 
 
 
TOKYO 00006943  006 OF 012 
 
 
DPJ planks for foreign relations, national security 
 
-- The DPJ will not insist on conceptual arguments that used to 
differentiate individual self-defense and collective self-defense. 
Instead, Japan, based on its defense-only posture, will exercise its 
right to self-defense in conformity with Constitution Article 9 only 
if and when Japan sustains an incursion that directly threatens 
Japan's peace and security. 
 
-- Japan is to take proactive part in United Nations peacekeeping 
operations, including those under UN Charter Article 41 and 42. 
 
DPJ's security policy in its manifesto for 2005 lower house 
election 
 
-- The DPJ will consider establishing a new organization for 
international peace cooperation. 
 
-- The DPJ will formulate a new defense initiative and will overhaul 
Japan's defenses, including the Self-Defense Forces. 
 
8) LDP's Koga urge Yasukuni Shrine to probe into enshrinement of 
Class-A war criminals 
 
NIHON KEIZAI (Page 2) (Full) 
December 13, 2006 
 
The Association to Study Japan's Asia Strategy, made up of lawmakers 
from three factions affiliated with the former Miyazawa faction 
(Kochikai) in the Liberal Democratic Party (LDP), invited former 
secretary general Makoto Koga, chairman of the Japan Association of 
 
SIPDIS 
the Bereaved Families of the War Dead (Izokukai), to give a speech 
in its general meeting yesterday at party headquarters. In his 
speech, Koga referred again to the need for removing Class-A war 
criminals from Yasukuni Shrine. He stated: 
 
"Both the Japan War-Bereaved Families Association and Yasukuni 
Shrine have to verify whether it is appropriate that Class-A war 
criminals were enshrined in Yasukuni. The Shinto shrine should be a 
place at which everyone can pay homage without feeling 
uncomfortable." 
 
The meeting was held for the first time in five months, with 33 
lawmakers attending. Regarding Izokukai's treatment of Class-A war 
criminals, Koga stressed, "We want to reach a consensus as early as 
possible. He also expressed unhappiness with Yasukuni, saying: 
 
"There is room for the shrine to consider (separation of Class-A war 
criminals). It does not take the argument squarely for the reasons 
that it does not want to be involved in politics and that it is 
intolerable for it to think of the feelings of the bereaved 
families." 
 
9) Prime Minister Abe willing to attend East Asia Summit 
 
NIHON KEIZAI (Page 2) (Full) 
December 13, 2006 
 
When asked by reporters last evening about whether he would attend 
the East Asia Summit, which has been put off to January, Prime 
Minister Shinzo Abe expressed his willingness to attend it if his 
political schedule allowed, responding, "Since Asia diplomacy is 
 
TOKYO 00006943  007 OF 012 
 
 
important for Japan, I would really like to attend it." 
 
The Philippines, the chair of the EAS, has postponed a series of 
diplomatic events, including the summits of the Association of 
Southeast Asian Nations (ASEAN), ASEAN and Japan, China, and South 
Korea, and other ministerial meetings. The Philippine government 
sounded out countries concerned about holding them January 11-13. 
The Japanese government, however, responded that it would be 
impossible for Abe to attend the EAS because he plans to visit 
Europe during that period. The Philippine government is now 
undertaking coordination with the summit member countries. 
 
10) Japan, Australia agree to begin talks on EPA 
 
NIHON KEIZAI (Page 1) (Full) 
December 13, 2006 
 
Prime Minister Shinzo Abe yesterday talked with Australian Prime 
Minister John Howard on the phone and the two leaders reached a 
formal agreement to begin government-to-government talks next year 
to conclude an economic partnership agreement (EPA) centering on a 
free trade agreement (FTA). Japan looks to Australia to become a 
stable supplier of energy and mineral resources, while Australia is 
likely to call on Japan to open its agricultural market. 
Negotiations may run into difficulties over how to treat 
agricultural and livestock products. 
 
Exports and imports between Japan and Australia amount to some four 
trillion yen. Of the products Japan imports from Australia, more 
than 20% are agricultural and livestock products, such as beef and 
wheat. Lawmakers affiliated with farm organizations of the ruling 
Liberal Democratic Party (LDP) and others, out of concern about a 
possible blow to domestic farmers, are becoming increasingly alarmed 
by the move for the concluding of the EPA. The government intends to 
discuss with Australia the question of whether primary agricultural 
products will be treated as exceptions to the removal of the 
tariffs. In this regard, Abe emphasized to reporters: "We must 
advance negotiations while paying attention to, for instance, the 
agricultural issue." 
 
11) Authorities of Japan, South Korea, US investigating leading LCD 
makers over suspected cartel 
 
ASAHI (Top Play) (Excerpts) 
December 13, 2006 
 
Authorities from Japan, South Korea, and the United States have 
launched an investigation into liquid crystal display (LCD) 
manufacturers on suspicion of forming a cartel for sales of liquid 
crystal panels to be used in flat televisions, personal computers 
and cellular phones. The South Korean Fair Trade Commission (FTC) is 
investigating LG Phillips LCD, Samsung Electron Co. (both in Seoul) 
and other companies. The Japanese FTC has ordered about 10 makers in 
Japan, including Sharp Corporation (based in Osaka), to explain 
their transactions in detail. The authorities of the three countries 
are likely to join hands in uncovering the details of alleged 
illegal practices. 
 
A spokesman of LG said yesterday: "FTC members visited our main 
office on Dec. 8 to probe whether the company conducted 
anticompetitive practices. Our offices in Tokyo and the US have also 
been told by Japanese and American authorities to submit data." 
 
TOKYO 00006943  008 OF 012 
 
 
 
In an interview with the Asahi Shimbun, the spokesman of Samsung 
Electron admitted that it had been informed by the watchdog offices 
of the three countries of the start of investigation, saying, "We 
would like to cooperate in the investigation in a positive manner." 
 
According to Yonhap News Agency, a South Korean news service, LCD 
manufacturers formed price and shipment-adjustment cartels in 2003 
and 2004, when the LCD market was performing strongly, and 
investigation is underway on suspicion of the makers having obtained 
improper profits. A South Korean FTC official told the news agency: 
"The three countries' authorities in close cooperation have started 
an investigation into all the companies suspected to be involved in 
the cartel practices." 
 
This South Korean official said, "Major customers are American 
companies, such as Dell," adding, "The view is spreading in South 
Korea that the investigation is going on supposedly under the lead 
of the US in response to a request from American firms that suffered 
an unreasonable loss." 
 
A judicial authority from the US replied in response to an inquiry 
by the Asahi Shimbun, "We cannot comment." 
 
The Japanese FTC issued an order to about 10 companies to report on 
their transactions. The firms include Toshiba-Matsushita Display 
Technology, a joint company of Toshiba Corporation and Matsushita 
Electric Industrial Co., Hitachi Displays (both in Tokyo), IPS Alpha 
Technology, a joint company of Hitachi, Toshiba, and Matsushita (in 
Mobara, Chiba), as well as the Tokyo branch offices of the Samsung 
Group and LG Phillips LCD. 
 
According to informed sources, the LCD manufacturers of the three 
countries are suspected of having concluded a price cartel agreement 
since 2000. 
 
The spokesman of Sharp said that a subpoena has been issued to its 
subsidiary in the US from the US Justice Department. The company 
issued this comment: "Prices have been on the decrease in the LCD 
market, so we think the situation is different from the state of 
cartel practices being conducted. The investigation is now underway, 
and we are willing to properly cooperate in the investigation." 
Hitachi, IPS, Toshiba, and Matsushita all refused to make a 
comment. 
 
12) Defense chief mulls moving up Futenma alternative construction 
 
YOMIURI (Page 4) (Full) 
December 13, 2006 
 
Defense Agency Director General Kyuma, meeting the press yesterday, 
clarified his idea of frontloading the planned construction of an 
alternative facility for the US Marine Corps' Futenma Air Station in 
Ginowan City, Okinawa Prefecture. The Defense Agency had initially 
planned to build a Futenma alternative in a coastal area of Camp 
Schwab in the island prefecture's northern coastal city of Nago by 
2014 to relocate the airfield's functions there. 
 
The period of construction for the Futenma alternative is estimated 
at a total of eight years, broken down into three years for an 
environmental assessment of the relocation site and five years for 
construction work. "It would be better to make it done earlier if we 
 
TOKYO 00006943  009 OF 012 
 
 
can," Kyuma said, adding: "If we can make it done in two years 
instead of taking three years (for an environmental assessment), 
it's possible to make it done one year earlier. Construction will 
take five years, so it's also possible to make it constructed one 
year earlier. Besides, we can get it done even faster (if there is 
local cooperation)." 
 
13) Japan to send civilian police to E. Timor 
 
YOMIURI (Page 4) (Full) 
December 13, 2006 
 
The government decided yesterday to second two civilian police 
officers to the United Nations Integrated Mission in Timor-Leste 
(UNMIT), which is tasked with public security and other missions in 
East Timor. The civilian police officers will guide and oversee a 
local security organization. 
 
14) Keidanren makes proposals on triangular mergers, calls for 
legislation to deal with M&As 
 
ASAHI (Page 9) (Excerpts) 
December 13, 2006 
 
The Japan Business Federation (Nippon Keidanren) yesterday released 
a set of proposals, including one for setting legislation to deal 
with mergers and acquisitions (M&As) so that hostile takeovers by 
foreign companies can be regulated. A triangular merger system that 
allows foreign companies to purchase Japanese companies using their 
own stocks as the merger consideration is to be legalized next May. 
Keidanren is alarmed about a possible takeover offensive by foreign 
companies. It wants to make a pitch to the public through the 
recommendations. 
 
The package also pointed out concern that if stockholders of 
Japanese companies are given foreign shares as a result of a 
triangular merger, a situation incomprehensible to them could 
occur. 
 
Keidanren warned that if a manufacturing company is merged into a 
foreign company, the target company's technologies and R&D 
capability, which it had nurtured for a long period of time, could 
flow out to other countries, and should that occur, Japan as a whole 
could lose its overall international competitiveness, leading to a 
situation that could hurt national interests. Citing that European 
countries and the US have measures to protect companies against 
hostile takeovers, the association claimed that there are no 
international standards for M&A legislation. 
 
As specific measures to strengthen regulations on hostile takeovers, 
the association insisted that in the event of transferring 
securities that are not listed in Japan, such as foreign stocks, to 
Japanese stockholders, a specific resolution, which is stricter than 
the one adopted for ordinary mergers, should be adopted at a 
stockholders meeting. 
 
15) Triangular mergers: Government negative toward adopting strict 
rules; Coordination of views with business circles will likely have 
hard going 
 
YOMIURI (Page 9) (Full) 
December 13, 2006 
 
TOKYO 00006943  010 OF 012 
 
 
 
The Japan Business Federation (Nippon Keidanren) yesterday released 
a six-item package of proposals, seeking strict rules to protect 
Japanese companies against hostile M&As. The package called for the 
adoption of strict requirements for approving triangular mergers, a 
new form of M&A method to be legalized next May. However, the 
government is negative toward the idea of adopting strict rules, as 
it hopes that the lifting of a ban on triangular mergers will spur 
foreign capital inflow, reinvigorating the economy. Regarding 
related tax measures, the government intends to consider creating a 
tax system that attaches importance to the promotion of investment. 
Coordination of views with business circles, which are seeking 
strict requirements for triangular mergers in order to prevent an 
M&A offensive by foreign companies, are expected to be hard-going. 
 
Resolution requirement 
 
In a triangular merger, a foreign company acquires a Japanese 
company by merging its subsidiary established in Japan with a target 
Japanese company. 
 
Under this scheme, it is possible for an acquiring company to use 
its foreign parent company's stocks as the merger consideration 
given to stockholders of a target Japanese company. This will allow 
foreign companies to buy Japanese companies without using a large 
amount of cash. The system was incorporated in the Corporate Law 
enacted this May. However, the enforcement of the law was postponed 
for a year following business circles' protest that they need time 
to prepare for the M&A offensive by foreign companies. 
 
A target company approves a takeover bid based on a special 
resolution, which requires the attendance of a majority of 
stockholders with voting right and approval from more than 
two-thirds of participants at a stockholders meeting. However, 
Nippon Keidanren in the package of proposals asked that in the event 
of stockholders of a target Japanese company receiving foreign 
stocks that are not listed in Japan as the merger consideration, a 
specific resolution instead of a special resolution should be 
adopted. In order for a specific resolution to be adopted, approval 
from a majority of stockholders in terms of their number, and more 
than two thirds in terms of the number of voting rights, is needed. 
 
Objection 
 
An LDP subcommittee on the Commercial Code on Dec. 5 started 
debating whether strict rules should be adopted for a resolution on 
triangular mergers. Many panel members are against the idea, saying 
that triangular mergers themselves are not a cause of hostile 
takeovers or that it is not desirable to employ strict rules for the 
sake of protecting corporate mangers. The panel is expected to 
coordinate its views by next spring. Chances are that it will not 
adopt strict rules. Since both the Justice Ministry and the Ministry 
of Economy, Trade and Industry are also against the idea of adopting 
strict rules, coordination of views will likely be made with the 
possibility of not adopting strict rules. 
 
However, since it is difficult to persuade Nippon Keidanren without 
adopting strict rules, such coordination will likely be slow going. 
 
Tax system 
 
The government and the ruling camp are now considering the proper 
 
TOKYO 00006943  011 OF 012 
 
 
form of a triangular merger scheme in the process of annual tax code 
revisions for fiscal 2007. The LDP Tax System Research Commission, 
chaired by Yuji Tsushima, has indicated a policy of deferring 
taxation on capital gains of stockholders of a target Japanese 
company with the aim of facilitating triangular mergers. It also 
adopted a policy of introducing measures aimed at disapproving M&As 
using paper companies that have no business substance. 
 
Chief Cabinet Secretary Shiozaki during a press conference yesterday 
implicitly asked that triangular mergers should not be excessively 
restricted by the tax system. He noted, "A new tax code should be in 
line with the principles of the Abe cabinet, which wants to 
revitalize Japan, bringing in growth of foreign countries." 
 
The LDP tax panel is searching for ways to establish a new tax code 
that will not block investment by foreign countries, while 
preventing obvious tax evasion. 
 
16) Ruling parties' tax reform outline proposes abolishing allowable 
maximum amount for write-off, includes mainly tax cuts for 
corporations 
 
TOKYO SHIMBUN (Top Play) (Excerpts) 
December 13, 2006 
 
The Liberal Democratic Party and the New Komeito held a meeting of 
the ruling parties' Tax Research Commission yesterday and compiled a 
draft tax reform outline for FY2007. The draft proposes measures in 
accordance with the Abe administration's economic growth policy, 
including the review of the write-off system. As measures for 
individuals, consideration is given to housing-related taxation, 
such as the creation of a preferential tax system for remodeling 
houses into barrier-free ones, but the draft includes far larger 
tax-cut measures for corporations. 
 
On the proposed reduction in the tax on capital gains and dividends 
to 10%, the LDP called for delaying the introduction of the 
preferential measure by one year. The New Komeito is expected to 
approve the LDP proposal, so a settlement is likely to be reached 
today. 
 
The two ruling parties will adopt a tax reform package tomorrow. 
 
Key points in the tax reform outline for FY2007 
 
Extend the allowable period for deducting the losses accrued from 
transactions of houses. 
 
Add barrier-free construction to the subjects to the housing loan 
tax break system. 
 
Abolish the system of setting the allowable maximum amount for 
write-offs and shorten the write-off period for advanced 
facilities. 
 
Abolish the taxation on reserves to affiliated companies only for 
small businesses. 
 
Give preferential tax treatment to companies taking supportive 
measures for parenting and the second-chance program. 
 
Extend the securities preferential tax system by one year. 
 
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Extend the angel tax system by two years and expand the subjects to 
the system. 
 
Start discussion on bold tax system reform, including a consumption 
tax hike. 
 
SCHIEFFER