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C O N F I D E N T I A L SECTION 01 OF 04 TOKYO 000450 
 
SIPDIS 
 
SIPDIS 
 
STATE PASS USTR 
GENEVA ALSO FOR USTR 
PARIS FOR USOECD 
USDOC FOR OFFICE OF JAPAN - NMELCHER 
 
E.O. 12958: DECL: 02/01/2027 
TAGS: ECON EINV ETRD PREL JA CH KS
SUBJECT: JAPAN GINGERLY SEEKS NEW ECON TIES WITH CHINA, 
SOUTH KOREA 
 
 
Classified By: Amb. J. Thomas Schieffer. Reason: 1.4 (b, d) 
 
¶1.  (C)  Summary:  Japan sees little prospect for 
substantial improvement in its official relations 
with South Korea in the near term because of the 
attitudes of the present Korean administration, 
according to a senior official of the Asia Bureau 
of Japan's Ministry of Foreign Affairs (MOFA). 
The official believed talks with Korea on an 
"economic partnership agreement" would remain 
suspended until a new government came to power in 
Seoul.  In contrast, relations with China had 
undergone a surprisingly rapid turnaround. 
Nevertheless, although Japan was ready to begin 
negotiations on a trilateral investment agreement 
with China and South Korea, Japanese interest in 
a free trade agreement with China remains 
confined to simply studying the option.  An 
official of MOFA's office in charge of free trade 
agreement negotiations also noted that, even in 
the improved political environment, working out a 
successful three-way investment agreement will 
still be a challenge for the Japanese.  End 
summary. 
 
-------------------------------------- 
No Hope for Relations with South Korea 
-------------------------------------- 
 
¶2.  (C)  Meeting with ECON Mincouns over lunch 
January 19, MOFA Asia Bureau Deputy Director 
General Shiro Sadoshima said that there was no 
hope of progress in relations with South Korea 
under the current Korean administration.  Using 
very colorful language, he said the problem lay 
not with the Korean Foreign Ministry but with the 
Blue House and President Roh himself. 
Nevertheless, Sadoshima pointed to a number of 
MOFA-sponsored people-to-people exchanges with 
Korea initiated recently -- particularly youth -- 
that indicated the level of animosity among the 
general public in both countries was actually 
much lower than either the media or politicians 
portrayed it to be.  MOFA looked to support more 
of these kinds of exchanges utilizing some of the 
USD 315 million over the next five years for this 
purpose that Prime Minister Abe had announced 
during the East Asian Summit meetings in the 
Philippines. 
 
¶3.  (C)  Sadoshima, consequently, was pessimistic 
about the chances of restarting the "economic 
partnership agreement" (i.e., FTA) negotiations 
between Japan and Korea.  He acknowledged that 
there had been some discussion in MOFA to the 
effect that renewed economic talks might help to 
improve the atmosphere in the relationship 
between the two countries.  Because the prospects 
of substantive progress in the near term were dim 
and the time left to the Roh administration 
limited, however, there was little interest in 
Japan on restarting the negotiations only to face 
the prospect of having to start all over again 
potentially with a new Korean government. 
 
--------------------------------------------- -- 
 
TOKYO 00000450  002 OF 004 
 
 
Interaction with China Dramatically Improved... 
--------------------------------------------- -- 
 
¶4.  (C)  Turning to China, Sadoshima indicated 
that the progress in the relationship with 
Beijing had been dramatic.  He pointed to China's 
decision on January 18 to lift its ban on imports 
of Japanese rice as exemplifying the way in which 
the Chinese position could shift 180 degrees 
without warning.  Japan was now looking to 
initiate a ministerial-level discussion with 
China like the U.S. Strategic Economic Dialogue. 
At present, however, the specific Chinese and 
Japanese participants, timing, agenda have yet to 
be decided, Sadoshima said.  The main focus for 
the moment, according to Sadoshima, is 
preparation for a visit by Chinese Premier Wen 
Jiabao to Japan in April. 
 
--------------------------------- 
...But Still Not Ready for an FTA 
--------------------------------- 
 
¶5.  (C)  With respect to the possibility of a 
trilateral investment treaty among Japan, South 
Korea, and China, Sadoshima said that the 
objective was to use the existing Japan-South 
Korea investment agreement as the basis for 
negotiation and to extend those terms to China. 
Despite the announcement from the trilateral 
meeting in Cebu regarding a study for a full FTA 
among the three countries, Sadoshima indicated 
that the Japanese had relatively little interest 
in the prospect.  Japan still has too many 
concerns over China's protection of investor and 
intellectual property rights, and remains 
unwilling to make enough concessions on 
agriculture to make an FTA feasible, he noted.  A 
China FTA is still at least four to five years 
down the pike. 
 
----------------------------------------- 
Three-way Investment Agreement Challenges 
Japanese Diplomacy 
----------------------------------------- 
 
¶6.  (SBU)  Takako Ito, Senior Deputy Director for 
FTA/EPA Negotiations of MOFA's Economic 
Partnership Division, told econoff January 25 
that Japanese, Korean, and Chinese officials had 
met six times between May 2005 and December 2006 
in preparatory talks on the proposed investment 
agreement and had reached agreement at the 
meeting last December to advise their various 
leaders to announce the launch of formal 
negotiations.  The meeting between Japan Business 
Federation Chairman Fujio Mitarai and Chinese 
Premier Wen Jiabao in September, followed by 
Prime Minister Abe's China trip in October, had 
given added impetus to finalizing the 
arrangements to begin formal negotiations. 
 
¶7.  (SBU)  According to Ito, the Japan-Korea 
bilateral investment treaty, which went into 
effect in 2003, is one of Japan's best, having 
been influenced by the (unsuccessful) 
 
TOKYO 00000450  003 OF 004 
 
 
negotiations for the OECD Multilateral Agreement 
on Investment (MAI).  Whereas Japan's previous 
bilateral investment agreements had focused on 
investment protection, the MAI experience had led 
to new thinking on possibilities for investment 
liberalization, many of which had been 
incorporated into the agreement with Korea, Ito 
said. 
 
¶8.  (C)  The 1990 Japan-China investment 
agreement, Ito noted, was one of Japan's older 
arrangements.  Japanese investors, for example, 
received most favored nation treatment under the 
agreement but not national treatment.  Japan's 
hope was that, by teaming with Korea in three-way 
negotiations, it would be possible to bring the 
Chinese to agree on key areas such as greater 
regulatory transparency and intellectual property 
rights protection.  Japan also hoped that the 
Chinese could be persuaded to accept the 
existence of an investment agreement as automatic 
consent for investors to utilize the World Bank's 
International Center for Settlement of Investment 
Disputes (ICSID).  Currently, Ito said, the 
Chinese Government insisted on granting written 
permission to allow ICSID arbitration on a case- 
by-case basis. 
 
¶9.  (C)  Establishing such a three-way agreement 
will not be easy, Ito confessed.  The Japanese do 
not want the trilateral agreement to supersede 
the bilateral arrangement with Korea, with which 
they are quite happy.  As part of the 
preparations, the Japanese have been studying the 
investment chapter of the North American Free 
Trade Agreement (NAFTA) for clues as to how best 
to manage a three-way negotiation.  Ito indicated 
that the Japanese had also studied the U.S. model 
bilateral investment treaty but remained 
uncomfortable with certain elements of the U.S. 
model.  Notably, the requirement for transparency 
in the dispute settlement mechanism did not 
appeal to Japanese and other Asians, who 
preferred a more private arbitration process, Ito 
stated. 
 
------- 
Comment 
------- 
 
¶10.  (C)  Sadoshima's frustration with the 
current Korean administration recalled the 
sentiments expressed by many inside and outside 
Japan who had been waiting out the tenure of 
former Japanese Prime Minister Koizumi in 
anticipation of better relations with Japan's 
Asian neighbors.  The relative improvement of 
relations with China in particular does appear to 
have given an opening for some limited 
initiatives on the social and economic side that 
have been gestating in the bureaucracies of all 
three countries for some time.  Nevertheless, as 
Ms. Ito's comments indicate, although a better 
political atmosphere has allowed these 
initiatives to emerge, the practical difficulties 
of bringing them to fruition remain. 
 
TOKYO 00000450  004 OF 004 
 
 
SCHIEFFER