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UNCLAS SECTION 01 OF 11 TOKYO 001605 
 
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 04/12/07 
 
 
1) Top headlines 
2) Editorials 
3) Prime Minister's daily schedule 
 
Visit of Chinese Premier Wen Jiabao: 
4) Abe, Wen agree to strengthen economic ties, speed up strategic 
mutually-beneficial relationship, focusing on energy, environmental 
protection 
5) Talks between Prime Minister Abe, Premier Wen avoid historical 
issue 
6) China agrees to resume imports of Japanese rice 
7) Gist of conversation between Abe, Wen 
 
8) WWII comfort-station owner in Indonesia, later enshrined at 
Yasukuni, was "ordered by Japanese military" to set up facility: 
document 
 
Defense and security affairs: 
9) PACOM Commander Adm. Keating, Defense Minister Kyuma agree to 
cooperate in promoting USFJ realignment plan 
10) Lower House ready to adopt USFJ realignment legislation 
11) Japan, US, Australia to hold bureau director-general-level talks 
today on security affairs 
 
Political issues: 
12) National referendum bill on constitutional amendment process to 
be adopted by Lower House committee today over opposition 's 
objections 
13) Minshuto (Democratic Party of Japan) head Ozawa avoiding 
debating Abe in Diet, focusing instead on campaign stumping for 
Upper House election 
14) More faked records of political expenses uncovered at Minshuto 
lawmaker Nakai's office 
15) Another irregularity for Agricultural Minister Matsuoka 
involving nine years of suspicious entertainment expenses 
 
16) Japan, US begin study of possible EPA 
 
17) Finance Ministry plans restrictions on foreign company 
affiliates forming triangular mergers in Japan, particularly the 
forming of "paper companies" 
 
Articles: 
 
1) TOP HEADLINES 
 
Asahi, Mainichi, Yomiuri, Nihon Keizai, Sankei and Tokyo Shimbun: 
Abe, Wen agree on building "strategic, reciprocal relations" and 
boosting bilateral economic relations with emphasis on environment, 
energy; Specific plans for joint gas development this fall; Abe to 
visit China later this year 
 
Akahata: 
National reformist council announces that 54 renowned figures are in 
favor of thorough discussion on national referendum legislation and 
protecting Article 9 
 
2) EDITORIALS 
 
Asahi: 
(1) Japan-China summit: Reciprocal visits needed 
(2) Kanemi oil symptoms: Squarely address question of dioxin 
 
TOKYO 00001605  002 OF 011 
 
 
 
Mainichi: 
(1) Regular summit talks essential for Japan and China 
(2) North Korea must keep its promises 
 
Yomiuri: 
(1) Don't let political issues hinder Japan-China ties 
(2) Will envisioned human resource bank really work? 
 
Nihon Keizai: 
(1) Tokyo, Beijing must make greater efforts to melt the ice 
 
Sankei: 
(1) Japan-China summit: Clear reciprocal path essential 
(2) Pressure on North Korea necessary for dialogue 
 
Tokyo Shimbun: 
(1) Six-party talks must not create problems for future 
(2) G7: Greater risk awareness called for 
 
Akahata: 
(1) Danger of state-controlled broadcasting 
 
3) Prime Minister's Official Residence (Kantei) 
 
Prime Minister's schedule, April 11 
 
NIHON KEIZAI (Page 2)  (Full) 
April 12, 2007 
 
09:27 
Met at Kantei with Foreign Ministry Asian and Oceanian Affairs 
Bureau Chief Sasae, joined by Chief Cabinet Secretary Shiozaki. 
 
10:40 
Met with Special Advisor Nemoto, followed by Lower House member 
Tokuichiro Tamazawa. 
 
11:22 
Attended groundbreaking ceremony for redevelopment of the Otemachi 
2-chome district at Nippon Keidanren Hall. Met later with Tokyo Gov. 
Ishihara. 
 
12:26 
Met at Kantei with Shiozaki. 
 
14:13 
Met with Deputy Chief Cabinet Secretary Matoba. 
 
16:02 
Cabinet Intelligence Director Mitani. 
 
17:15 
Welcomed Chinese Premier Wen. Held welcoming ceremony for Wen and a 
meeting with him. 
 
19:18 
Attended signing ceremony for joint press statement. 
 
19:52 
Hosted dinner party for Wen. 
 
 
TOKYO 00001605  003 OF 011 
 
 
22:03 
Returned to his official residence. 
 
4) Abe, Wen agree on boosting Japan-China economic cooperation 
focusing on environment, energy; Greater efforts for a strategic, 
reciprocal relationship affirmed 
 
NIHON KEIZAI (Top play) (Excerpts) 
April 12, 2007 
 
Prime Minister Shinzo Abe met yesterday with visiting Chinese 
Premier Wen Jiabao at his official residence for about one hour and 
40 minutes. The two leaders agreed to establish, among other things, 
a Japan-China economic ministerial conference to realize "strategic, 
reciprocal relations" between the two countries centering on the 
environmental and energy areas, as was agreed upon last October 
between Abe and Chinese President Hu Jintao. They also affirmed 
close cooperation on the North Korean nuclear and abduction issues. 
Abe officially expressed his intention to visit China later this 
year. 
 
Wen is the first Chinese premier to visit Japan since Zhu Rongji in 
October 2000. Abe and Wen, who signed two joint statements on 
environmental conservation and energy cooperation, released a joint 
press statement after the summit. 
 
Abe started off his meeting with Wen with the remark, "I expect your 
visit to Japan will serve as a big step forward toward building a 
strategic, reciprocal relationship between our two countries." In 
response, Wen said, "I believe that will be the most important 
achievement in this trip." Abe revealed a plan to visit China later 
this year and also invited President Hu to visit Japan early next 
year. Wen replied, "We would like to consider it positively." 
 
Regarding historical views, Wen stated: "Historical issues, if they 
are settled amicably, could result in a good political foundation 
for the development of bilateral relations; if handled poorly, they 
could become an obstacle." Abe replied, "Japan has been following a 
peaceful path." 
 
On the Taiwan issue, Wen said, "China will not accept an independent 
Taiwan." In response, Abe said, "We do not take two-China policy or 
support Taiwan's independence." 
 
The two leaders also agreed that the two countries would jointly 
develop gas fields in a comparatively broad area of waters in the 
East China Sea acceptable to the two sides. The next 
bureau-chief-level talks will be held in May. The two countries will 
aim at reaching an agreement on joint development by this fall. 
 
On the North Korean nuclear issue, Abe and Wen also agreed that 
Pyongyang must faithfully implement the initial steps, such as 
shutting down and sealing its nuclear facilities, as was agreed upon 
at the six-party talks in February. Wen announced that China would 
provide necessary cooperation to Japan for an early settlement of 
the abduction issue. 
 
5) Japanese, Chinese prime ministers avoid pursuing history issue, 
confirm cooperation on North Korean nuclear issue, and maneuver on 
abduction and Taiwan issues 
 
NIHON KEIZAI (Page 2) (Excerpts) 
 
TOKYO 00001605  004 OF 011 
 
 
April 12, 2007 
 
Quite apart from the peaceful atmosphere at the diplomatic events 
designed to give the impression of cooperative stances, Prime 
Minister Shinzo Abe and Chinese Premier Wen Jiabao in their meeting 
yesterday had penetrating exchanges on pending issues. 
 
Wen broached the intended subject of his conversation, saying: 
 
"If we can deal skillfully with the issue of historical views, that 
would become a good political base for improving bilateral ties. But 
if we cannot, the issue will hinder our efforts to move relations 
forward." 
 
This year marks the 35th anniversary of normalization of diplomatic 
ties between Japan and China, as well as the 70th anniversary of the 
Marco Polo Bridge Incident. China therefore is sensitive about the 
history issue. 
 
The Chinese premier without a doubt had the Yasukuni-Shrine issue in 
mind. Wen added: "Progress on bilateral relations after Prime 
Minister Abe visited China compared to twists and turns in the 
relationship in recent years have proved that." He sought to 
constrain Abe by referring to the worsening of ties brought on by 
visits to Yasukuni Shrine by Prime Minister Junichiro Koizumi. 
 
Abe, under advice to "handle the historical issue properly," dodged 
the remark by responding: "My desire is for Japan to continue moving 
ahead as a peaceful country; that is my view of history." A joint 
press statement included the same expression stipulated in last 
October's press statement that the two countries should face the 
history issue squarely while looking ahead into the future. Abe and 
Wen thus avoided pursuing the history issue. 
 
6) Resumption of rice exports to China: Japanese products dependent 
on Chinese market 
 
TOKYO SHIMBUN (Page 9) (Full) 
April 12, 2007 
 
The governments of Japan and China signed an agreement yesterday to 
resume Japan's exports of rice to China after four years of 
suspension. Prime Minister Shinzo Abe and visiting Chinese Premier 
Wen Jiabao confirmed the details of the agreement during their 
meeting yesterday afternoon. The Japanese government has set forth 
the goal of increasing exports of agriculture, forestry and 
fisheries products to one trillion yen by 2013. Rice might become a 
powerful card for Japan to meet this goal. Farmers across the nation 
now have growing expectations for the Chinese market with 1.3 
billion people. 
 
In China, about 128 million tons of rice is consumed annually, about 
15 times more than in Japan. The average price of rice per kiloliter 
is about 50 yen in China, but the number of those who earn more than 
10 million yen annually is now larger there than in Japan, owing to 
its rapid economic growth. Agriculture, Forestry and Fisheries 
Minister Toshikatsu Matsuoka emphatically said: "It is significant 
for Japan to be able to export rice, which is the symbol of Japanese 
farm products, to China, in which high-end consumers are increasing 
as its economic level has risen." 
 
Japan's exports of agriculture, forestry and fisheries products in 
 
TOKYO 00001605  005 OF 011 
 
 
2006 surged to 374.1 billion yen, up 13% over the previous year. In 
order to attain the goal of one trillion yen, Japan needs to grow 
exports by 15% every year. Japan's exports of rice to Taiwan, the 
United States, and Hong Kong have been on the rise, but its scale 
remains small at 967 tons or 426 million yen. Once Japanese rice 
attracts Chinese consumers, Japan will be able to sharply boost 
imports of rice. 
 
The National Federation of Agricultural Cooperative Associations 
serves as the liaison office for exports. Its official said: "If 
exports of rice to China go smoothly when domestic production 
adjustment is underway, farmers will certainly be encouraged. We 
would like to address the challenge in a positive manner." The 
association will station an official in charge of rice exports in 
Beijing starting in mid-April to promote market research and 
negotiations with China. 
 
The Ministry of Agriculture, Forestry and Fisheries plans to also 
call on China to import beef, fruits, vegetables and other products 
from Japan. But in a meeting yesterday, a Chinese official 
responsible for quarantine asked Matsuoka to lift the embargo 
imposed on certain products for quarantine reasons, such as fresh 
chicken, wheat straw for feed, and fresh vegetables. Japan will 
unavoidably be pressed to open its market to China in exchange for 
expanding exports to China. 
 
7) Japan-China summit talks 
 
ASAHI (Page 2) (Full) 
April 12, 2007 
 
The following is the Japanese government's press briefing on main 
points from yesterday's Japan-China summit meeting. 
 
Greenhouse effect gas reductions 
 
Prime Minister Abe: It's important to cooperate in building an 
effective framework for the years from 2013 on. Japan would like to 
talk with China. 
 
Prime Minister Wen: China supports the Kyoto Protocol but does not 
accept its indicators. We also want to push ahead with cooperation 
on climate change. 
 
Historical perception 
 
Wen: The history issue is a matter that concerns the feelings of the 
people and the political foundation of relations between Japan and 
China. China is neither being being sticky about the past nor is it 
playing the history card. 
 
Abe: Japan will move forward as a nation of peace. That's my 
feeling, and that's the perception of history I hold. 
 
East China Sea development 
 
Abe: It's important to carry out joint development in a 
comparatively wide range of waters that is acceptable to both Japan 
and China. Let us make it a symbolic project in the East China Sea 
for peace, cooperation, and friendship. 
 
Wen: I would like our two countries to agree to carry out joint 
 
TOKYO 00001605  006 OF 011 
 
 
development. 
 
Abduction issue 
 
Abe: North Korea has not shown an earnest attitude, just taking the 
position that this problem has already been settled. Japan will 
continue to work strongly on North Korea, and Japan would like 
China's continued cooperation. 
 
Wen: I understand the Japanese people's sentiment, and my thoughts 
are with the Japanese people. We want to offer the necessary 
cooperation. 
 
Defense, military affairs 
 
Abe: It's extremely important for us to build confidence. Japan 
would like to further continue defense exchanges, including the 
opportunity for the Chinese defense minister to visit Japan by this 
fall. I also hope to see more transparency in the military area. 
 
Wen: China also would like to welcome the Japanese defense 
minister's visit to China at an appropriate time. We would like to 
consider mutual fleet visits as well. China's defense capability 
will be used only to maintain its national security and unification. 
It will not threaten any country. 
 
8) Comfort station opened "in accordance with the former Japanese 
military's orders," according to international court of war crimes' 
ruling handed down to owner now enshrined at Yasukuni Shrine 
 
TOKYO SHIMBUN (Page 1) (Full) 
April 12, 2007 
 
Koki Miura, Berlin 
 
It became known yesterday that a judgment document handed down by an 
international court of war crimes managed by the Dutch Forces in 
connection with a Japanese man who had run a commercial comfort 
station in Japan's occupied Indonesia during World War II -- and 
later enshrined at Yasukuni Shrine -- indicated that the comfort 
station had been opened in accordance with the former Japanese 
Imperial Army's orders. The document also includes a testimony by a 
woman who was arrested and put in detention by the military police. 
This testimony is taken as a material showing the Japanese 
military's "coercion." 
 
The legal document was obtained by free-lance journalist Taichiro 
Kajimura (60), who lives in Berlin, while researching in a library 
in the Netherlands. Kajimura will soon publicize the document in a 
weekly magazine. 
 
In the international court of war crimes, a Japanese man running a 
commercial comfort station "Sakura Club" in Batavia (currently 
Jakarta), Indonesia, was charged with coercing women into 
prostitution. The man was sentenced in October 1946 to 10 years of 
imprisonment and later died in prison. 
 
The judgment document wrote that the comfort facility was opened 
"because the defendant was ordered by the Gunseikanbu (meaning the 
military government staff office, a Japanese term used in the 
judgment document) on June 2, 1943 to open a brothel."  The document 
indicates that the brothel was opened in line with the military's 
 
TOKYO 00001605  007 OF 011 
 
 
strong request, noting, "The defendant raised an objection to the 
first order for him to open a brothel, but he carried out the second 
order." 
 
The comfort station was operated under the military police's 
supervision and brought in 20 Western women from internment camps 
and other locations. According to a testimony in the judgment 
document, the comfort station offered both prostitution and dining 
services. Women were initially allowed to choose between those two, 
but afterwards even minors were forced into prostitution. If they 
refused to provide sexual services, they were threatened by this 
phrase, "The military police will come for you." Some women fled 
from the brothel and were later apprehended and put in detention by 
the military police. Based on this testimony, the judgment document 
recognized that "it is certain that most women were forced into 
prostitution against their will." 
 
9) Kyuma vows efforts for USFJ realignment 
 
NIHON KEIZAI (Page 2) (Full) 
April 12, 2007 
 
Defense Minister Fumio Kyuma yesterday met with US Pacific Forces 
Commander Keating at the Defense Ministry. Referring to the issue of 
realigning US forces in Japan, Kyuma clarified that Japan would 
steadily push ahead with realignment plans. He said, "This is an 
important issue for the US Pacific forces, too." He also said, "We'd 
like to make our utmost efforts, so we will deliver on what we 
promised." 
 
10) Diet committee to vote on US military realignment bill 
 
TOKYO (Page 2) (Full) 
April 12, 2007 
 
The House of Representatives Committee on Security Affairs held a 
meeting of its directors yesterday and decided to wrap up its 
deliberations today on a government-introduced package of special 
legislative measures for the planned realignment of US forces in 
Japan, including a plan to subsidize local governments affected by 
realignment. The ruling coalition will take a vote after general 
deliberations. The committee is expected to pass the special 
legislation with a majority from the ruling Liberal Democratic Party 
and its coalition partner, the New Komeito. The ruling coalition 
will take a vote tomorrow on the legislation in a plenary sitting of 
House of Representatives members to get it through the lower 
chamber. 
 
11) Japan, US, Australia to hold working-level security talks today 
in Tokyo 
 
MAINICHI (Page 5) (Full) 
April 12, 2007 
 
Japan, the United States, and Australia will hold their first 
trilateral meeting of working-level foreign affairs and defense 
officials today in Tokyo. The meeting will be held with the 
participation of Foreign Ministry North American Affairs Bureau 
Director General Shinichi Nishimiya, Defense Ministry Defense Policy 
Bureau Director General Kazuo Ofuru, US Deputy Assistant Secretary 
of Defense Shinn, and Australian Vice Defense Minister Noble. They 
will exchange views about the regional security environment, such as 
 
TOKYO 00001605  008 OF 011 
 
 
the situation in North Korea. In March, Japan and Australia held a 
meeting of their defense ministers and released a signed joint 
declaration that incorporated the idea of strengthening trilateral 
cooperation. 
 
12) Ruling parties to hold vote on national referendum bill today at 
Lower House special committee 
 
TOKYO SHIMBUN (Page 2) (Full) 
April 12, 2007 
 
The Lower House Special Committee on the Constitution in its 
directors' meeting yesterday discussed a timetable for deliberations 
on the national referendum bill stipulating the proceedings for 
constitutional revision. The ruling parties suggested taking a vote 
on the bill today, but the opposition camp raised an objection. Taro 
Nakayama of the ruling Liberal Democratic Party (LDP), chair of the 
committee, exercised his authority and decided to assemble a 
committee meeting this morning and discuss the major opposition 
Democratic Party of Japan's (Minshuto) revision bill. 
 
This afternoon after deliberations on Minshuto's revision bill are 
over, the ruling camp intends to put both the ruling parties' bill 
and Minshuto's bill to a vote, regardless of Minshuto's response. 
The ruling parties aim to take a vote on their bill at a Lower House 
plenary session tomorrow and send it to the Upper House so that the 
bill will be enacted during the current Diet session. 
 
The ruling parties' secretaries general and Diet policy chiefs met 
in Tokyo yesterday afternoon and confirmed their plan to take a vote 
on their bill at a committee meeting today and get the bill approved 
in the Lower House on April 13. Three opposition parties -- 
Minshuto, the Social Democratic Party, and the People's New Party -- 
held a meeting of their Diet policy chiefs yesterday morning and 
confirmed their policy line of opposing taking a vote in a committee 
meeting today. 
 
13) Party-head debate will not take place before April 22, since 
Minshuto President Ozawa places priority on stumping tour in 
Fukushima, Okinawa 
 
MAINICHI (Page 5) (Slightly abridged) 
April 12, 2007 
 
Chances are that no one-on-one debate between Prime Minister Shinzo 
Abe and Minshuto (Democratic Party of Japan) President Ichiro Ozawa 
will take place before April 22, the day of the Upper House 
by-elections in Fukushima and Okinawa prefectures, the second half 
of the unified nationwide local elections. The reason is that Ozawa 
was reluctant to debate since he has been busy with his stumping 
tour of electoral districts where single seats are up for grabs in 
the Upper House election this summer. Many in the party are now 
unhappy with Ozawa's stance, with one junior lawmaker saying, "I 
want him to show the public his determination to take the lead in 
election campaigning." 
 
Since April 11 was a Wednesday when party-head debates regularly 
take place, the ruling Liberal Democratic Party (LDP) called on 
Minshuto to hold a debate. The main opposition party, however, 
insisted that intensive deliberations on the issue of politics and 
money should first be held at the Lower House Budget Committee. An 
agreement, therefore, was not reached. Under an agreement between 
 
TOKYO 00001605  009 OF 011 
 
 
the ruling and opposition camps, a party-head debate is not held in 
the week when a question-and-answer session takes place at the 
attendance of the prime minister. Therefore, a senior Minshuto 
member said: 
 
"If we agree to hold a party-head debate, it means that we will 
allow the LDP to put off an intensive debate questioning the prime 
minister about Agriculture Minister Toshikatsu Matsuoka's huge 
utility expenses issue." 
 
Senior members of the two parties' Diet affairs committees carried 
out coordination last month on a plan to hold a party-head debate on 
April 4, but Ozawa stated in a press conference on March 23: 
 
"I want to conclude my stumping tour of electoral districts where 
single seats are up for grabs before the Golden Week holidays from 
late April to early May. So I would like to hold it at an 
appropriate time after then." 
 
Minshuto Secretary General Yukio Hatoyama called on Ozawa for an 
early opening of a debate, but Ozawa told him: "I want you to leave 
it to me." 
 
Although Minshuto is fighting a defensive battle, a party-head 
debate is a golden opportunity to demonstrate the political presence 
of opposition parties. Since Minshuto did not make much effort to 
make its presence felt with unaffiliated voters in the first-half of 
the unified nationwide elections, many participants at a study 
session on April 10 of junior and mid-level lawmakers voiced the 
view that the party head's political sway was being questioned. 
 
14) Former Justice Minister Nakai found to have made fraudulent 
political fund report 
 
TOKYO SHIMBUN (Page 2) (Full) 
April 12, 2007 
 
Former Justice Minister Hiroshi Nakai (elected in proportional 
representation to the Lower House) of the opposition Democratic 
Party of Japan (Minshuto) yesterday revised his political fund 
reports for 2003 and 2004 and reported on revisions to the Ministry 
of Internal Affairs as his own fund management organization 
"Kowakai" recorded other expenses as utility costs. Nakai's office 
member stressed: "Those reports recorded the usage charge for an 
official vehicle and other items in the utilities category. This was 
an error on the part of a bookkeeper. But there was no change in the 
total amount." Nakai himself is to meet the press today and give an 
account of this failure. 
 
Kowakai is located in the Diet Members' Building, where electricity 
and water expenses are paid by public expense, but it recorded 5.46 
million yen in 2003 and 2.36 million yen in 2004 as the utilities 
costs. 
 
(07041203ku) Back to Top 
 
 
15) Agriculture Minister Matsuoka's funds management body fails to 
report details of 86 million yen recorded as social expenses over 
nine years from 1997 
 
ASAHI (Page 39) (Excerpts) 
 
TOKYO 00001605  010 OF 011 
 
 
April 12, 2007 
 
The funds management organization of Agriculture, Forestry and 
Fisheries Minister Matsuoka failed to record the details of a total 
of about 86 million yen entered in its financial reports as social 
spending from 1997 through 2005, including for what the money was 
used. Politicians are required to record the amount of money and the 
purpose of its use if they declare more than 50,000 yen as social 
spending in each case. Although large sums of money were recorded as 
social spending, Matsuoka's office unprecedentedly did not enter the 
required details in each case. Matsuoka has yet to give an 
explanation about his questionable office expenses and utility 
charges. 
 
In the expenditure column in the sheet, there are two categories: 
ordinary outlays, including office expenses and utility charges, and 
spending for political activities, including organizational 
activities costs and election campaign fees. 
 
Under the rules on enforcing the Political Funds Control Law, social 
expenses are included in the category of activity expenses. If the 
cost is more than 50,000 yen in each case, it is required to mention 
such details as the purpose of use, the amount, the date, and the 
destination in a report, attaching receipts. But regarding what 
types of expenditures should be classified as social spending, "that 
determination is entrusted to each group," according to an official 
of the Internal Affairs and Communications Ministry. 
 
Matsuoka's political fund organization declared as organizational 
activities costs in its 2005 funds report 21.04 million yen in 
social spending, 7.92 million yen in organization policy expenses, 
and 7.52 million yen in public relations fees. 
 
The group entered the details for about 25 cases of organization 
policy expenses and 34 cases of public relations fees, but regarding 
social expenses, it recorded no details, entering only the total 
amount. 
 
16) Economic partnership agreement: CEFP urges launching of Japan-US 
joint study 
 
NIHON KEIZAI (Page 5) (Full) 
April 12, 2007 
 
The Council on Economic and Fiscal Policy (CEFP) yesterday held a 
working group meeting. Participants agreed that Japan should 
promptly launch joint studies with the US for the conclusion of a 
bilateral economic partnership agreement (EPA). The working group 
will draft an interim report as early as this month and submit it to 
the CEFP. Since an EPA with the US will necessitate opening the 
agricultural market, views of government officials are split. 
However, the CEFP indicating a direction will likely spur 
discussions in the government. 
 
The CEFP working group yesterday sorted out points at issue for an 
interim report. The panel pointed out that Japan should first sign a 
pact with the Association of Southeast Asian Nations (ASEAN) in view 
of the fact that Japan is lagging behind China and South Korea in 
signing EPAs with Asian countries. Regarding an EPA with the US, 
participants underscored that a Japan-US EPA would lead to 
strengthened bilateral relations through active trade and investment 
activities. They also agreed on the perception that it is necessary 
 
TOKYO 00001605  011 OF 011 
 
 
to set a deadline on negotiations for a speedy conclusion of an EPA 
with that nation. 
 
Regarding the agricultural area, a fetter to trade talks, a proposal 
was made for drafting a five-year reform road map to enhance 
productivity. Participants from MAFF indicated a stance of delving 
into problems with past policies and compiling specific measures in 
order to improve productivity as early as this fall. Others said 
that they had already sorted out points at issue and that the panel 
is slow in taking action. 
 
17) Triangular merger: Finance Ministry set standards restricting 
subsidiaries of foreign corporations eligible for tax deferral: Aim 
is to prevent use of paper companies 
 
ASAHI (Page 10) (Full) 
April 12, 2007 
 
A ban on a triangular merger system is to be lifted in May. 
Following the move, the Finance Ministry has set a guideline for a 
measure to defer taxation on stockholders of a Japanese company who 
receive foreign stocks as merger consideration in the event where 
foreign companies take over Japanese companies using this system. 
The requirement for being entitled to this guideline is that a 
Japanese subsidiary of a foreign corporation has business substance, 
such as employees and an office, in Japan. The aim is to prevent 
triangular mergers using paper companies. Subsidiaries that are in 
the process of preparing to launch operations will also be eligible 
for this regulation, if they have already started sales campaigns, 
market surveys, etc. 
 
The new guideline will be included in a Finance Ministry ordinance 
to be released shortly. Requirements to be entitled to tax deferral 
include that a Japanese subsidiary of an acquiring foreign 
corporation has (1) employees, permanent executives and an office in 
Japan and that it is in the same line of business as a company it 
will absorb is in terms of commodities, services, know-how and 
targeting customers. Even if a subsidiary has no sales record at the 
time of the merger, it will be eligible for the regulation, if it is 
based in Japan firmly enough so that it cannot pull out easily, such 
as that it has prepared to launch business in Japan, applied for the 
authorization right of enterprise and registered its intellectual 
property right. 
 
The removal of the ban on triangular mergers will make it easier for 
foreign corporations to buy out Japanese companies in the form of 
having its Japanese subsidiary take over a Japanese company. An 
acquiring foreign corporation transfers its stocks to stockholders 
of a targeted Japanese company as merger compensation. 
 
In this case, if it is judged that capital gains have occurred at 
the stage of stockholders of the Japanese company giving away stocks 
of the disappearing company, and such gains are regarded as subject 
to taxation, the stockholders will need cash to pay the tax. 
European and US business circles have called for a tax deferral 
measure, under which taxation is deferred until stockholders 
actually give away their stocks. 
 
DONOVAN