VZCZCXRO4370
RR RUEHFK RUEHNAG RUEHNH
DE RUEHKO #1800/01 1140057
ZNR UUUUU ZZH
R 240057Z APR 07
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC 2964
RUEAIIA/CIA WASHDC
INFO RUEHFR/AMEMBASSY PARIS 5440
RUEHFK/AMCONSUL FUKUOKA 0826
RUEHNAG/AMCONSUL NAGOYA 0113
RUEHNH/AMCONSUL NAHA 3273
RUEHOK/AMCONSUL OSAKA KOBE 4362
RUCPDOC/USDOC WASHDC

UNCLAS SECTION 01 OF 06 TOKYO 001800 
 
SIPDIS 
 
PARIS PLEASE PASS TO USOECD 
STATE PLEASE PASS TO USTR 
 
SIPDIS 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ETRD ECON JA ZO EAGR
SUBJECT: The Japan Economic Scope - April 20, 2007 
 
 
Sensitive but unclassified.  Please protect accordingly. 
 
¶1. (U) This cable contains the Japan Economic Scope from April 20, 
¶2007. 
 
2.(SBU) Table of Contents 
 
¶3.  Japan joins China/IPR WTO case as third party 
¶4.  ANRE's Mochizuki Discusses East China Sea, G8 Summit, IEA 
¶5.  Japan Issues Annual Report on Trade Compliance, U.S. Remains 
Top of List with China Second 
¶6.  Hokkaido's Largest Supermarket Chain Resumes U.S. Beef Sales 
¶7.  Japan Agriculture Gets Hit by JFTC Guidelines 
¶8.  Muted Reaction in Japan to U.S. Court Ruling on BSE Testing 
¶9.  Keep Up the Pressure - More Views on Regulatory Reform 
¶10.  Kyushu Welcoming Foreign Trainees to Offset Shrinking 
Workforce 
¶11.  Japan Post to Outsource Mgmt of Customer Data to 
Salesforce.com 
¶12.  UA to Suspend KIX -- Honolulu Route in October 2007 
¶13.  ANA and Kitakyushu's Star Flyer to code-share Kitakyushu - 
Tokyo flights 
¶14.  Hyogo No. 1 In New Plants; Kobe No. 1 In Foreign Business 
Growth (U) 
¶15.  Former Wakayama Governor Kimura To Admit Bid-Rigging (SBU) 
¶16.  Colony Capital Sells Fukuoka's Hawks Town to Singapore Govt. 
Firm 
 
¶3.  (SBU) Japan joins China/IPR WTO case as third party 
------------------------------- 
 
Trade Minister Amari announced on April 20 that Japan will join 
the United States as a third party in a WTO complaint against 
China on IPR prosecutions.  The GOJ is worried about the Chinese 
reaction and will be monitoring it closely.  Chinese customs and 
copyright officials warned Japanese Trade Ministry officials 
visiting China the week of April 9-13 that there might be a 
severe reaction if Japan were to join the U.S. complaint. 
 
Japanese press commentary acknowledges that Japan must keep up 
the pressure on China to improve IPR protection, but urges the 
GOJ to be cautious and not upset the dialogue and cooperation it 
has been able to forge with Chinese officials. 
 
Japan's decision to join the WTO complaint as a third party 
appears to be an attempt to demonstrate to both China and the 
United States that it is serious about the IPR problem in China, 
while hoping not to damage relations with either government. 
(ECON: Marilyn Ereshefsky) 
 
¶4.  (SBU)  ANRE's Mochizuki Discusses East China Sea, G8 Summit, 
IEA 
--- 
 
Although PM Abe and Chinese Premier Wen were all smiles last week 
when discussing energy issues, working level discussions on the 
East China Sea dispute over joint development of oil and gas 
reserves remain contentious, METI's Agency for Natural Resources 
and Energy Director General Toshifumi Mochizuki told EMIN during 
a meeting on April 16.  Talks will continue, however, he said, 
and the next round is expected to take place in Beijing in May. 
Mochizuki noted that the Japanese government had already begun to 
focus on the 2008 G-8 Summit to be held in Japan, that energy and 
the environment are likely to be priority issues, and the 
meetings likely would be held in Hokkaido. Given that energy is 
expected to be a main topic at next year's Summit, he divulged 
that there was a desire to avoid hosting them in Kyoto because of 
the city's connection to the climate change protocol. 
 
Mochizuki also indicated that METI Minister Amari would attend 
next month's International Energy Agency (IEA) board meeting in 
Paris following stops in Tashkent and Riyadh, and that the 
Japanese government hoped Energy Secretary Bodman would also 
attend and be available for a bilateral session. (ECON: Joan 
Siegel) 
 
¶5.  (U) Japan Issues Annual Report on Trade Compliance, U.S. 
Remains Top of List with China Second 
------------------------------- 
 
Japan's Ministry of Economy, Trade and Industry released its 
 
TOKYO 00001800  002 OF 006 
 
 
annual Report on Compliance by Major Partners this week.  The 
United States leads the way in the report, with METI citing it 
for 35 problematic trade practices of 112 overall. 
 
Some 12 of the total compliance issues the report cites are 
classified as "high priority," including four related to the 
United States, one more than last year.  All target U.S. anti- 
dumping practices, including the Byrd Amendment.  The amendment 
was repealed, but METI remains concerned that distribution of 
duties is scheduled to continue through October 2007. 
 
The Compliance report directs considerable attention at China's 
trade practices, including over its lack of IPR enforcement, its 
inadequate transparency measures, and over-generous subsidies. 
For the English announcement and summary, please click here. 
(ECON: Ryoko Nakano) 
 
¶6.  (SBU) Hokkaido's Largest Supermarket Chain Resumes U.S. Beef 
Sales 
----- 
 
Arks Group, the Sapporo-based supermarket conglomerate that 
operates Hokkaido's largest and fast-growing supermarket chain 
Ralse, announced that it will resume sales of U.S. beef on April 
19 at all 167 of its stores.  In addition, Arks Group president, 
Kiyoshi Yokoyama, explained that the company will gradually 
switch from selling all Australian beef to selling all American 
because "U.S. beef is more agreeable with the Japanese palate." 
Other Hokkaido supermarket chains also decided to resume U.S. 
beef sales this month. The Lucky supermarket chain will begin 
selling U.S. beef on April 28 at its 30 stores. Hokuno 
Supermarket already began sales of U.S. beef on April 13 at its 
seven stores. 
 
The announcements collectively represent a significant change in 
attitude among local suppliers toward U.S. beef. Until now, the 
discount store Cowboy was the only supermarket willing to sell 
American beef in Hokkaido since the importation ban was lifted in 
September 2006. (Sapporo: Ian Hillman/Yumi Baba) 
 
¶7.  Japan Agriculture Gets Hit by JFTC Guidelines 
------------------------------- 
 
Under a cabinet order issued last year, the Japan Fair Trade 
Commission (JFTC) publicly announced guidelines April 18 on 
activities carried out by Japan Agricultural Cooperatives (JA) 
that could possibly be regarded as violations to the Anti- 
Monopoly Act.  JA is known to have violated the Act a couple of 
times since 1999, in which they are said to have forced farmers 
to purchase farming material or to sell their livestock / 
commodities through the organization in exchange for financial or 
other services. 
 
As a result, for example, a large portion of fertilizers, 
pesticides and farming machinery are still distributed through 
the organization.  The Prime Minister's advisory council - the 
Council for the Promotion or Regulatory Reform - had been 
instrumental in paving the way for this guideline. 
In relation to this move, a report issued by the Agriculture 
Ministry this April on measures to reduce distribution costs for 
food, has also urged food related organizations to refrain from 
activities that would distort free and fair competition.  (ECON: 
Ryoko Nakano) 
 
¶8.  (U) Muted Reaction in Japan to U.S. Court Ruling on BSE 
Testing 
------- 
 
On April 18, the Japan Agriculture News reported on a U.S. 
federal district court ruling that allows the U.S. meat packer 
Creekstone to test for BSE. USDA currently controls the use of 
BSE test kits and has until the end of June to appeal. The 
article noted that while the ruling could be "devastating" for 
USDA it probably would not have much impact on trade because, 
under the current beef trade agreement, blanket testing is not a 
requirement for exports to Japan. 
 
The danger is that, if individual U.S. suppliers are allowed to 
blanket test for BSE, this could be adopted by Japanese importers 
as a de facto import standard, further limiting the available 
volume of U.S. beef that is eligible for export to the Japanese 
 
TOKYO 00001800  003 OF 006 
 
 
market.  Adding to the problem is that some U.S. exporters may 
not be in a position like Creekstone to conduct blanket testing. 
So far the Embassy has not received inquiries from Japanese 
authorities on the Creekstone ruling. (ECON: Nicholas Hill) 
 
¶9.  (SBU) Keep Up the Pressure - More Views on Regulatory Reform 
------------------------------- 
 
Outside pressure (gaiatsu), particularly from the United States, 
is vital for continued progress in regulatory reform, said 
Council for the Promotion of Regulatory Reform (CPRR) member 
Professor Hideo Fukui during an April 10 meeting with EMIN. 
As the CPRR's lead on the council's labor task force, Fukui 
believes the Labor Contract Law recently adopted by the Cabinet 
does not go far enough to introduce flexibility into the labor 
market.  Specifically, labor contracts should be based on company 
need and not governed by sweeping regulations, he said. 
 
The limits placed on companies' ability to fire ineffective 
employees, which has been reinforced by several Supreme Court 
cases, has a cascade effect in that companies only want to hire 
graduates from "brand name" schools.  This, in turn, fuels the 
income gap, Fukui hypothesized. 
 
Fukui stated he is wary of overarching regulations that may have 
unintended consequences on the very population they are meant to 
protect.  For example, if the Government legislates mandatory 
childcare leave for women, companies may refrain from hiring 
women all together. 
 
So while measures must be taken to bring women back into the 
workforce to address the falling birth rate, the Government must 
be careful not to take short-term measures that would have a 
long-term, negative impact, he said. 
 
Fukui echoed the opinion that there will be great resistance to 
reform efforts ahead of the July Upper House elections.   He 
speculated that the white collar labor law that would exempt 
white collar workers from overtime pay may be taken up again 
after those elections. 
 
In addition to labor reform, Fukui lamented that changes were 
also needed in the education, medical and social services sectors. 
 
He highlighted the medical sector in particular saying that 
Japanese patients have little choice in their medical care and 
suffered from low quality at a high cost. 
 
Bio Note: Professor Fukui currently teaches at the National 
Graduate Institute for Policy Studies.  He previously taught 
political science for one year at the University of Minnesota and 
as St. Olaf College. In the CPRR, he leads two task forces -- 
Education and Research and Labor -- and one working group on 
Innovation and Productivity.  See attached memcon for more 
information.  (ECON: Sally Behrhorst and Masumi Ono) 
 
¶10.  (SBU) Kyushu Welcoming Foreign Trainees to Offset Shrinking 
Workforce 
--------- 
 
Over the past five years, the number of participants in Japan's 
Industrial Training and Technical Internship Programs has more 
than doubled in the Kyushu/Yamaguchi area. Although these 
programs were set up to provide opportunities for foreign 
trainees to acquire skills they could use to promote local 
industries in their home countries, they are often used as a 
source of menial labor, especially in rural areas with shrinking 
workforces. 
 
With Kyushu's population decline expected to be more severe than 
the national average in the future, local business leaders are 
seeking to expand both programs to offset the looming labor 
crisis. For more details see Fukuoka 0021. (Fukuoka: Yuriko 
Funakoshi/James Crow) 
 
¶11.  (U) Japan Post to Outsource Mgmt of Customer Data to 
Salesforce.com 
-------------- 
 
Press reports state that Japan Post has decided to hire 
Salesforce.com to manage customer data for the planned subsidiary 
 
TOKYO 00001800  004 OF 006 
 
 
entrusted with post offices' storefront operations -- a move that 
will drastically reduce the unit's system costs. 
 
As part of the privatization process, set to begin in October, 
Japan Post will become a holding company overseeing four separate 
business units, including the post office unit. In addition to 
handling over-the-counter post office operations, the unit will 
sell products on behalf of the banking and insurance businesses. 
Unlike major banks, Japan Post does not own an advanced system 
capable of handling a vast amount of data on customers' assets, 
family structures and investment histories -- information that is 
vital to effective marketing. 
 
Developing its own system would require an upfront investment of 
about 2.5 billion yen and a running cost of 500 million yen every 
18 months. By outsourcing customer data management to California- 
based firm Salesforce.com, system costs will be reduced to only 
250 million yen for an 18 month-period. 
 
Initially, about 4,200 post offices will manage data for 20 
million customers via Salesforce.com's three data centers. 
Contacts at Salesforce.com stated the deal has been in 
negotiations for over ten months. (ECON: Sally Behrhorst) 
 
¶12.  (U) UA to Suspend KIX -- Honolulu Route in October 2007 
------------------------------ 
 
United Airlines (UA) will suspend its KIX -- Honolulu route 
starting October 1.  According to an official at United in Osaka, 
despite the decent load factor, it was hard to make a profit due 
to the low airfares in the Kansai market. 
After UA's suspension, Northwest and JAL will be the only 
airlines servicing the KIX - Honolulu route.  The company 
official told us that UA had a harder time competing with Asian 
discount carriers on the Honolulu route due to falling prices. 
UA has some high demand flights serving Narita, but KIX is left 
with only one UA route to San Francisco.  The KIX -- San Francisco 
route continues to be profitable. 
 
The official also said that code sharing with ANA has not worked 
well on the KIX - Honolulu route.  UA provides the aircraft and 
staff.  ANA sells most of the seats and UA compensates ANA.  But 
cheap Honolulu fares have made it difficult for UA to make a 
profit, given the razor-sharp margins, and aircraft costs borne 
by UA are the costliest part of the equation. 
 
A senior official at ANA Osaka told us that ANA would not pick up 
the Honolulu route.  Both ANA and UA said that airlines have 
begun to concentrate on Narita for U.S. routes and KIX for Asian 
routes. 
 
The airlines operating at KIX expected business executives in 
western Japan to use more first class and business class seats 
from KIX to the U.S.  But too often, the UA official said, 
business people use Narita instead of KIX.  He complained that 
local executives tend to talk up KIX while using Narita and Itami 
Airports for their business trips. 
 
KIX officials have made the same complaint to us. 
(Osaka-Kobe POL/ECON: Phil Cummings / Naomi Shibui) 
 
¶13.  (SBU) ANA and Kitakyushu's Star Flyer to code-share 
Kitakyushu -Tokyo flights 
------------------------- 
 
On April 12, Kitakyushu-based startup carrier Star Flyer (SF) and 
ANA announced plans to begin code-sharing on flights between 
Haneda (Tokyo) and Kitakyushu starting June 1.  Under the 
agreement ANA will put its flight code (NH) on 10 out of 11 daily 
SF-operated round trip flights and purchase up to 25 percent of 
the round trip seats. 
 
SF President Takaaki Hori told the media that he anticipates the 
ANA tie-up to help SF boost its load factor to 69 percent in 
fiscal year 2007.  SF's lack of name recognition in the Tokyo 
area had made it difficult for the newcomer airline to go beyond 
a load factor of 58.5 percent in JFY06. 
 
According to Kitakyushu Airport contacts, SF had been seeking a 
code-sharing agreement with ANA since its March 2006 inauguration. 
 
 
TOKYO 00001800  005 OF 006 
 
 
In fact, as early as February 2006, the two airlines had been 
sharing the same reservation system and training facilities. 
Airport officials added that ANA agreed to the code-share 
arrangement as a result of SF's better-than-expected first year 
performance and ANA's own interest in further expanding its 
domestic flight network.  ANA has a strong track record of 
turning around other struggling regional airlines (e.g., 
Miyazaki-based Skynet Airways and Hokkaido International 
Airlines) through business alliances. 
 
Post's contacts expect the area's travelers to benefit from the 
fierce competition anticipated between SF-ANA and JAL (4 round 
trips a day) on Kitakyushu-Haneda flights.  (Fukuoka: Yuko 
Nagatomo/James Crow) 
 
¶14.  (U) Hyogo No. 1 In New Plants; Kobe No. 1 In Foreign 
Business Growth 
--------------- 
 
According to METI Kansai, Hyogo Prefecture was the top prefecture 
nationwide in new plant starts in JFY 2006 (April 2005 -- March 
2006) for the first time in 21 years.  Hyogo had 115 new cases, 
up 35 cases, a growth of 43.8 percent from the previous year, 
when Hyogo was ranked number four. 
 
New plant starts in the six prefectures of the Kansai region also 
increased 16.3 percent.  A Hyogo prefecture official gave as 
reasons 1) more -- and cheaper -- land in private hands; and 2) 
cheap industrialized zones like Amagasaki and Himeji with good 
water and port access, which are useful for new plants. 
Kobe City, the capital of Hyogo, also had the highest rate of 
growth in foreign business starts from 2000 to 2005, tied with 
Yokohama and beating large foreign commercial concentrations such 
as Tokyo's Minato or Shibuya wards.  (Osaka-Kobe POL/ECON: Phil 
Cummings/Naomi Shibui) 
 
¶15.  (SBU) Former Wakayama Governor Kimura To Admit Bid-Rigging 
------------------------------- 
 
Former Wakayama Governor Yoshiki Kimura pleaded guilty to charges 
of bid-rigging and accepting bribes of 10 million yen (830,000 
USD). 
 
Current Governor Yoshinobu Nisaka commented that the prefecture 
would sue Kimura and other defendants for damages.  A prefectural 
official added that Wakayama is launching new measures to prevent 
bid-rigging, including a new bid system.  The official said he is 
not sure how well the measures will deter future malfeasance. She 
also mentioned that bid-rigging reform did not emerge as a major 
election issue in prefectural assembly races.  (Osaka-Kobe 
POL/ECON: Phil Cummings / Naomi Shibui) 
 
¶16.  (SBU) Colony Capital Sells Fukuoka's Hawks Town to Singapore 
Govt. Firm 
---------- 
 
On April 12, L.A.-based equity firm Colony Capital officially 
announced its March 8 sale of the commercial complex, Hawks Town, 
to the Government of Singapore Investment Corp (GIC). 
 
While the sales price has not been made public, it is estimated 
at around Yen 100 billion ($840 million).  Colony acquired the 
Fukuoka hotel/baseball stadium/shopping mall complex from the 
bankrupt Daiei Corp. in March 2004 at Yen 65 billion ($546 
million).  Over the past three years, Colony invested another Yen 
15-20 billion ($126-$168 million) to upgrade the complex's 
facilities. 
 
A Colony official told post that the firm had done business with 
GIC on many occasions.  As a result, even though there were more 
attractive offers from other companies, Colony considered GIC the 
best choice due to its financial stability and long-term interest 
in owning the complex. 
 
GIC has announced no immediate plans to restructure Hawks Town's 
operations, and the head of Colony's Japan operations will 
continue to serve as the president of Hawks Town. In line with 
its reputation for maintaining good community relations, GIC has 
invited three local business leaders to serve as outside 
directors.  (Fukuoka: Yuko Nagatomo/James Crow) 
 
 
TOKYO 00001800  006 OF 006 
 
 
SCHIEFFER