VZCZCXRO6366
RR RUEHFK RUEHNAG RUEHNH
DE RUEHKO #3125/01 1900855
ZNR UUUUU ZZH
R 090855Z JUL 07
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC 5303
RUEAIIA/CIA WASHDC
INFO RUEHFR/AMEMBASSY PARIS 5607
RUEHFK/AMCONSUL FUKUOKA 1947
RUEHNAG/AMCONSUL NAGOYA 1047
RUEHNH/AMCONSUL NAHA 4367
RUEHOK/AMCONSUL OSAKA KOBE 5531
RUCPDOC/USDOC WASHDC

UNCLAS SECTION 01 OF 06 TOKYO 003125 
 
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--July 5, 2007 Part 1 
 
Sensitive but unclassified.  Please protect accordingly. 
 
¶1. (U) This cable contains part one of the Japan Economic 
Scope from July 5, 2007. 
 
2.(SBU) Table of Contents 
 
¶3.  G-10 Agriculture Ministers Issue Another Statement on Doha 
¶4.  An Early Glimpse at G-8 Planning 
¶5.  Advisory Councils-- Recommendations - Few Details for Concrete 
Action 
¶6.  Time Approaching for Australia and Japan to Resume FTA Talks? 
¶7.  Beef Talks Conclude 
¶8.  Second Big Retailer to Sell U.S. Beef 
¶9.  Hokkaido Meat Processing Scandal Shakes Consumer Confidence 
¶10. US Grain Council President Visits Hokkaido Farms 
¶11. Economic Organization Gives Abe High Marks 
¶12. METI Gets a New Vice Minister 
¶13. Koezuka to Replace JPO Commissioner Nakajima 
¶14. METI Requests Public Comments on Revised FDI Regulations 
¶15. Defensive Bull-Dog Is Not Alone 
¶16. BOJ "Tankan" Survey: No Change in Firm Business Sentiment 
¶17. Japan's "Core" Consumer Prices Down 0.1% in May, Fourth 
Consecutive Monthly Drop 
 
¶3. (SBU) G-10 Agriculture Ministers Issue Another Statement on 
Doha 
---- 
 
The so-called G-10 agriculture ministers issued a communiqu on 
July 2 calling for the "multilateral process in Geneva" to be 
intensified to bring about a successful conclusion to the Doha 
Round.  The document was released after a teleconference among 
the ministers, including Agriculture Minister Akagi. 
The communiqu includes a reference to another G-10 statement 
issued on June 17, in which the participants reaffirmed the G- 
10's main priorities, including "no tariff capping," only limited 
or "acceptable tariff cuts in the top band with flexibilities," 
and "reasonable treatment and appropriate numbers on sensitive 
products." 
 
A MOFA official told us on July 3 that Japan wanted to see the 
communiqu issued before WTO Agriculture Negotiating Chair 
Falconer tables his draft text on modalities.  The MOFA official 
said the statement contained "nothing new," but its value was 
that it reaffirmed what the G-10 had called for last month.  The 
official said he was increasingly uncertain about what to expect 
from Falconer. 
 
Meanwhile, according to press reports, Agriculture Minister Akagi 
plans to travel to Europe to meet with Falconer and WTO Director 
General Pascal Lamy.  The MOFA official told us that timing of 
the visit was still undecided, but it would probably be sometime 
next week. 
 
Separately, the press is reporting that Japan Agriculture 
Cooperative Chairman Miyata has already departed for Europe and 
hopes to meet with Falconer and possibly Lamy. 
 
For the G-10 statements, see the links to Japan's Agriculture 
Ministry website:  July 2 G10 statement; June 17, 2007 Proposals; 
June 17, 2007 Statement. (ECON: Nicholas Hill) 
 
¶4.  (SBU) An Early Glimpse at G-8 Planning 
------------------------------ 
 
Prime Minister Abe is very fond of his slogan "Beautiful Country" 
and will likely use some version of it as the overall theme for 
the 2008 G-8 summit to be held in Lake Toya Hokkaido our sources 
tell us. 
 
MOFA will announce the formation of a new division in early July 
that will be responsible for the overall planning of the summit 
and which will be headed by an Ambassador-level official. 
In the run-up to the actual summit, a foreign ministerial will be 
held June 26-27 in Kyoto, a finance ministerial on June 13-14 in 
Osaka, a meeting of interior and justice ministers on June 11-13 
in Tokyo, a labor ministerial on May 11-13 in Niigata, an 
environmental meeting on May 25-27 in Kobe, and a climate change 
meeting on March 14-16 in Chiba. 
 
 
TOKYO 00003125  002 OF 006 
 
 
The Embassy is proactively planning for the Hokkaido summit.  The 
DCM and a management team have already visited the region to see 
the facilities first hand. 
 
In addition, the Ambassador, the DCM and many members of the 
Embassy, who will be involved in planning for the summit and the 
ministerials, held a DVC with Embassy Berlin to hear about 
lessons learned from the 2007 G-8 meetings in Germany. 
Several members of the staff have established contacts with MOFA 
officials that will be handling logistical issues for the Summit. 
See Tokyo 3052 for more information. (ECON: Sally Behrhorst) 
 
¶5.  (SBU) Advisory Councils-- Recommendations - Few Details for 
Concrete Action 
--------------- 
 
The Council for Economic and Fiscal Policy (CEFP), the Council 
for the Promotion of Regulatory Reform (CPRR), the Asia Gateway 
Strategy Panel and the Innovation 25 Strategy Council all issued 
reports over the past several weeks recommending structural and 
administrative reform of various aspects of the Japanese 
government and society. 
 
While reform-minded members of each Council had proposed fairly 
forward-leaning recommendations, fierce ministerial resistance 
resulted in final reports that have been described are long on 
rhetoric and short on details. 
 
While this could reflect the Abe administration's caution in the 
run-up to the July Upper House elections, it is unclear to us if 
this will change after the votes are cast.  See Tokyo 02964 for a 
more detailed discussion.  (ECON: Sally Behrhorst) 
 
¶6.  (SBU) Time Approaching for Australia and Japan to Resume FTA 
Talks? 
------ 
 
The Australian Ambassador to Japan, Murray McLean, in an 
interview in the Japan Agricultural News this week, underscored 
Australia's desire to see dairy products included in any Free 
Trade Agreement the two countries work out in coming months.  He 
said that increased dairy trade would be largely "complementary," 
enabling Japanese producers to concentrate on high end drinking 
milk. 
 
Although there has been speculation that the next round of talks 
with the Australians scheduled for late July will be postponed 
until after the July 29 Upper House elections, there has been no 
announcement yet.  A MOFA official told us on July 5 there would 
be no "postponement," but acknowledged there may be some 
"adjustment" in the schedule. 
 
A non-GOJ source familiar with the negotiations told us that the 
Japanese government is keen to postpone the next round of 
negotiations with Australia until August so that talks do not 
cloud the Upper House elections. 
 
With talks looming, the Japan Agricultural Cooperative (JA), the 
country's main farm protectionist lobby, organized a protest at 
Tokyo's Yoyogi Park on July 1.  Mostly dairy farmers turned up to 
underscore their opposition to the Doha talks and to a free trade 
agreement with Australia that included substantial concessions on 
agriculture.  (ECON: Nicholas Hill) 
 
¶7.  (SBU) Beef Talks Conclude 
----------------------------- 
 
The first round of expert level BSE talks -- which the U.S. side 
hopes will lead to a further market opening for U.S. beef -- 
ended June 29 in Tokyo. 
 
John Clifford, the Chief Veterinary Officer of USDA's Animal and 
Plant Health Inspection Service led an interagency delegation 
from Washington to discuss the BSE situation in the United States 
and the dossier that was behind the World Animal Health 
Organization's easing of restrictions on U.S. beef. 
 
Meeting at a MAFF conference center near Yasukuni Shrine, the two 
sides held all day sessions on June 27-28, before convening a 
smaller group at MOFA on June 29. 
 
 
TOKYO 00003125  003 OF 006 
 
 
The discussions focused on the U.S. submission to the OIE, the 
feed ban, ongoing BSE surveillance, the failed Japanese mouse 
assay tests and the Harvard Risk Assessment. 
 
The next round of talks is likely to take place in early August. 
The United States has made it clear that it would like to see the 
Japanese government recommend to its Food Safety Commission that 
beef trade with the United States be further eased in accordance 
with international standards. 
 
TV cameras and reporters were on hand for the first round at the 
opening, but then left the proceeding for experts to deliver 
detailed presentations.  Overall, coverage was fairly muted, with 
little of the bombast that has, at times, characterized the press 
reporting on BSE-related issues in the past.  For more details on 
the visit, see Tokyo 3036.  (ECON: Nicholas Hill) 
 
¶8.  (SBU) Second Big Retailer to Sell U.S. Beef 
------------------------------ 
 
U.S. beef is gaining acceptance in the Japanese market. A senior 
official at Wal-Mart Japan, which owns a majority stake in the 
Seiyu Retail Store chain in Japan, told us on July 4 that sales 
of U.S. beef are doing better than expected since the company 
began marketing the beef in the spring. 
 
Meanwhile, on June 30 another large retail chain, Ito Yokado, 
began selling U.S. beef at 20 outlets in the Tokyo area.  A sales 
promotion featuring U.S. beef samples and cooking demonstrations 
is helping market two featured cuts, chuck eye roll and chuck 
ribs.  Depending on consumer reaction, the store plans to sell 
U.S. beef at more of its 180 stores nationwide before long. 
The U.S. Meat Export Federation (USMEF) is supporting the 
promotion, reaching out to Japanese consumers to provide 
information on U.S. beef.  USMEF expects Ito Yokado's decision to 
ease concerns among consumers and open the way for other retail 
chains to begin marketing U.S. beef. 
 
Ito Yokado's move back into the business of selling U.S. beef was 
delayed initially by fears in its corporate leadership that U.S. 
beef would alarm Japanese consumers.  In addition, problems its 
main supplier, Cargill, was having regaining approval to sell U.S. 
beef in the Japanese market had to be overcome. 
The Embassy's Agricultural Trade Office and Foreign Agriculture 
Service have worked with importers and U.S. exporters to promote 
U.S. beef sales in Japan, including providing funds for ads in 
the local media.  (ECON: Nicholas Hill) 
 
 
¶9.  (U) Hokkaido Meat Processing Scandal Shakes Consumer 
Confidence 
---------- 
 
Sales of ground meat have plummeted across Hokkaido following the 
June 20 revelations that the president of Meat Hope, a Tomakomai, 
Hokkaido-based meat processing plant, approved the sale of tons 
of ground pork as ground beef to cut costs.  The mislabeled 
ground meat was then sold directly or used to make other food 
products distributed to supermarkets throughout Japan. 
 
Subsequent police and Ministry of Agriculture, Forestry and 
Fisheries (MAFF) investigations continue to discover additional 
abuses at Meat Hope, including the mixing of expired meat with 
fresh meat and the addition of pig and lamb hearts to ground pork 
to make it look like ground beef. 
 
Meat Hope shut down operations and laid-off its 71 employees last 
week. However, the whole incident has forced Hokkaido officials 
to review meat processing operations prefecture-wide. The 
Hokkaido government plans to send inspectors to approximately 700 
meat-processing facilities across the island to conduct DNA 
testing in cases where factory meat supplies are found to be 
questionable 
 
The meat processing scandal first broke after an ex-employee of 
Meat Hope provided details of meat processing operations to the 
Asahi newspaper.  According to media accounts, an ex-employee 
first reported abuses to MAFF more than a year ago, but went to 
the press after no action was taken.  (Sapporo: Ian Hillman/Yumi 
Baba) 
 
 
TOKYO 00003125  004 OF 006 
 
 
¶10.  (U) US Grain Council President Visits Hokkaido Farms 
------------------------------ 
 
On June 29, Vic Miller, an Iowa farmer who is president of the 
U.S. Grain Council, visited the town of Naganuma, Hokkaido, to 
discuss biotech grain usage and related grain supply issues with 
local farmers.  A pro-biotech Hokkaido farmer hosted a barbeque 
lunch for Miller, which also included neighboring farmers, 
reporters, a local politician, university students, and a former 
Hokkaido University professor who now works for a local bio- 
venture company. 
 
Afterwards, Miller visited a local dairy farm to see how a local 
customer is using U.S. corn as a feed source in his automated, 
robotic milking operation. 
 
Prior to visiting Naganuma, Miller in a press interview assured 
Hokkaido residents that there will be a steady supply of U.S. 
corn available to Hokkaido farmers but also pointed out that an 
ever-growing majority of this corn will be biotech. 
Concerns about biotech crops in Hokkaido remains high following a 
series of consensus meetings held earlier this year on Hokkaido's 
strict local regulations governing the open-air biotech 
cultivation. 
 
For more details, see the attached translated article.  (Sapporo: 
Ian Hillman/Yumi Baba) 
 
¶11.  (U) Economic Organization Gives Abe High Marks 
------------------------------ 
 
Newspapers report that nine private-sector organizations weighed 
in with their assessments of how well the Abe administration has 
done in implementing pledges made during the House of 
Representative elections in September 2005. 
 
The Japan Association of Corporate Executives (Keizai Doyukai) 
gave the Administration the top score of 65 out of a possible 100 
for its efforts in revamping the bureaucracy and in 
decentralizing the government. 
 
Team Policy Watch, a group of economic experts led by former PM 
Koizumi's economic policy advisor Heizo Takenaka, gave Team Abe a 
score of 60. 
 
The lowest rating of 27 was given by the Japan Initiative, a 
private think-tank.  The group stated that the "actions" taken on 
45 of the 120 items listed in the campaign manifesto were "simple 
plans and expressions of intentions to make efforts."  (ECON: 
Sally Behrhorst) 
 
¶12.  (SBU) METI Gets a New Vice Minister 
------------------------------ 
 
In a move that a Ministry of Economy, Trade and Industry (METI) 
official told us came as a surprise, the press reported on July 5 
that Toshiaki Kitamura is stepping down as Vice Trade Minister 
after only a year. 
 
He will be replaced on July 10 by Masakazu Toyoda, METI Director 
General for Trade Policy.  Hiroyuki Ishige, the former head of 
the Small Medium Enterprise Agency, will replace Toyoda. 
Other changes at METI have Kenyu Adachi, the former Assistant 
Vice-Minister, becoming the New Director General for Trade and 
Economic Cooperation. 
 
Also, Tsuneyoshi Tatsuoka, the former Director General in the 
Economic and Industrial Policy Bureau, will become the new 
Director General in the Trade Control Department. 
Nobuhiku Sasaki, a key trade negotiator, will become the Deputy 
Director General for Trade and Economic Affairs.  (ECON: Ryoko 
Nakano/Nicholas Hill) 
 
¶13.  (SBU) Koezuka to Replace JPO Commissioner Nakajima 
------------------------------ 
 
Masahiko Koezuka, currently Director-General (DG) of the Commerce 
and Information Policy Bureau of METI, will be the new 
Commissioner of Japan's Patent Office, replacing Makoto Nakajima 
on July 10. 
 
 
TOKYO 00003125  005 OF 006 
 
 
As DG for the Commerce and Information Policy Bureau of METI, 
Koezuka was responsible for designing a wide range of measures to 
promote and develop IT services, distribution industries, and to 
protect consumers. 
 
Koezuka began at METI in 1974 and since then has served in many 
different bureaus. A list of the various positions he has held in 
METI is attached.  Nakajima's next position has not yet been 
announced.  (ECON: Kaoru Nakata) 
 
¶14.  (SBU) METI Requests Public Comments on Revised FDI 
Regulations 
----------- 
 
As expected, on June 29 METI released for public comment its 
draft revisions to the regulations governing inward direct 
investment with national security implications. 
 
The Ministry is proposing changes to the Cabinet Order, 
Ministerial Ordinances and the Export Control Order of the 
Foreign Exchange and Foreign Trade Control Law in line with the 
proposals made by its "Study Group on the International 
Investment Environment in the Global Economy" (see Scope Item in 
February 9 issue and cables Tokyo 454 and 2688).  The public 
comment period closes on July 29.  Click here for public comment 
information. 
 
The Study Group proposed changes to the existing legal framework 
to control appropriately inward investment from emerging 
economies, and make regulations consistent with international 
criteria. 
 
From the Embassy's review of the proposals, we do not believe the 
proposed revisions will impede legitimate U.S. direct investment 
into Japan. 
 
On the same day as METI's announcement, the Liberal Democratic 
Party (LDP)'s Research Commission on International Market 
Competitiveness called for revision of the inward investment 
regulations in order to appropriately prevent the outflow of 
technologies important for national security. 
 
According to METI Trade Finance and Economic Cooperation Deputy 
Director Tomoshige Nambu, the Commission advised the government 
to conduct a review of whether the revised regulations are 
effective, and if need be, in the future establish a "Exon- 
Florio-style" process that would  allow government ex-post 
intervention in transactions of concern. 
 
The LDP Commission also proposed strengthening regulations on 
foreign investment funds, addressing the growing concerns that 
short-term investments by foreign funds could undermine corporate 
value. 
 
The Commission will compile its final recommendations sometime in 
autumn.  Lower House member and chairman of the LDP Commercial 
Law Subcommittee, Yasufumi Tanahashi is chairing the Research 
Commission.  (ECON: Satoshi Hattori) 
 
¶15.  (U) Defensive Bull-Dog Is Not Alone 
--------------------------- 
 
Japan's annual general shareholder meeting (AGM) season has just 
ended and the big story of the year was corporate efforts to 
strengthen takeover defenses. 
 
With tender offers up 60 percent in the first half of 2007 and 
concerns that the newly implemented triangular merger rules will 
lead to what has been described as a "wave of cross-border M&A," 
some 222 firms -- or eight percent of companies holding AGMs this 
month -- put forward proposals on new defensive measures for 
shareholder approval. 
 
Of those 222 companies, 47 were in the electronics, food, or 
steelmaking sectors, which analysts have noted are particularly 
vulnerable to takeover bids (TOBs).  One major change this year 
was management's seeking shareholder approval for implementation 
of corporate defenses.  Courts in the past have struck down some 
defensive measures which had only received board approval. 
U.S.-based investment fund Steel Partners, which has invested 
some $4 billion dollars in Japanese firms in recent years, was in 
 
TOKYO 00003125  006 OF 006 
 
 
the spotlight this season.  The fund was on the losing side of 
shareholder votes in almost a dozen tender and dividend increase 
proposals as company managements were able to characterize the 
fund as a "green mailer" not acting in the long term interest of 
shareholders. 
 
Steel Partners' appeal to the courts regarding Japanese Bull-Dog 
Sauce Company's poison-pill plan has also been making the 
headlines; the plan will dilute Steel Partners' stake in the 
company and foil its $260 million bid.  With more than 80 percent 
of shareholders already voting in favor of the poison-pill 
proposal, Steel Partners' pending TOB is almost certain to fail. 
Analysts expect the high court to uphold the lower court ruling 
because the poison-pill will not cause Steel Partners to take a 
financial loss and it will still be able to pursue a future 
takeover bid, albeit more expensively.  (ECON: Antonio Gonzalez) 
 
¶16.  (U) BOJ "Tankan" Survey: No Change in Firm Business 
Sentiment 
--------- 
 
The Bank of Japan's quarterly "tankan" survey of business 
sentiment, a closely watched business cycle indicator and a 
principal input in central bank's monetary policy deliberations, 
revealed no change in firm business sentiment among large firms. 
The survey's "headline" business sentiment indexes (DI) for both 
large manufacturers and non-manufacturers were in line with 
market expectations. 
 
The June survey also revealed that all enterprises on average 
modestly revised upward their FY07 projections for business 
investment from the March survey.  These solid "tankan" survey 
results are likely to support the BOJ's policy decision to raise 
interest rates in the near future. 
 
The BOJ Policy Board is scheduled to hold its first post-"tankan" 
meeting on July 11-12.  Many market participants are expecting 
that the BOJ will not raise interest rates next week, but will 
hold until the August 22-23 Board meeting. (FINATT: Shuya Sakurai) 
 
¶17.  (U) Japan's "Core" Consumer Prices Down 0.1% in May, Fourth 
Consecutive Monthly Drop 
------------------------ 
 
Japan's nationwide "core" CPI, which excludes perishable food 
items, fell 0.1 percent in May from the year before, the same 
rate of decline as in April and the fourth consecutive monthly 
decline, the Ministry of Internal Affairs and Communications 
(MIC) announced June 29. 
 
This result was in line with the market consensus forecast. 
Overall CPI was unchanged in May from a year earlier. 
SCHIEFFER