VZCZCXRO0116
PP RUEHFK RUEHKSO RUEHNAG RUEHNH
DE RUEHKO #3179/01 1930349
ZNR UUUUU ZZH
P 120349Z JUL 07
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC PRIORITY 5423
INFO RUEHFR/AMEMBASSY PARIS PRIORITY 5617
RUEHFK/AMCONSUL FUKUOKA PRIORITY 2024
RUEHNAG/AMCONSUL NAGOYA PRIORITY 1111
RUEHNH/AMCONSUL NAHA PRIORITY 4444
RUEHOK/AMCONSUL OSAKA KOBE PRIORITY 5613
RUEHKSO/AMCONSUL SAPPORO PRIORITY 2821
RHEHAAA/NSC WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RUEATRS/TREASURY DEPT WASHDC PRIORITY

UNCLAS SECTION 01 OF 03 TOKYO 003179 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
USTR FOR CULTER, BEEMAN, MEYERS 
NSC FOR TONG 
DOC FOR 4410/ITA/OJ/NMELCHER 
PARIS FOR USOECD 
TREASURY FOR IA/DOHNER, CARNES AND POGGI 
STATE PASS TO FEDERAL RESERVE BOARD FOR JKOHLI 
 
E.O. 12958: N/A 
TAGS: ECON EFIN JA PGOV
SUBJECT: JAPAN POST PRIVATIZATION - COMMITTEE COMMENTS ON 
THE IMPLAMENTATION PLAN.  GOOD FOR US FINANCIAL COMPANIES; 
NOT SO GOOD FOR EXPRESS CARRIERS 
 
REF: TOKYO 02716 
 
¶1. (SBU) Summary. Japan Post begins a ten-year privatization 
process on October 1 releasing nearly $3 trillion in banking 
and insurance assets from government control.  In 
preparation, the Japan Post Company on May 1 issued an 
implementation plan, rumored to be over 400 thousand pages in 
length, and provided a 119 page summary of the plan for 
public comment to interested parties. The lack of detail in 
the summary, however, and the extremely limited time allotted 
for public comment (sixteen business days) makes it difficult 
to evaluate whether equivalent conditions of competition will 
exist after October 1.  The 
Postal Service Privatization Committee (PSPC), the council 
charged with overseeing the privatization process, 
subsequently released an opinion paper on the implementation 
plan which contained language that was particularly welcomed 
by the insurance and financial industries for its assurances 
regarding transparency, Japan Post successor companies being 
subject to the same rules and regulations as the private 
sector, and the process for introducing new products. The 
opinion was particularly positive when compare to the PSPC's 
comments on draft implementation plan in late 2006 which 
focused on "consumer convenience" rather than competition 
issues.  The PSPC opinion was less favorable for 
international express mail delivery services. Japan Post's 
Express Mail Service (EMS), which the USG contends competes 
directly with international express mail companies such as 
FedEx and UPS, will continue to be classified by the Ministry 
of Internal Affairs and Communication (MIC) as universal 
service after privatization.  This allows for preferential 
regulatory treatment and creates an unfair competitive 
advantage that enables EMS to deliver its service at a 
significantly reduced cost versus competitors.  The PSPC 
opinion did not challenge this situation.  The USG and 
industry should continue to apply pressure on the GOJ to 
establish a level playing field in this sector. End Summary. 
 
¶2. (SBU) As discussed reftel, Japan Post begins a ten-year 
privatization process on October 1 releasing nearly $3 
trillion in banking and insurance assets from government 
control.  In preparation, the Japan Post Company on May 1 
issued an implementation plan, rumored to be over 400 
thousand pages in length, and provided a 119 page summary of 
the plan for public comment to interested parties.  Both the 
American Chamber of Commerce in Japan (ACCJ) and the U.S. 
government submitted comments to the Postal Service 
Privatization Committee (PSPC), the council charged with 
overseeing the privatization process, during the public 
comment process.  Despite repeated requests from the USG and 
industry, however, Japan Post Corp. never released the entire 
implementation plan to interested parties. 
 
¶3. (SBU) The primary concern for both domestic and 
international industry in the privatization process is 
ensuring that the four new Japan Post entities, the postal 
banking company (Yucho), the postal insurance company 
(Kampo), the postal delivery company and the postal service 
company, are subject to equivalent conditions of competition 
as the private sector.  The lack of detail in the summary, 
however, and the extremely limited time allotted for public 
comment (sixteen business days) makes it difficult to 
evaluate whether these equivalent conditions will exist after 
October 1.  Much of the discussion in both the USG's and 
ACCJ's comments submitted to the PSPC focused on this lack of 
detail. 
 
¶4. (SBU) Subsequent to ACCJ representatives testifying before 
the PSPC, the committee agreed to allow interested parties to 
submit questions to Japan Post Corp. and to compel the 
company to respond.  Before industry was able to develop such 
a list, however, PSPC issued its own opinion on the 
implementation plan.  Its assessment was surprisingly 
laudatory. The opinion contained language that was 
 
TOKYO 00003179  002 OF 003 
 
 
particularly welcomed by the insurance and financial 
industries for its assurances regarding transparency, Japan 
Post successor companies being subject to the same rules and 
regulations as the private sector commencing October 1 and 
the process for introducing new products. 
 
¶5. (SBU) With regards to insurance and banking, the opinion 
states there should be "maximum effort..made to dispel the 
perception of an implicit government guarantee," that the 
privatized Japan Post companies should "be granted the same 
treatment in the enforcement of relevant laws and 
regulations" as private corporations and that "new business 
operations shall be approved through the commission's 
investigations and deliberations while ensuring appropriate 
competitive relations."  Finally, the report calls for 
measures to prevent cross-subsidization and other 
preferential treatment between the privatized companies 
stating "At the time of succession, there will be a need to 
consider...whether contracts between the succeeding companies 
will comply with...the arms-length rule regulation...." 
These are all issues of great concern to U.S. industry.  The 
commission's positive remarks are a welcome step forward, 
especially compared with its remarks on the draft 
implementation plan in July 2006 in which PSPC emphasized 
"consumer convenience" over competitive concerns. 
 
¶6. (SBU) Unfortunately, the PSPC opinion was less favorable 
for international express mail delivery services. 
Specifically, the opinion discusses the development of "new 
business operations of the postal delivery corporation" and 
calls for these new businesses to be established "under 
equivalent conditions of competition with private companies." 
 However, when questioned about the definition of "new 
business operations," Office for the Privatization of Japan 
Post (OPJP - PSPC's secretariat) Counselor Akira Nishihara 
told Ecouns in a June 15 meeting that international express 
delivery services like those provided by FedEx and UPS are 
not now provided by Japan Post.  The 
Japan Post product, Express Mail Service (EMS), which the 
USG believes competes directly with FedEx and UPS, is defined 
under universal service as put forth by the Universal Postal 
Union and, as such, does not compete with the private sector, 
Nishihara maintained.   Equivalent conditions of competition 
would only apply to new products Japan Post would develop in 
the future. This is the same position that the Ministry of 
Internal Affairs and Communications (MIC) which regulates EMS 
held during the Regulatory Reform talks in May. 
 
¶7. (U) Defining EMS as part of universal service is 
significant.  Under universal service, the timely and 
efficient receipt of mail is a right of every Japanese 
citizen and therefore, products categorized as such may 
receive preferential regulatory treatment.  By classifying 
EMS as part of universal service, the product can enjoy 
favorable treatment in such things as customs clearance and 
de minimus customs declaration.  This allows EMS to deliver 
its product at an extremely low price. According to Japan 
Post's website, a 500 gram (1.1 pound) package mailed using 
EMS from Tokyo to San Diego would cost the sender Y1,500 yen 
($12.19) and would arrive in "two-to-three" days.  The same 
package using FedEx would cost Y8,280 yen ($67.31) for 
priority service (delivery by 12:30pm on the second day) or 
Y12,420 yen ($100.97) for first class service (delivery by 
8:30am on the second day). 
 
¶8. (SBU) The matter is further complicated as the Japan 
Fair Trade Commission (JFTC), which is charged with 
overseeing anti-monopoly and competitive policy issues, 
released a report in July 2006 giving its opinion that EMS 
does compete directly with international express mail 
delivery companies.  The report states "(because) the EMS 
network cooperation between six postal agencies including 
Japan Post has been strengthened, some of the EMS services 
have become similar to international express delivery 
 
TOKYO 00003179  003 OF 003 
 
 
services, creating competition between EMS and international 
express mail delivery services." 
 
¶9. (SBU)  During a July 6 meeting with Ecouns, JFTC 
Director for International Affairs Shuichi Sugahisa 
reaffirmed the commission's belief that EMS does compete with 
the private sector. He noted the report specifically 
discusses what accounting procedures should be used to ensure 
proper costing to account for EMS' use of the Japan Post 
infrastructure.  Failing to do so could constitute dumping, 
Sugahisa suggested. However, Sugahisa also stated that JFTC 
could only issue its opinion and had little enforcement 
capability unless there was a clear violation of Japan's 
Anti-Monopoly Act.  The commission has no ability to take 
action against another government entity, he said. When 
pressed, Sugahisa admitted that allowing different customs 
procedures for EMS could be an unfair competitive advantage 
that would allow EMS to price its services below those of its 
competitors.   He stated that one way to resolve this issue 
would be for private industry to bring suit against the 
Government of Japan and let the Japanese courts decide.  This 
has been tried once before by a group of businesses which 
believed the Tokyo metropolitan government provided unfair 
competitive advantages to a city-run slaughterhouse.  The 
court ruled in favor of the city. 
 
¶10.  (U) The PSPC's opinion regarding Japan Post's plans for 
the postal banking and insurance companies post privatization 
is a positive development for U.S. industry particularly 
given the concerns surrounding the 2006 draft implementation 
plan.  At that time, there was little to no mention of the 
need for competitive equality in introducing new products or 
about the need for transparency in financial reporting to 
protect against cross-subsidization.  The concerted efforts 
of the USG and the ACCJ can be credited with the progress 
made on this front.  Unfortunately, the outlook for express 
delivery is not as bright.  The USG and U.S. industry should 
continue to urge on the GOJ to establish a level playing 
field in this sector. 
SCHIEFFER