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UNCLAS SECTION 01 OF 12 TOKYO 003948 
 
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 08/27/07 
 
 
Index: 
 
1) Top headlines 
2) Editorials 
3) Prime Minister's weekend schedule 
 
Cabinet and LDP executive shuffle today: 
4) Foreign Minister Aso accepts LDP secretary general's post; Abe 
critic in the LDP, Upper House member Masuzoe to be appointed to a 
cabinet post 
5) Nikai to be chairman of the LDP General Council 
6) Defense Minister Koike opts out of the next cabinet: Will now 
serve as an ordinary foot soldier in the Diet 
 
Scandals: 
7) Internal Affairs and Communications Minister Suga's political 
group had free office space but claimed in political funds report 20 
million yen in office expenses 
8) Justice Minister Nagase's support organization took 3 million yen 
fee from organization bringing in foreign trainees to Japan 
 
Defense and security issues: 
9) LDP to shelve constitutional reinterpretation option for allowing 
Japan the use of right of collective self-defense 
10) Prime Minister Abe says he will seek understanding of Democratic 
Party of Japan (DPJ) for bill extending Anti-Terrorist Special 
Measures Law 
11) Embargoed Japanese goods being shipped to North Korea via Taiwan 
 
12) After 4-year hiatus, Japanese, Chinese defense ministers to meet 
in Tokyo on Aug. 29, with Japan to press issue of China's increased 
defense spending 
13) Defense Ministry to deploy F-15s to Okinawa to prepare for 
possible future Chinese aggression against Senkakus or other islands 
 
 
14) Alarmed by Chinese moves, Defense Ministry putting in full 
efforts to draft space and marine strategies 
15) Defense Ministry to introduce new formula for equipment 
procurement in order to constrain budget expenditures 
16) Government requesting 312.5 billion yen in allocations for 
Okinawa development projects in fiscal 2008 budget 
 
Japan-ASEAN relations: 
17) Japan, ASEAN reach general agreement on EPA under which Japan 
would scrap almost all tariffs on ASEAN imports 
18) Japan hoping that its new EPA with ASEAN will add momentum to 
its free-trade strategy 
 
Articles: 
 
1) TOP HEADLINES 
 
Asahi: 
Another eight high schools found to have given university 
examination fees to their students to achieve high scores for 
college examination pass rates 
 
Mainichi: Tokyo Shimbun: 
Aso accepts to serve as LDP secretary general: Reshuffled Abe 
cabinet to be launched this evening 
 
 
TOKYO 00003948  002 OF 012 
 
 
Yomiuri: 
Reshuffled Abe cabinet to be launched today: Masuzoe most likely to 
join cabinet for first time 
 
Nikkei: 
Tokyo Stock Exchange to list exchange-traded fund with underlying 
assets of gold starting next spring: Arguments calling for 
reorganization of bourses could rekindle flare up again 
 
Sankei: 
Cabinet reshuffling, changing of LDP leadership lineup today: Nikai 
likely to be appointed as Executive Council chairman; Aso as 
secretary general; Former Iwate Governor Masuda also likely to join 
 
SIPDIS 
 
Akahata: 
Welfare Benefits Problem Countermeasures Council holds meeting to 
promote anti-poverty campaign 
 
2) EDITORIALS 
 
Asahi: 
(1) German Chancellor to visit Japan: good opportunity to learn 
measures to prevent global warming 
(2) Drinking and driving: Root out addiction to alcohol 
 
Mainichi: 
(1) Chancellor Merkel to visit Japan: Learn Germany's achievement in 
CO2 reduction 
(2) Economic partnership agreement: Concern about fate of 
agricultural policy 
 
Yomiuri: 
(1) ODA: Cutting ODA budget is questionable 
(2) Fisheries industry: How can major fishing country be revived? 
 
Nikkei: 
(1) Make most of financial functions to prevent global warming 
 
Sankei: 
(1) Nuclear reactor: Regain reason that existed 50 years ago 
(2) Reorganization of department stores: First thing to do is to 
compete with new business models 
 
Tokyo Shimbun: 
(1) Global warming preventive measures: No preparedness felt from 
Interim report 
(2) Whistle-blowing: Do not let someone's good conscience go to 
waste 
 
Akahata: 
(1) Death from starvation case in Kitakyushu City: Crime committed 
by civil servants deprives citizen of his right of existence 
 
3) Prime Minister's Official Residence (Kantei) 
 
Prime Minister's schedule, August 24 
 
NIKKEI (Page 2) (Full) 
August 25, 2007 
 
Morning 
Attended a welcome ceremony at the prime minister's official 
 
TOKYO 00003948  003 OF 012 
 
 
residence in Putrajaya, Malaysia. Held a meeting with Prime Minister 
Abdullah. Attended a ceremony to sign a joint statement. Met with 
economic mission members. 
 
Afternoon 
Host a reception at the Mandarin Oriental Hotel in Kuala Lumpur. 
Attended a Japan-Malaysia business forum. Met King Mizan at his 
palace. Held a press conference at the Hotel Nikko Kuala Lumpur. 
Held informal talks with accompanying reporters. 
 
Night 
Attended a dinner party hosted by Prime Minister Abdulla at the 
Mandarin Oriental Hotel. Stayed at the Hotel Nikko Kuala Lumpur. 
 
Prime Minister's schedule, August 25 
 
NIKKEI (Page 2) (Full) 
August 26, 2007 
 
Morning 
Met former Japanese students who were studying in Malaysia at the 
Hotel Nikko Kuala Lumpur. Left Kuala Lumpur International Airport by 
a government plane. 
 
19:03 
Arrived at Haneda Airport. 
 
19:36 
Called at Imperial Palace to report his return. 
 
19:52 
Returned to his official residence. 
 
Prime Minister's schedule, August 26 
 
NIKKEI (Page 2) (Full) 
August 27, 2007 
 
10:57 
Had his hair cut at a barber shop in the Hilton Hotel. 
 
13:27 
Met Secretary General Nakagawa at his official residence. 
 
4) Aso to become LDP secretary general, Masuzoe likely be appointed 
minister in cabinet shuffle 
 
ASAHI (Page 1) (Full) 
August 27, 2007 
 
Prime Minister Shinzo Abe will today shuffle his cabinet and the 
three top executives of the Liberal Democratic Party and launch the 
new cabinet tonight. The prime minister yesterday asked Foreign 
Minister Taro Aso to serve as secretary general of the LDP and Aso 
accepted. It has been decided that LDP Upper House Diet Affairs 
Committee Chairman Tetsuro Yano will serve in his first cabinet post 
and Land, Infrastructure and Transport Minister Tetsuzo Fuyushiba, a 
member of the New Komeito, will be retained in his current post. 
Yoichi Masuzoe, policy chief of the LDP caucus in the House of 
Councillors, is rumored to be picked for a cabinet post. Abe has 
decided to reduce from five to three the number of special advisors 
to the prime minister, posts which were set up to strengthen the 
 
TOKYO 00003948  004 OF 012 
 
 
function of the Prime Minister's Official Residence (Kantei). 
 
Yesterday afternoon at his official residence, Abe carried out final 
coordination with LDP Secretary General Hidenao Nakagawa on the new 
cabinet and LDP lineups. Aso served as chairman of the LDP Policy 
Research Council, minister of internal affairs and communications, 
and foreign minister in the government of Prime Minister Junichiro 
Koizumi, and he is currently serving as foreign minister in the Abe 
administration. He enjoys Abe's strong confidence. His foreign 
policy is similar to that of Abe. The focus is on how much Aso will 
be able to manage the party since he hails from a small faction 
which has only 16 members. 
 
Abe will not accept recommendations from the factions, but he is 
expected to give priority to factional balance in the party. The 
dominant view is that the prime minister will pick former Foreign 
Minister Nobutaka Machimura, who heads a faction to which Abe used 
to belong, as chief cabinet secretary. Abe apparently wants to 
appoint Masuzoe to the cabinet to win support from the forces 
opposing him. 
 
In the wake of the LDP's crushing defeat in the July 29 Upper House 
election, Abe has said that he wants to make efforts to revitalize 
regional economies. He, therefore, is considering naming former 
Iwate Gov. Hiroya Masuda to the cabinet. 
 
Meanwhile, Abe reportedly told Upper House Caucus Chairman Hidehisa 
Otsuji, who had called on the prime minister to appoint Yano, on the 
phone on the night of Aug. 25: "I understand the (Upper House side's 
intention)." It has now decided that Deputy Chief Cabinet Secretary 
Seiji Suzuki will succeed Yano as chairman of the Diet Affairs 
Committee. 
 
Abe will pick the three new LDP executives this morning and hold a 
cabinet meeting to accept the resignations from the cabinet 
ministers. After meeting with New Komeito Chief Representative 
Akihiro Ota, he will name the new cabinet ministers, setting up 
reorganization headquarters in the Kantei. He plans to hold press 
conference after completing an attestation ceremony of the cabinet 
ministers tonight. 
 
Taro Aso: Age 66; head of the Aso faction; served as foreign 
minister, internal affairs and communications minister, and chairman 
of the LDP Policy Research Council; graduated from Gakushuin 
University; elected nine times to the Lower House from the Fukuoka 
No. 8 constituency. 
 
5) Abe to appoint Nikai as minister of internal affairs and 
communications, Aso as LDP secretary general 
 
SANKEI (Top Play) (Lead paragraph) 
August 27, 2007 
 
Prime Minister Shinzo Abe will today shuffle the cabinet and the top 
executives of the Liberal Democratic Party (LDP). After going 
through an attestation ceremony of the cabinet ministers at the 
Imperial Palace, he will launch the new cabinet. It has been decided 
so far that Foreign Minister Taro Aso will serve as LDP secretary 
general. It will also likely that Diet Affairs Committee Chairman 
Toshihiro Nikai will be picked as minister of internal affairs and 
communications, and former Agriculture Minister Tadamori Oshima as 
Nikai's replacement. It has been also decided that Tetsuro Yano, 
 
TOKYO 00003948  005 OF 012 
 
 
chairman of the Upper House caucus, will join the cabinet, and that 
Land, Infrastructure and Transport Minister Tetsuzo Fuyushiba, 
Economic and Fiscal Policy Minister Hiroko Ota, and Special Advisor 
(on Abduction Issue ) Kyoko Nakayama will be retained in their 
posts. In response to public criticism of the economic gaps between 
the urban and regional areas, Abe is carrying out coordination on a 
plan to name former Iwate Gov. Hiroya Masuda to the cabinet. 
 
6) Defense Minister Koike indicates intention to support Abe from 
outside the cabinet 
 
MAINICHI (Page 1) (Full) 
Eve., August 25, 2007 
 
Ryuko Tadokoro 
 
Defense Minister Yuriko Koike returned from India this morning. 
Meeting with the press corps at Narita Airport, she spoke of her 
earlier remarks denying she would stay on in the current post and 
noted: "I've conveyed to Prime Minister (Shinzo) Abe my intention to 
work hard as an ordinary foot soldier to support the prime 
minister." Koike thus revealed that she conveyed her intention to 
leave the cabinet to the prime minister. She also commented, 
"Because the prime minister is the person who appoints the cabinet 
members, I'll follow the prime minister's decision." When asked when 
she conveyed her intention to the prime minister, Koike said, "I've 
previously conveyed my intention to the prime minister." When asked 
how the prime minister responded to her, Koike said, "I can't say 
anything about that," avoiding specific comments. 
 
Denying again that the trouble over the selection of a new 
administrative vice defense minister was the reason for her not to 
stay on, Koike commented: "I think it is better to replace the 
defense minister in order to have Diet deliberations go more 
smoothly." 
 
7) Two organizations affiliated with Internal Affairs and 
Communications Minister Suga found to have reported 20 million yen 
as office expenses, despite their offices located in Suga's own 
building 
 
YOMIURI (Page 1) (Excerpts) 
August 25, 2007 
 
The Yomiuri Shimbun learned that the ruling Liberal Democratic 
Party's (LDP) Kanagawa Chapter's Second Constituency Branch Office 
of which Internal Affairs and Communications Minister Suga served as 
representative and his political organization had reported a total 
of 19.56 million yen in their reports on political funds for 2005, 
although their main offices are located in a building possessed by 
Suga himself. Cases where lawmakers located their main offices in 
the Diet Members' Building or their parents' houses so that they did 
not pay the rent but reported office expenses in their political 
fund reports are becoming a big problem, as evidenced by the cases 
of former Agriculture Ministers Toshikatsu Matsuoka and Norihiko 
Akagi. 
 
The two organizations -- the branch office and the supporters' 
organization -- associated with Suga had their main offices in a 
three-story building in Tori Town, Minami Ward, Yokohama. The two 
organizations initially were tenants of the building, but in 
December 2004, Suga purchased the building and the lot from a 
 
TOKYO 00003948  006 OF 012 
 
 
construction material company located in Yokohama's Naka Ward. The 
two organizations reported a total of 21.03 million yen and a total 
of 16.2 million yen in their 2003 and 2004 political fund reports, 
respectively, but even in 2005, when they did not have to pay rent, 
they reported a total of 19.56 million yen as office expenses in 
their political funds reports, with 16.7 million yen reported by the 
branch office and 2.86 million yen by the supporters' organization. 
 
8) 3 million yen paid to NPO associated with Justice Minister Nagase 
by leading organization accepting foreign trainees 
 
ASAHI (Top play) (Excerpts) 
August 25, 2007 
 
The Asahi Shimbun learned that two organizations affiliated with the 
Industrial Foundation for International Personnel Management (IPM 
located in Tokyo's Shinjuku Ward) had paid a total of 3,000,000 yen 
during a period from 2006-2007 to the nonprofit organization 
"Yuyukoronjuku" (located in Tokyo's Minato Ward) of which Justice 
Minister Jinen Nagase had served as honorary principal chairman. The 
NPO serves as a political-support organization of Nagase. The IPM's 
director, as well, had donated a total of 360,000 yen to Nagase's 
political organization. Suspicions are arising that the justice 
minister, who is in a position to supervise and give guidance to 
organizations accepting foreign trainees, had received money in 
various forms from some of those organizations under his oversight. 
 
The IPM was established in 1993. It has until now accepted some 
2,800 Chinese trainees and introduced them to domestic firms. Nagase 
reportedly had served as honorary chair of the IPM since its 
foundation and stepped down around September 2005, immediately 
before he assumed the post of deputy chief cabinet secretary. 
 
According to the IPM director, the two IPM-affiliated companies that 
had donated money to the NPO "Yuyukoronjuku" were "Neo Plan" 
represented by the IPM director and "Yen Plan" led by the director's 
wife. These two groups had each paid 100,000 yen monthly as 
supporting members to that NPO from May 2006 through July 2007. The 
money they had paid to the NPO totaled 3,000,000 yen. Reportedly, 
they were asked by Nagase's secretary to join the NPO as members. 
 
As the reasons why the two companies donated money to the NPO, the 
IPM director explained: "I donated in part because I hoped to see 
Mr. Nagase succeed in the political world." The director also said 
he took it into consideration that it appeared difficult to track 
this sort of donation. Given this, the NPO might have been used as a 
shield for political donations. The two companies declared losses in 
two fiscal years, 2005 and 2006. 
 
9) LDP to shelve reinterpreting right to collective defense 
 
NIKKEI (Page 2) (Abridged slightly) 
August 26, 2007 
 
The Liberal Democratic Party has decided to shelve its plan to 
produce this fall a set of proposals on altering the interpretation 
of Constitution with regard to the right to collective self-defense. 
The New Komeito has expressed its opposition to changing the 
constitutional interpretation to allow the country to exercise the 
right. The reason is that now that the House of Councillors is 
controlled by the opposition following the July election in which 
the ruling bloc suffered a crushing defeat, improving relevant 
 
TOKYO 00003948  007 OF 012 
 
 
legislation, including the Self-Defense Forces Law, has become 
difficult. 
 
The LDP launched in late April a special committee on the right of 
collective self-defense chaired by LDP policy chief Shoichi Nakagawa 
following the government's Council for Rebuilding the Legal 
Foundation of National Defense. The LDP committee was planning to 
produce a set of proposals ahead of the government's experts panel. 
However, given the Abe administration's declining momentum, the LDP 
panel is not in a mood to discuss the matter calmly, according to a 
committee member. 
 
Although the party plans to put together views in the party on the 
current situation and challenges regarding the right of collective 
self-defense, it plans to abstain from showing any direction in its 
proposals. 
 
10) Prime Minister Abe to seek DPJ understanding for extension of 
Antiterrorism Law 
 
NIKKEI (Page 2) (Excerpts) 
August 25, 2007 
 
Yushi Kihara, Kuala Lumpur 
 
Visiting Prime Minister Shinzo Abe held a press conference on Aug. 
24 at a hotel in Kuala Lumpur, in which he stated on the issue of 
extending the Antiterrorism Special Measures Law: "I will discuss 
foreign policy with the opposition camp, as well. I want the 
Democratic Party of Japan to understand how much Japan's activities 
are appreciated and expected by the international community." 
 
He indicated in his remarks that with an eye on passage of the law 
in the fall extraordinary session of the Diet, he would seek 
understanding from the DPJ, which has opposed an extension of the 
Antiterrorism Law. He, however, refrained from mentioning any 
specific response, including corrections to a bill to extend the 
antiterrorism law. 
 
11) North Korea is believed to have obtained Japanese products via 
Taiwan 
 
SANKEI (Page 2) (Excerpts) 
August 25, 2007 
 
Against the backdrop of Japan's tight export control against North 
Korea following the country's nuclear and missile tests, North Korea 
is strongly suspected of shifting to "diversionary trade" of 
importing high-tech Japanese equipment via Taiwan. Pyongyang is 
believed to have begun taking advantage of the system allowing Japan 
to export supplies to Taiwan, whose direct exports to North Korea 
are prohibited. Some corporations run by Koreans in Japan have 
offices in Taiwan. Public security authorities are highly alarmed, 
believing that they are trying to make Taiwan, which actively trades 
with North Korea, into a new base for procuring Japanese products. 
 
In early August, Taiwan's Justice Department arrested Hua Yue 
Enterprise (Taipei) executives for allegedly having illegally 
exported Japanese computer components that could be converted for 
military use to North Korea. The company is believed to have 
exported computer numerical control components to North Korea on 14 
occasions from last August through this past July by falsely 
 
TOKYO 00003948  008 OF 012 
 
 
claiming the cargo to be bound for China. Japanese computers and 
stainless pipes were also included in the cargo. 
 
According to security authorities, what has fallen in the hands of 
North Korea is software used for missile control. In addition, 
highly acid-resistant stainless pipes are extremely tightly 
controlled in Japan for exports as a material indispensable for 
producing nuclear substances and rocket engine components. 
 
In March this year in Taiwan, trading company executives were 
arrested for illicitly exporting to North Korea a precision metal 
processing machine tool that could be used in processing ammunition. 
Arrests of company executives for illegal exports to the North are 
on the rise. Components in the machine tool that was illicitly 
exported were imported from Japan and assembled in Taiwan. Such 
components are not allowed to be exported to North Korea. 
 
Last year, Japanese police arrested executives of two companies run 
by Koreans in Japan who were involved in the illegal export via 
Taiwan of a freeze dryer that can be used in developing bio weapons 
on suspicion of violating the Foreign Exchange and Foreign Trade 
Control Law. 
 
12) Japan concerned about China's defense buildup 
 
TOKYO (Page 2) (Full) 
August 27, 2007 
 
China's National Defense Minister Cao Gangchuan will visit Japan on 
a five-day schedule from Aug. 29 and will meet his Japanese 
counterpart. 
 
China's defense chief will visit Japan for the first time in nine 
and a half years since Chi Haotian visited in February 1998. Japan 
and China will now hold a defense summit for the first time in four 
years since Shigeru Ishiba visited China and met with Cao in 
September 2003 when Ishiba was director general of the Defense 
Agency, now the Defense Ministry. 
 
Japan and China, which have suspended defense exchanges since former 
Prime Minister Junichiro Koizumi paid homage at Yasukuni Shrine, 
will now resume them. However, there is a deep gulf between the two 
countries over the rapid increase in China's defense spending. There 
are many challenges in store for the two countries. 
 
Prime Minister Abe visited China in October 2006. Abe then met with 
Chinese President Hu Jintao and other Chinese leaders. At that time, 
Japan and China agreed on mutual confidence-building measures 
(CBMs). In the defense summit this time, Japan and China are 
expected to discuss carrying out mutual fleet visits at an early 
date and setting up a hotline between their defense officials. 
 
However, Japan remains distrustful of China over its nontransparent 
defense spending, taking the position that China has boosted its 
defense spending with a double-digit increase for 19 years in a row 
and that there are questions about the transparency of the budget. 
Meanwhile, Japan has been strengthening its alliance with Japan. In 
addition, Prime Minister Abe has advocated building a framework of 
Japan, the United States, India, and Australia. China is 
increasingly becoming wary of that move, taking it as a coalition 
against China. As it stands, Japan and China have not built an 
environment to facilitate cooperation. 
 
TOKYO 00003948  009 OF 012 
 
 
 
On Aug. 24, Defense Minister Yuriko said she would not be involved. 
"We've been troubled since the appointment of a successor to the 
vice defense minister, so I wonder if she can talk with her Chinese 
counterpart in an appropriate manner." With this, one of the Defense 
Minister's officials voiced concern. 
 
13) F-15 deployment to Okinawa eyed 
 
SANKEI (Page 5) (Abridged) 
August 27, 2007 
 
The Air Self-Defense Force will deploy F-15 fighter jets to its Naha 
base in Japan's southernmost island prefecture of Okinawa, Defense 
Ministry officials said yesterday. The F-15 deployment to Okinawa is 
intended to secure mastery of the air and strengthen readiness for a 
possible violation of Japan's territorial airspace while in 
preparation for a possible invasion of the Senkaku islets and other 
islands. In this F-15 deployment, the Defense Ministry plans to 
replace F-4 mainstay fighters currently deployed to the Naha base 
with F-15 fighters deployed to the ASDF's Hyakuri base in Ibaraki 
Prefecture. The F-15 is superior to the F-4 in mobility and dogfight 
capability. The ASDF will deploy F-15s to Okinawa and step up 
interoperability with F-15s deployed to the US Air Force's Kadena 
base on the island prefecture in an aim to increase deterrence on 
China. 
 
The ASDF's Naha base currently deploys the 302nd Fighter Squadron 
with about 20 F-4s and will replace them with about 20 F-15s from 
the 204th Fighter Squadron. The ASDF is expected to complete its 
F-15 deployment to Okinawa in fiscal 2008. 
 
The Hyakuri base, according to an ASDF staff officer, had been 
positioned as "the last line of metropolitan air defense" in Japan's 
northern-oriented strategy against the now-defunct Soviet Union's 
possible invasion during the Cold War. Replacing the Naha-based F-4 
fighters with F-15s can be called an instance that typifies a shift 
to southwestern-oriented strategy with China in mind. 
 
The Defense Ministry will also earmark 112.3 billion in its budget 
estimate for fiscal 2008 to renovate 32 F-15s in order to enhance 
their combat capability. The F-22A Raptor, a state-of-the-art 
stealth fighter developed by the United States, was a likely 
candidate for Japan's follow-on mainstay fighter (FX). However, the 
United States will not provide Japan with any data about the F-22A. 
The Defense Ministry therefore deems it difficult to select a 
fighter model by the summer of next year as planned. The ministry, 
which has so far had plans to renovate only eight F-15s, will now 
substantially increase the number of F-15s for modernization with 
upgraded radar performance and missile efficiency. 
 
14) Japan putting in serious efforts to ready space, sea strategies 
 
SANKEI (Page 1) (Abridged) 
August 27, 2007 
 
The Defense Ministry will set up a new division, tentatively called 
the "Office of Space and Ocean Policy" or "OSOP" for shirt, which is 
in charge of planning space and sea strategies, officials said 
yesterday. China has been projecting its space and ocean activities. 
With an eye to this move, the Defense Ministry will launch the 
office in the summer of next year. 
 
TOKYO 00003948  010 OF 012 
 
 
 
OSOP will be installed in the Defense Policy Division and will be 
staffed with five persons or so. In July, Japan's own law of the sea 
came into effect. OSOP will plan space and ocean policies. In 
addition, the new office will also engage in interdepartmental 
coordination with other government ministries and agencies as well 
as international coordination with foreign defense ministries and 
international organizations. The Defense Ministry's budget estimate 
for fiscal 2008 totals 4.8172 trillion yen, an increase of 0.7% 
or 35.7 billion yen over the ministry's initial budget for the 
current fiscal year. The ministry will also earmark costs for 
establishing OSOP. 
 
15) Equipment contracts: New system to curb procurement expenses; 
Defense Ministry to encourage companies to reduce prices 
 
NIKKEI (Top Play) (Excerpts) 
August 25, 2007 
 
The Defense Ministry will launch a drive to reform its system of 
procuring defense equipment, including fighter planes and spare 
parts for repairs, starting in fiscal 2009. Judging that it is 
difficult to urge companies to make rationalization efforts under 
the present system of adding a 5%    profit to cost prices after the 
completion of ordered products, the ministry will instead adopt a 
system under which companies can receive portions of costs saved 
during a production process as their profits, thereby curbing 
procurement prices. Another aim of the introduction of a new system 
is to boost the competitiveness of the defense industry on the 
equipment market. 
 
Defense equipment generically indicates weapons, protective 
equipment, systems used mainly by the Ground, Maritime and Air 
Self-Defense Forces. Such equipment used by the GSDF includes tanks, 
all-wheel-drive armored trucks, carrier helicopters, rifles and so 
on. The MSDF uses Aegis ships, submarines. The ASDF uses fighter 
planes, missiles and transport planes. These products are often 
procured, based on discretionary contracts. 
 
Companies that received orders for such products usually work out 
prices by adding profits the costs needed immediately before the 
delivery. It takes several years for companies to deliver ordered 
equipment. Since low cost prices mean low profits, the present 
system does not encourage manufacturers to make cost-cutting efforts 
so much. 
 
The envisaged system is aimed at encouraging manufacturers to cut 
cost prices, while maintaining a general framework of the current 
system of adding a 5%    profit to cost prices. To be precise, 
prices are set when the Defense Ministry allocates contracts to 
start the manufacturing of ordered products to companies. Companies 
will be entitled to receive portions of costs saved by their own 
efforts made by immediately before the delivery. 
 
16) Cabinet Office requests 312.5 billion yen in Okinawa package 
 
SANKEI (Page 5) (Full) 
August 25, 2007 
 
The Cabinet Office on August 24 produced an Okinawa-related 
budgetary request for FY2008 totaling 312.51 billion yen (up 18.3% 
 from this year's initial budget) including 15.597 billion yen in a 
 
TOKYO 00003948  011 OF 012 
 
 
preparatory fund for the Okinawa Institute of Science and 
Technology. In new businesses, the budget places priority on 
developing human resources in tourism and other areas. Specifically, 
39 million yen was appropriated for a project to foster highly 
skilled human resources with the aim of producing international 
tourist resorts, and 224 million yen for the House of Asian Youths 
project to promote exchanges with other Asian nations. In addition, 
a total of 10 billion yen -- the same as last year -- was earmarked 
for an aid package for development of the northern area, which is 
based on the planned relocation of Futenma Air Station. However, 
whether or not the government can actually secure the funds for the 
northern area depends on developments in the year-end budget 
compilation. 
 
17) Japan, ASEAN agree to sign EPA; Japan to repeal more than 90% 
of tariffs soon 
 
YOMIURI (Page 1) (Full) 
Evening, August 25, 2007 
 
Manila 
 
Japan and the Association of Southeast Asian Nations (ASEAN) held an 
economic ministerial meeting in Manila on Aug. 25 and agreed in 
principle to reach an economic partnership agreement (EPA), 
centering on free trade agreements (FTA). Both sides will ink the 
accord in November when their leaders meet in Singapore. The pact is 
expected to take effect next year. 
 
Japan will scrap tariffs on more than 90%    of imports from the 
region immediately after the pact comes into effect. The items 
subject to tariff removal will be increased to more than 93%    of 
all imports within 10 years. But rice will not be covered by the 
agreement. 
 
The six original ASEAN countries, including Indonesia, will repeal 
tariffs on more than 90%    of imports from Japan in terms of both 
value and items. Of the later members, Vietnam will abolish more 
than 90%    of tariffs within 15 years, and three countries, 
including Cambodia, will scrap over 85%    of tariffs within 18 
years. 
 
The EPA will be Japan's first multinational accord. Under the pact, 
tariffs will not be imposed or will be reduced even if components or 
fully assembled products are moved within the ASEAN region, for 
instance, in a case in which Japan exports a liquid crystal panel to 
Malaysia and again exports a TV set assembled there to Thailand. The 
business community has welcomed the accord, based on the view that 
it will become easier for Japanese firms to construct plants in 
various countries in the region and to divide work. 
 
ASEAN has already concluded free trade agreements (FTA) with China 
and South Korea. The FTAs with China and South Korea came into 
effect in July 2005 and in June 2007, respectively. Given this, 
Japan was being pressed to quickly conclude a pact. 
 
Minister of Economy, Trade and Industry Amari told reporters after 
the ministerial meeting: "We were able to mark a great step forward 
toward integrating the economies of East Asia," stressing the 
significance of the agreement. 
 
18) Agreement between Japan, ASEAN to sign EPA likely to add 
 
TOKYO 00003948  012 OF 012 
 
 
momentum to free trade strategy 
 
NIKKEI (Page 3) (Full) 
August 26, 2007 
 
Japan and the Association of Southeast Asian Nations (ASEAN composed 
of 10 countries) yesterday came to a general agreement to conclude 
an economic partnership agreement (EPA). Japan has no regional trade 
bloc, like the European Union (EU), so it is an important challenge 
for the nation to form a free trade zone with ASEAN and countries in 
the Asia-Pacific countries, such as China, South Korea, Australia, 
and India. The progress in negotiations on concluding an EPA with 
ASEAN is likely to give momentum to Japan's free trade strategy. 
 
Minister of Economy, Trade and Industry Akira Mari told reporters 
yesterday: "This marks a great step forward to realize the concept 
of an East Asia Community," indicating his eagerness for an 
expansion of EPAs. Trade in the Asia-Pacific region grew more than 
10 fold over the past 20 years in value terms. The Japanese 
government estimates that if 16 countries in the Asia-Pacific region 
reach an EPA, it will bring about an economic effect worth 
approximately 5 trillion yen. The government also aims to sign EPAs 
with the United States and the European Union (EU). 
 
Japan proposed in earlier EPA talks with ASEAN that it would 
promptly remove tariffs on about 90%    of imports from the region. 
South Korea, which has already inked a deal with ASEAN, has agreed 
to immediately abolish about 60%    of tariffs. China will phase out 
tariffs on all imported products. If Japan is able to present bold 
liberalization plans, like the one with ASEAN, the East 
Asia-Community concept must take on a realistic touch. 
 
In the EPA talks with ASEAN, though, Japan placed such high-tariff 
agricultural products as rice, dairy products, and beef outside the 
reach of the agreement. China and Australia are expected to call on 
Japan to open up its agricultural market wider. Unless Japan 
encourages Japanese farmers to bolster their competitiveness and 
liberalize the market, it might be difficult for a free trade system 
to be established in the Asia-Pacific region, as Japan desires. 
 
 
MESERVE