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UNCLAS SECTION 01 OF 08 TOKYO 005043 
 
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:  DAILY SUMMARY OF JAPANESE PRESS 10/30/07 
 
 
Index: 
 
(1) Meeting between Prime Minister Fukuda, DPJ President Ozawa on 
new antiterrorism bill ends without any agreement (Nikkei) 
 
(2) Japanese system involving trading firms in procuring defense 
equipment a breeding ground for collusion (Asahi) 
 
(3) Editorial: Moriya's Diet testimony has further deepened 
suspicions (Nikkei) 
 
(4) Former Defense Minister Kyuma to be hospitalized today 
(Mainichi) 
 
(5) EU, 11 states of US and Canada agree to form unified market for 
trading in greenhouse gas credits (Asahi) 
 
(6) JBIC to support China's environment policy (Sankei) 
 
(7) TOP HEADLINES 
 
(8) EDITORIALS 
 
ARTICLES: 
 
(1) Meeting between Prime Minister Fukuda, DPJ President Ozawa on 
new antiterrorism bill ends without any agreement 
 
Nikkei Net (Full) 
October 30, 2007 
 
Prime Minister Yasuo Fukuda and Democratic Party of Japan (DPJ or 
Minshuto) President Ichiro Ozawa held their first meeting as party 
heads this morning in the Diet. The prime minister sought his 
cooperation on passing the new bill that will allow continued 
refueling services in the Indian Ocean by the Maritime Self-Defense 
Force (MSDF), but Ozawa would not accept his view, and the talks 
ended along divergent lines. However, Ozawa agreed to the prime 
minister's suggestion that they talk again on Nov. 2. 
 
Talks between the prime minister and President Ozawa lasted one hour 
and twenty minutes. Only at the start of the meeting were the 
secretaries general and Diet steering committee chairmen of the two 
 
SIPDIS 
parties present. For the rest of the session, only the two party 
leaders parleyed. Referring to the MSDF's refueling operation, the 
prime minister in seeking Ozawa understanding toward passage of the 
new bill, stressed, "For domestic and international reasons, I would 
like your cooperation in some way." Ozawa rejected the request, 
saying: "Dispatching the Self-Defense Forces overseas must be based 
on proper principles. It can only be allowed under the framework of 
being a United Nations activity." 
 
With no agreement in their views, the prime minister proposed 
holding talks again on Nov. 2, saying, "I would like to have another 
frank discussion with you." President Ozawa replied that he would do 
everything possible to oblige. With that in mind, the two decided to 
postpone the party-head debate scheduled for the Diet on Oct. 31. 
 
(2) Japanese system involving trading firms in procuring defense 
equipment a breeding ground for collusion 
 
ASAHI (Page 3) (Abridged) 
 
TOKYO 00005043  002 OF 008 
 
 
October 30, 2007 
 
The Defense Ministry heavily relies on major defense equipment from 
Western countries that are of high performance and inexpensive. A 
procurement system in which trading firms take care of complex 
contract procedures is unique to Japan. Serving not only as a 
go-between with overseas makers but also collecting and providing 
military information, the presence of Japanese trading houses is 
indispensable, according to a senior Defense Ministry official. Why 
is the presence of traders essential in procuring defense equipment? 
What problems lie there? 
 
Monopolistic deliveries 
 
The Self-Defense Forces annually procure equipment ranging from 
fighters to tanks to clothing that is worth about 2 trillion yen. Of 
that, 7 PERCENT  of imports involve trading houses. The total volume 
of contracts in FY2005 came to 152.5 billion yen. Fierce competition 
exists among over 100 companies registered with the Defense 
Ministry. 
 
Defense equipment is procured through open biddings in principle, as 
is the case with other government agencies. However, because the 
limited number of makers producing equipment involving highly 
classified military secrets and special military specifications, the 
ministry in many cases ended up concluding discretionary contracts. 
This trend is more pronounced when military equipment is imported. 
 
Why do trading firms stand between equipment manufacturers and the 
Defense Ministry? A ministry procurement official explained it this 
way: "Simply put, they can take care of complex business procedures 
and deliver products on time without fail." 
 
Importing a large number of equipment takes several years. Under 
Japan's accounting system that is on a single-year basis, the 
ministry in principle makes payments at the end of each fiscal year. 
Some overseas producers, on the other hand, ask for advance or 
piecework payments in the middle of a fiscal year. In such a case, a 
trading house might borrow large sums of money from financial 
institutions. 
 
Importing equipment requires expertise in customs clearance and 
settling trade accounts, in addition to differences in business 
practices and languages. The Defense Ministry procurement department 
has neither secured enough personnel nor developed sufficient human 
resources. Many procurement officials agree that procurement 
operations will collapse without traders. Trading houses' other role 
is to collect information. 
 
A defense department official at a major trading firm commented: "We 
have been providing the latest and current defense information, such 
as what would be needed for the next generation, by checking the 
trends of the global arms markets five to 10 years from now." 
 
By collecting information and doing market research for the Defense 
Ministry and SDF, trading houses also intend to have a handle on the 
demand of their trading partners in the hope of new business 
opportunities. 
 
The reward of such work would be the monopolistic delivery of 
equipment as an agent of a foreign manufacturer. For instance, once 
a contract is concluded on aircraft parts that would be used for the 
 
TOKYO 00005043  003 OF 008 
 
 
next 20 years, a company would automatically be able to deliver 
parts until the fuselages are scrapped. 
 
Moreover, unlike fierce competition for prices and quality among 
domestic makers in bidding, a company can in many cases win 
discretionally contracts when there are no competitors. In the case 
of Yamada Yoko Corp., over 90 PERCENT  of its defense equipment 
contracts are discretionary contracts. 
 
Cautious views in the ministry 
 
It is a standard practice for procurement organizations of other 
countries to do business directly with Western military 
manufacturers that are mostly equipped with exporting functions. The 
involvement of trading firms is reportedly limited to the 
procurement of components. Military journalist Shinichi Kiyotani, 
who is knowledgeable about military procurement of other countries, 
takes a critical view of the Japanese system, saying: "In the case 
of Japan, everything -- from market research to negotiations to 
collecting information -- is left to trading houses. Leaving 
everything to them is too much to tolerate." 
 
Defense Minister Shigeru Ishiba has announced a plan to review the 
present procurement system involving traders. Ishiba's plan comes 
from a sense of alarm that excessive reliance on trading houses 
would result in a decline in the information-gathering capability. 
But there are highly cautious views in the Defense Ministry. A 
senior official well-versed in procurement transactions said: "The 
traders' role is to bridge gaps in accounting and contract systems 
between Japan and other countries. Reexamining the Japanese system 
would be difficult unless fundamental institutional reform is 
entailed." 
 
Procurement organizations of other countries are diverse, ranging 
from government organizations to national enterprises, though they 
are all large in scale. In the United States, procurement is done by 
the Defense Logistics Agency and the Defense Contract Audit Agency, 
which employ a total of 70,000 personnel. Britain has also nearly 
30,000 personnel for procurement. In contrast, in Japan's Defense 
Ministry, the Equipment Procurement and Construction Office has only 
600 personnel. 
 
Kiyotani proposes a national defense equipment procurement company 
without establishing a large government organization. Kiyotani said: 
"There would be no problem to establish a stand-alone entity 
composed of personnel from the Foreign and Defense Ministries, who 
would all be held responsible for procuring defense equipment." 
 
Meanwhile, military analyst Keiichi Nogi noted: "The procurement of 
arms overseas is ridden with irregularities, as well. It would be 
more pragmatic to increase the transparency of the current system 
and strengthen the checking functions." 
 
Scandals involving trading firms in the past 
 
In the Lockheed scandal and the Douglas-Grumman scandal that came to 
light in the 1970s, the aircraft makers' maneuverings for the 
selection by Japan of the P3C patrol aircraft and the E2C 
early-warning aircraft, respectively, were suspected. In both cases, 
the truths were not uncovered as the investigators were not allowed 
to tap into defense secrets, a sanctuary. 
 
 
TOKYO 00005043  004 OF 008 
 
 
To prevent a recurrence, the then Defense Agency has switched to a 
system to directly conclude contracts between governments. But the 
system is prone to cause troubles, such as delayed deliveries. As a 
result, imports via trading firms are again on the rise. 
 
There has been no change in the system that produces collusive ties 
between foreign makers and trading firms that are strong in 
collecting information on what the user is likely to select in the 
future. 
 
Although traders have been refraining from treating retired Defense 
Ministry officials to free golf and wining and dining since the SDF 
code of ethics took effect in 2000, such practice has not 
disappeared altogether. 
 
(3) Editorial: Moriya's Diet testimony has further deepened 
suspicions 
 
NIKKEI (Page 2) (Full) 
October 30, 2007 
 
Why was a person like Takemasa Moriya, who lacks a sense of ethics, 
able to hold on to the administrative vice minister's post for more 
than four years? 
 
A collusive relationship between former Administrative Defense 
Minister Takemasa Moriya and Nihon Mirise Corp. President Motonobu 
Miyazaki, a former executive of defense equipment trader Yamada Yoko 
Corp. was more than we had envisioned. Moriya, however, said that he 
had provided no favors to Miyazaki. The Diet needs to continue 
working to shed light on the allegation of inappropriate relations 
between the two. 
 
In his testimony yesterday before the House of Representatives 
Special Committee on Terrorism Prevention and Assistance for Iraq, 
Moriya revealed that he had played golf more than 200 times in about 
11 years with Miyazaki, who always footed Moriya's bill. Miyazaki 
also paid for golf outings in Hokkaido, Kyushu and Shikoku regions 
with Moriya and twice gave Moriya and his wife golf clubs as gifts. 
When traveling overseas, he bought bags for Moriya's wife as 
souvenirs. Moriya yesterday apologized for his cozy ties with 
Miyazaki, saying, "My conduct was unwise and inappropriate." 
 
Moriya denied, however, allegations that he had helped Nihon Mirise 
conclude a discretionary contract with the ministry for the engine 
of the CX next-generation transport aircraft. He probably considers 
that Miyazaki entertained him because they were friends, and he had 
no other intention. We wonder a senior defense equipment trading 
house executive, who wanted to sell defense equipment to the 
ministry, spent such a large amount of money to entertain a senior 
bureaucrat just because they were friends. 
 
It is impossible in common-sense terms to entertain for a decade 
without seeking any rewards. Moriya revealed in his testimony that 
some politicians joined the entertainment on occasion. Although he 
avoided mentioning the names of politicians, he stated that former 
Defense Agency chiefs were included. 
 
How much the politicians were involved in the cozy relations between 
Moriya and Miyazaki will be uncovered. The reason for Moriya having 
served in the vice minister's post for such a long time is that he 
had close relations with LDP lawmakers with vested interests in 
 
TOKYO 00005043  005 OF 008 
 
 
defense affairs. It is natural for the politicians in question to 
come forward if they have nothing to hide. 
 
"I feel deeply sorry for the public and for Defense Ministry 
officials," Moriya said. "I as administrative vice minister feel 
greatly responsible for causing problems that have delayed 
deliberations on the antiterrorism measures bill." If what he said 
is true, he has to honestly cooperate with continued efforts to shed 
light on the issues. 
 
He did not give any clear testimony for the correction of the amount 
of fuel the MSDF supplied to a US ship, which was also a focus of 
attention along with the Moriya scandal in his Diet testimony. The 
Diet has to shed light on this issue as well. 
 
(4) Former Defense Minister Kyuma to be hospitalized today 
 
MAINICHI (Page 3) (Full) 
October 30, 2007 
 
Former Defense Minister Fumio Kyuma, a member of the ruling Liberal 
Democratic Party (LDP), revealed in a meeting yesterday of LDP House 
of Representatives members held in the city of Yokkaichi, Mie 
Prefecture that he will be admitted to a hospital today to undergo a 
dissecting aortic aneurysm surgery. He said: "If I don't have 
surgery as quickly as possible, I will become like Yujiro Ishihara 
(actor who died for the same illness). My doctor threatened me to 
rebuild the aorta with a synthetic graft." He therefore reportedly 
cancelled the planned overseas trip starting today. 
 
It has just been revealed that he was wined and dined in Tokyo by a 
former executive of defense equipment trader Yamada Corp. 
 
(5) EU, 11 states of US and Canada agree to form unified market for 
trading in greenhouse gas credits 
 
ASAHI (Page 9) (Excerpts) 
October 30, 2007 
 
(Kishi, Kunimatsu, Lisbon) 
 
The European Union (EU) and 11 states of the United States and 
Canada, including California and New York, agreed on Oct. 29 to aim 
to form a unified market for trading of greenhouse gas credits and 
signed a political declaration in Lisbon. They will play a leading 
role in creating an international emissions market in the form of 
major US and Canadian states joining hands with the EU, which has 
taken the lead in emissions trading. Once preparations for a new 
unified market advance quickly under the cooperation between the US 
and Europe, it will inevitably have some impact on Japan, which has 
been halfhearted about emissions trading, as well as on negotiations 
on nation-specific emission-cut plans beyond the 2012 timeframe 
under the Kyoto Protocol. 
 
Japan might be left behind 
 
The agreement designed to unify the EU Emissions Trading Scheme 
(EUETS) and a planned US market is a great step toward forming a 
global market for carbon dioxide (CO2) that involves the US. If the 
international market begins to play a main role to reduce greenhouse 
gas emissions in the future, Japan, which has yet to set up a 
trading system, could be left behind. Japan is now being pressed to 
 
TOKYO 00005043  006 OF 008 
 
 
determine whether to introduce a cap-and-trade system. 
 
The US has not joined the Kyoto Protocol. So even if states in the 
eastern and western parts of the US introduce the planned system, it 
will be considerable difficult to connect the US system free from 
any Kyoto requirements to the EUETS, which is based on the targets 
set in the Kyoto Protocol. 
 
The condition for two markets to be integrated smoothly is that both 
have the same reduction targets under an international treaty. Given 
this, the agreement reached this time may back up negotiations to 
work out a post-Kyoto framework that is also acceptable for the US. 
 
The agreement reached between the EU and the US states and Canada, 
even though no system has been prepared in the US, can be taken as a 
message urging the US Bush administration and the international 
community to introduce obligatory reduction requirements, prior to 
the start of negotiations on post-Kyoto framework in an 
international conference in Indonesia in December. 
 
Japan has yet to introduce a cap-and-trade system due to opposition 
from industrial circles, which hate emission quotas. But once a 
global market is formed, the prices of greenhouse gas credits set on 
the market will be applied in projects designed to reduce CO2 
emissions across the world. If only Japanese firms cannot use the 
system freely, its companies will find it difficult to effectively 
cut gas emissions. Meanwhile, if Japan fails to meet its target set 
in the Kyoto Protocol, Japan will have to buy emission quotas on 
this international market. 
 
Japan is urged to discuss the issue of introducing a cap-and trade 
system. If Japan wishes to join the global market, it should start 
taking part in the process of forming a system. 
 
(6) JBIC to support China's environment policy 
 
SANKEI (Page 2) (Excerpts) 
October 30, 2007 
 
The Japan Bank for International Cooperation (JBIC) has agreed with 
China's State Environment Protection Administration (SEPA) as of 
Oct. 29 to assist its measures to protect the environment. Saddled 
with such serious environmental problems as air and water pollution, 
as well as desertification, China has suffered grave environmental 
damage. It is estimated that the annual amount of damage accounts 
for 5.8 PERCENT  of its gross domestic product (GDP). Most of the 
projects that Japan has carried out in China with its official 
development assistance (ODA) funds over the past several years are 
related to environmental protection. Given this, the JBIC decided to 
offer cooperation in projects to be carried out by the SEPA to 
improve the environment. 
 
Specifically, the JBIC intends to help China develop human resources 
and to give advice on how to enhance the effectiveness of measures 
to protect the environment and contain global warming based on 
ex-post-fact evaluation of policies. The bank is also expected to 
play a mediatory role between the SEPA and Japan's Environment 
Ministry on environment-protection regulations. 
 
In its 11th five-year program, China sets the goal of enhancing 
energy efficiency to 20 PERCENT  of the nation's GDP by 2011. As 
seen from this, China is now eager to reduce greenhouse gas 
 
TOKYO 00005043  007 OF 008 
 
 
emissions, reflecting the occurrence of serious health hazards 
caused by air and water pollution and desertification. 
 
In China, although a legal system, such as penalties for 
environmental contamination, has been arranged, an administrative 
system to urge people to abide by laws has yet to be prepared. Not 
only administrative organizations tasked with implementing laws but 
even people are not keenly aware of the importance of protecting the 
environment. In local areas, particularly, there are many cases in 
which plants are not observing the regulations that set the maximum 
levels of smoke and water discharges. 
 
The SEPA asked Japan to cooperate in improving the effectiveness of 
its projects to improve the environment. Since FY2006 Japan has 
provided China with new yen loans totaling 62.3 billion yen. All of 
these loans were allocated to project to improve the environment. 
 
(7) TOP HEADLINES 
 
Asahi, Yomiuri, Tokyo Shimbun & Akahata: 
Moriya admits playing golf more than 200 times with former defense 
equipment trading house executive, says former Defense Agency chief 
present when wined and dined with former executive 
 
Mainichi: 
Fukuda in meeting today to ask Ozawa to support new antiterrorism 
legislation 
 
Nikkei: 
Fuji Heavy Industries, Daihatsu eye tie-up on passenger cars 
 
Sankei: 
Fukuda, Ozawa to hold talks today 
 
(8) EDITORIALS 
 
Asahi: 
(1) Moriya's Diet testimony: What did Moriya give defense equipment 
firm executive in return for wining and dining? 
(2) Expressway tolls: It is too early to introduce tolls based on 
travel distance 
 
Mainichi: 
(1) Testimony by Moriya: Why was such a person appointed vice 
defense minister? 
(2) Japan-ROK environment award: Environmental pollution not an 
issue of the past 
 
Yomiuri: 
(1) Moriya case irrelevant to new antiterrorism bill 
(2) Suspension of new station construction is one good model to 
review public works projects 
 
Nikkei: 
(1) Moriya's testimony has deepened suspicions further 
(2) Can Minamata disease be resolved with political settlement? 
 
Sankei: 
(1) Moriya's Diet Testimony: Conditions met for discussing main 
issue 
(2) Chinese yuan: Greater reform efforts necessary for developed 
economy 
 
TOKYO 00005043  008 OF 008 
 
 
 
Tokyo Shimbun: 
(1) What is Moriya trying to defend? 
(2) Idea of establishing tourism agency might run counter to 
administrative reform 
 
Akahata: 
(1) Moriya's Diet testimony has deepened suspicions 
 
SCHIEFFER