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RUEHIN/AIT TAIPEI 6828
RHEHAAA/NSC WASHDC
RUEHGV/USMISSION GENEVA 3205
RUEHBS/USEU BRUSSELS

UNCLAS SECTION 01 OF 17 TOKYO 005678 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EAGR ETRD JA
SUBJECT: SUB CABINET MEETINGS, DEC. 6-7, U.S. URGES MORE 
AMBITIOUS ECONOMIC ENGAGEMENT 
 
 Summary 
------- 
 
¶1.  (SBU) Assistant to the President and Deputy National 
Security Advisor for International Economic Affairs Daniel 
Price led a deputies-level team from USTR, Treasury, 
Agriculture, Commerce, and State for the U.S.-Japan Economic 
Sub-Cabinet Dialogue meetings on December 6-7 in Tokyo.  The 
over-arching message, stated in private meetings with senior 
Japanese counterparts as well as in public media events, was 
that we need to put the U.S.-Japan bilateral economic 
relationship on a more ambitious track, in particular in 
support of global trade liberalization.  More can be done to 
coordinate on climate and energy policies, and to share 
economic policy strategies toward China.  Progress was 
limited on key issues, including allowing imports of all ages 
and products of U.S. beef; cooperating on food safety; 
enhancing foreign direct investment opportunities; pricing 
for innovative U.S. pharmaceutical products; and greater 
engagement and ambition in  the Doha Development Agenda. 
Additionally, the regional architectures Japan has completed 
to date have not included the United States, although the 
U.S. market is likely the single most important driver of 
East Asian private sector integration. 
 
¶2.  (SBU) Japanese representatives repeatedly stressed their 
desire to work more closely with the United States, but often 
noted domestic political factors -- chiefly the opposition 
party,s control of the Upper House of Japan,s Diet which 
also impedes the Japanese government's ability to proceed 
with any economic policy reforms.  Japan agreed in principle 
with the U.S. view that bilateral or plurilateral trade or 
investment arrangements must truly liberalize economic 
dealings and positively shape globalization.  The two sides 
committed to closer cooperation on intellectual property 
rights protection; secure trade; development assistance; and 
energy security, and climate change.  Both sides looked 
forward to close coordination in the coming months, including 
in the Major Economies and G-8 processes.  End Summary. 
 
Delegation List 
--------------- 
 
Japan 
----- 
 
Masaharu KOHNO, Deputy Minister, Ministry of Foreign Affairs 
(MOFA); 
Yoichi OTABE, Director General, Economic Bureau, MOFA; 
Masakazu TOYODA, Deputy Minister for International Affairs, 
Ministry of Economy, Trade and Industry (METI); 
Naoyuki SHINOHARA, Deputy Minister for International Affairs, 
Ministry of Finance (MOF); 
Takehiko NAKAO, Senior Deputy DG, International Bureau, MOF; 
Masayuki YAMASHITA, Counselor, Minister's Secretariat, 
International Affairs, Ministry of Agriculture, Forestry and 
Fisheries (MAFF); 
Kousuke SHIBATA, Deputy Minister for International Affairs, 
Ministry of Land, Infrastructure and Transportation (MLIT); 
Yutaka YOKOI, Minister for Economics, Embassy of Japan in the 
United States 
 
USG 
--- 
 
Daniel M. Price, Assistant to the President for International 
Economic Affairs and Deputy National Security Advisor for 
International Economic Affairs, National Security Council; 
David McCormick, Under Secretary for International Affairs, 
Department of Treasury; 
 
TOKYO 00005678  002 OF 017 
 
 
Mark E. Keenum, Under Secretary, Farm and Foreign Agriculture 
Service, Department of Agriculture; 
John Veroneau, Deputy U.S. Trade Representative, Office of 
the U.S. Trade Representative; 
Christopher Padilla, Acting Under Secretary for International 
Trade Administration, Department of Commerce; 
Daniel S. Sullivan, Assistant Secretary for Economic, Energy 
and Business Affairs, Department of State; 
Robert F. Cekuta, Minister-Counselor for Economic Affairs, 
U.S. Embassy in Japan; 
 
(also attending) 
 
¶A. Ellen Terpstra, Deputy Under Secretary of Agriculture, 
USDA; 
Robert Dohner, Deputy Assistant Secretary for Asia, Treasury; 
Kurt Tong, Director for Asian Economic Affairs, NSC 
Michael Beeman, Deputy Assistant USTR for Japan, USTR; 
Jessica Webster, Chief for Economic Affairs, Japan Desk, 
State; 
Ian Clements, Japan Officer, Commerce. 
 
Pushing Japan to Help Fulfill the Promise 
----------------------------------------- 
 
¶3.  (SBU)  Going directly to the principal U.S. message for 
the meeting, DNSA Price noted that U.S.-Japan economic 
relations are not living up to their promise and are lagging 
behind our political-security interaction.  He asked the 
Japanese side to work with the United States to find a way to 
make our dialogue more relevant and productive and put 
relations on a more ambitious track.  The United States wants 
Japan to be more of a full partner both regionally and 
globally.  Price noted the need to resolve long-standing 
bilateral economic issues that hamper U.S.-Japan relations 
and to begin to fulfill the promise of what cooperation 
between the world's two largest economies can realize.  So 
far, Price noted, the "scorecard" for concrete activities 
undertaken in the Sub-Cabinet process was poor.  From the 
U.S. perspective, only activities related to energy security 
deserved an "A." 
 
¶4.  (SBU) Remarking on DNSA Price's strong opening statement, 
Deputy Foreign Minister Kohno observed that although the U.S. 
- Japan economic relationship is mature, ties are complex and 
the two societies continue to hold different values on some 
questions.  Kohno thanked Price for his strong opening 
statement and observed the level of maturity of the 
U.S.-Japan economic relationship is, to some extent, an enemy 
of progress.  Ties between the U.S. and Japan are complex and 
the two societies continue to hold different values on some 
questions.  Moreover, the "score" for the relationship, Kohno 
added, should be a joint score, not just an assessment of 
Japan's performance.  Taking the longer view, METI Deputy 
Minister Masakazu Toyoda commented that the bilateral agenda 
between Japan and the U.S. has become far more positive over 
the last 15 years. 
 
¶5.  (SBU)  DNSA Price acknowledged the achievements cited by 
the Japanese side but emphasized USG concerns over drift or 
apathy in the relationship.  Neither the bilateral 
Sub-Cabinet meetings nor Japan,s upcoming G-8 presidency 
should simply issue statements and work plans that do not 
yield substantive progress.  Commerce Acting U/S Padilla 
stressed that the lack of acute frictions in the U.S.-Japan 
relationship does not mean problems do not exist and pointed 
to the range of issues -- the Doha Development Agenda, 
approaches to China, that development of regional 
architecture in East Asia -- where opportunities for positive 
joint action by the U.S. and Japan might be lost. 
 
TOKYO 00005678  003 OF 017 
 
 
 
¶6.  (SBU)  DFM Kohno argued that much of the drift results 
from political uncertainties in both countries and pointed to 
the November Summit between President Bush and PM Fukuda as a 
sign of continued strong cooperation.  Kohno also expressed 
annoyance at "anonymous criticisms" of Japan's position on 
economic issues that had appeared in the U.S. press in the 
run-up to the meeting.  Kohno referred to PM Fukuda's 
interest in revitalizing intellectual exchanges between the 
U.S. and Japan to illustrate his country's interest in better 
bilateral communication and to promote the global role of the 
relationship. 
 
--------------------- 
"Concrete Activities" 
--------------------- 
 
Secure Trade 
------------ 
 
¶7.  (SBU)  A/S Sullivan noted progress on secure trade 
cooperation through Secure Trade digital video conferences 
and a late November visit to Japan by a joint Department of 
Energy and Department of Homeland Security team, and work on 
the U.S. Customs Trade Partnership Against Terrorism (C-TPAT) 
and Japan's Authorized Economic Operator (AEO) programs. 
Acting U/S Padilla pointed out the U.S. Customs Commissioner 
and the EU,s head of Customs were working together as part 
of the U.S.-EU dialogue and that it might be useful for U.S. 
and Japan customs authorities to meet.  Deputy Trade Minister 
Toyoda stressed that secure trade is a Japanese government 
priority, but said Japan sees the need to balance security 
considerations with minimizing the burden of security 
measures on industry.  The business community desires 
effective security systems which do not inhibit the smooth 
and efficient flow of goods.  Japan would like mutual 
recognition between C-TPAT and Japan's AEO program, and 
Toyoda saw value in working too with the EU on mutual 
recognition to ensure integration. 
 
¶8.   (SBU) DG Otabe noted the work in the G-8,s Roma-Lyon 
Group on international criminal and terrorism issues and 
suggested this G-8 forum could also help ensure 
complementarity in bilateral and regional/global approaches. 
MOF's Deputy DG Nakao said his ministry, which oversees Japan 
Customs, is looking at how best to implement mutual 
recognition in the Container Security Initiative (CSI).  MOF 
had given a proposal to DHS over the summer and DSNA Price 
clarified the next step is a DHS response.  GOJ officials 
plan to solicit specific feedback from business to "smooth 
out" problems as security programs are implemented.  MLIT DG 
Shibata said his ministry enjoys good working level 
cooperation with the U.S. across a range of issues and he 
pointed to October,s successful meetings in Osaka on land 
transportation. 
 
¶9.  (SBU)  Both countries were moving ahead in developing a 
pilot program on Megaports, A/S Sullivan noted.  Deputy 
Foreign Minister Kohno and Deputy Trade Minister Toyoda each 
expressed GOJ commitment to move ahead on this DOE initiative 
for radiological cargo screening, a goal echoed by MLIT. 
Implementation is a question of when, not if, Toyoda said. 
Kohno noted the Diet should approve a supplementary budget by 
March with a view to launch a pilot project by April.  MLIT 
too echoed GOJ determination to move forward on Megaports. 
(Note: In separate meetings during the DHS and DOE visits in 
November, MOFA, MLIT and MOF representatives suggested it 
would take about two months to open the bid for the equipment 
and installation and about four months to install, making the 
pilot port operational around the end CY 2008.  End note.) 
 
TOKYO 00005678  004 OF 017 
 
 
 
¶10.  (SBU)  DFM Kohno noted DHS and MLIT are cooperating well 
in the production stages of the Maritime Asset Tag Tracking 
System (MATTS) and moving toward initial tests (NOTE: MATT 
devices will be used to determine if a container has been 
tampered with while in transit.  End note.) 
 
¶11.  (SBU)  MLIT Deputy Minister Shibata reminded the U.S. 
delegation that, during an IMO-organized meeting, Japan 
invited the U.S. to contribute to a fund for the safety and 
security of the Malacca Straits.  It would be a collaborative 
fund including, among others, Japan, the U.S., Malaysia, 
Singapore, and Indonesia.    Shibata noted the U.S. Coast 
Guard had pledge to work on the issue.  The U.S. side said 
they would meet with the Coast Guard on the issue. 
 
FTA Information Exchange 
------------------------ 
 
¶12.  (SBU)  MOFA Economic Affairs DG Otabe reviewed progress 
on the FTA information exchanges with the United States and 
indicated an interim report on the process could be finalized 
on December 7.  According to DFM Kohno, the next set of 
information exchanges should include discussions of how to 
deal with resource-producing countries.  Responding to DNSA 
Price on the reasons behind this interest, DG Otabe noted 
Japan has included provisions in its economic partnership 
agreements (EPAs) with Brunei and Indonesia that require 
signatories to be "transparent" with respect to introduction 
of laws or regulations that might restrict the export of 
energy or other resources.  Observing the investment chapters 
of U.S. FTAs would prevent such behavior without such 
specific language, DNSA Price noted this Japanese clause 
resembled those the United States had included in agreements 
involving state enterprises of the former Soviet Union.  METI 
DM Toyoda responded that the clause reflects Japanese concern 
over maintaining a stable energy supply and said the NAFTA 
treaty contained similar language. 
 
¶13.  (SBU)  Agreeing the FTA information exchanges have been 
positive DUSTR Veroneau recommended the final report on the 
core FTA chapters should be ready by the time of the July G-8 
Summit.  He suggested the next round of information exchanges 
then focus on elements unique to Japanese and U.S. agreements 
with third countries.  The overall aim, Veroneau stressed, 
should be to ensure the proliferation of trade agreements 
have a positive trade-creating, not trade-distorting, effect. 
 In this regard the U.S. and Japan should show leadership and 
negotiate high-standard agreements that can be a model for 
other countries. 
 
¶14.  (SBU)  Summarizing, DFM Kohno indicated while the report 
on the current exercise would be completed by the Lake Toya 
G-8 Summit, any further movement toward a U.S.-Japan free 
trade agreement would require a political decision that may 
need to wait until the next U.S. administration.  After it 
was clarified that the report on FTA exchanges would describe 
the current state of each country's agreements without 
prescriptions for subsequent steps, DNSA Price emphasized the 
importance of developed economies maintaining high standards 
in their free trade agreements so as to avoid precedents that 
lower the bar for subsequent agreements worldwide.  Although 
future tariff reductions might occur, rules were unlikely to 
change once an agreement was struck, he stressed. 
 
¶15.  (SBU) Deputy Trade Minister Toyoda responded that Japan 
looks at its EPAs as part of an evolving process that takes 
into account not only principles such as those in the WTO 
agreements, but also the individual capacities and 
sensitivities of the partner countries.  One EPA does not 
 
TOKYO 00005678  005 OF 017 
 
 
necessarily preempt including something in a subsequent EPA 
in Japan's view, Toyoda said.  Noting Japan always seeks 
high-standard agreements, Kohno cited recent experience with 
the Japan-ASEAN EPA where special treatment for least 
underdeveloped ASEAN members -- Cambodia, Laos, and Burma -- 
had been necessary in order to realize a successful 
conclusion. 
 
Intellectual Property Rights 
---------------------------- 
 
¶16.  (SBU)  IPR discussions focused on cooperation and 
advancing common interests.  Kohno mentioned as examples the 
Anti-counterfeiting Trade Agreement (ACTA) and the Patent 
Prosecution Highway, and then discussion turned to China, 
APEC and the WTO.  On ACTA, Kohno noted the recent start of 
meetings in Geneva among the twelve partners, which include 
Japan, the U.S., the EU, and Canada.  After successfully 
coordinating the public launch, the U.S. and Japan must work 
together to ensure we retain a high level of ambition and to 
draw in new participants.  Particularly with countries new to 
the discussions, some of whom are skeptical and may prefer a 
slow process, we also need to push to keep negotiations 
moving quickly and steadily. 
 
¶17.  (SBU)  GOJ officials noted the Patent Prosecution 
Highway pilot project has achieved good initial results and 
reporting Japan is developing a work plan it intends to 
promote.  The project is expected to reduce patent 
examination periods from a current average of 26 months down 
to three months.  Toyoda reported Japan has also been working 
to improve bilateral cooperation with the United Kingdom, 
Korea, and Germany, and offered to assist with U.S.-U.K. 
cooperation as needed.  Kohno also expressed Japan's desire 
to work jointly to promote the APEC Anti-Counterfeiting and 
Piracy Initiative and other IP work in that forum. 
 
¶18.  (SBU)  Both sides stressed the importance of improving 
IPR protection in China, but described different approaches 
to reaching that goal.  DUSTR Veroneau stressed that China,s 
IPR regime is a common concern and at times the U.S. has 
worked alone to press China to improve, so he welcomed 
support from Japan and the EU.  Acting U/S Padilla noted 
China suspended bilateral talks with the U.S. on intellectual 
property because of U.S. dispute-settlement filings at the 
WTO.  It is important to stress to China, however, that 
suspending the bilateral dialogue may simply convince 
industry the only option is to push more problems into the 
WTO dispute settlement mechanism, U/S Padilla observed. 
 
¶19.  (SBU) Toyoda stated that Japan does not seek to weaken 
efforts on ACTA to encourage China on IPR, but recognizes 
that legal systems differ.  Japan wants to maintain a high 
level of mutual respect with other countries, seeing this as 
the most effective course in the long run and likely to 
achieve the best results.  The Japanese government, Toyoda 
continued, fully agrees on the need to work toward high 
standards.  He hoped the U.S. would understand this point 
given the importance of cooperating required to send a 
consistent message to China and to maintain pressure on 
Beijing as appropriate.  Veroneau also emphasized the 
importance of energizing our IPR work in APEC. 
 
Transparency 
------------ 
 
¶20.  (SBU)  Deputy FM Kohno reviewed the information sharing 
on transparency issues and characterized the process as 
highly beneficial from Japan's perspective.  He noted 
Japanese government efforts to promote transparency in other 
 
TOKYO 00005678  006 OF 017 
 
 
countries in Asia, in particular in China and Vietnam, 
through official development assistance and suggested 
boosting U.S.-Japan cooperation by using APEC as a forum to 
improve transparency among member economies.  METI Deputy 
Minister Toyoda seconded Kohno's comments and recounted how 
Japan had inserted transparency chapters in investment 
agreements with Laos and Cambodia. 
 
¶21.  (SBU)  DUSTR Veroneau emphasized that the USG still 
hears many complaints from U.S. firms about the lack of 
transparency in the Japanese government's advisory groups 
that deliberate regulatory policy.  The concern appears 
across a number of sectors in the U.S.-Japan regulatory 
reform initiative.  He said the United States would like APEC 
to examine the question of transparency within the region 
and, responding to a question from Kohno, noted USTR has 
created a trade capacity-building office to help countries 
meet their WTO obligations, including with respect to 
transparency.  Kohno stated Japan has substantial experience 
promoting transparency within Asia and cited public-private 
joint efforts in China as an example.  Treasury DAS Dohner 
emphasized the need for transparency in regulating financial 
services.  Such transparency is especially important if Japan 
is serious about bolstering Tokyo's role as an international 
financial center. 
 
¶22.  (SBU)  Price noted U.S. business representatives cite 
the lack of sufficient transparency in regulatory matters as 
a primary reason for the low stock of foreign direct 
investment in Japan.  Non-Japanese firms continue to lack 
access to timely and accurate information on Japanese 
government policies affecting their operations.  Japan should 
improve its own system to be an effective model for others in 
the region, DNSA Price stressed.  Asserting the level of 
transparency in Japan's regulatory system is similar to that 
of the U.S., Toyoda asked for examples of specific problems 
U.S. companies have encountered.  A/S Sullivan reported the 
absence of a meaningful government notice and comment 
procedure had been the top issue representatives of the 
American Chamber of Commerce in Japan (ACCJ) had raised with 
the U.S. delegation. 
 
¶23.  (SBU) MOF International Bureau Deputy Director Takehiko 
Nakao said Japan, following the collapse of the 1980,s 
"bubble economy," had abandoned much of the old system of 
administrative guidance.  Nevertheless, some bureaucratic 
discretion is still needed for effective financial 
regulation.  It was important, Nakao continued, to look at 
current cases and not to rely on impressions shaped by the 
past.  Japan's low level of FDI, he stated, also reflects a 
high domestic savings rate and is not simply the result of 
inadequate transparency.  DNSA Price was doubtful opinions 
U.S. business people had voiced that morning were based 
purely on experience of earlier decades.  DFM Kohno suggested 
the United States provide a list of U.S. firms' specific 
complaints on transparency to which the Japanese government 
could then respond.  DNSA Price agreed the U.S. should be 
able to make concrete recommendations to Japan on 
transparency, but stated Japan should also acknowledge the 
linkage between transparency and its low level of foreign 
investment. 
 
Energy 
------ 
 
¶24.  (SBU)  Both sides characterized cooperation on energy 
security as excellent.  Toyoda raised five points for further 
work.  First, Japan and the United States should look for 
ways to deal with rising oil prices.  Toyoda suggested 
working together to send a coordinated message from consumer 
 
TOKYO 00005678  007 OF 017 
 
 
countries to leading oil producing states through the 
International Energy Agency (IEA).  Second, he proposed 
cooperation between the United States and Japan in finding a 
way to bring India and, more importantly, China into the IEA. 
 It would be difficult, Toyoda acknowledged, as neither 
country is a member of the OECD, a requirement to join the 
IEA.  Third, Toyoda called for deepening cooperation between 
METI and the U.S. Department of Energy, especially to address 
developing country interest in peaceful uses of nuclear 
energy.  He also called for more systematized U.S.-Japan 
collaboration on new energy technologies, a point, Toyoda 
believed, could be discussed in the G-8. 
 
¶25.  (SBU)  Finally, Toyoda emphasized the planned G-8 energy 
ministerial in Aomori Prefecture, location of Japan's 
advanced nuclear waste processing facility, where the U.S. 
and Japan have an opportunity to send a joint message on 
nuclear power development.  DFM Kohno stated several Asian 
countries -- notably Indonesia and Vietnam -- are interested 
in nuclear energy, but lack the technological, legal, and 
human resource infrastructures to pursue it.  The U.S. and 
Japan should find a way to help, Kohno said, and he indicated 
Japan plans to introduce new initiatives on this issue. 
 
¶26.  (SBU)  A/S Sullivan agreed U.S.-Japan cooperation on 
energy has been excellent.  He noted, as part of follow-up to 
past G-8 meetings, the IEA has been asked to score countries 
on fulfilling their G-8 commitments.  In addition, he noted 
the five-party energy outreach ministerial as a useful 
exercise to enhance cooperation.  The U.S. agrees with Japan 
on looking at the possibilities for bringing China into the 
IEA, a move that would be especially helpful in light of 
increasing cooperation on strategic petroleum reserves. 
Finally, on nuclear energy initiatives, Sullivan acknowledged 
close U.S.-Japan cooperation in GNEP and stressed any 
approach to developing countries needs to be based on GNEP 
principles.  DG Otabe followed up noting the G-8 members are 
waiting for Germany to report the IEA "scorecard" and to 
stress the importance of the work of the G-8's Nuclear Safety 
and Security Group and Non-proliferation Directors' Group 
with respect to nuclear energy discussions under the G-8. 
 
Food Safety 
----------- 
 
¶27.  (SBU) USDA U/S Keenum presented a proposal to establish 
a working group of technical experts to exchange information 
on food safety issues and report to the Sub-Cabinet in time 
for the next meeting.  Deputy Trade Minister Toyoda stated 
METI and the Center for Disease Control (CDC) had agreed to 
exchange information and facilitate personnel interaction 
through a series of food safety seminars.  The first of these 
was held in November 2007 and was very successful, he said. 
METI would like to see such exchanges continue. 
 
¶28.  (SBU)  MAFF Counselor Yamashita said his ministry would 
consider the proposal, but questioned the need for another 
working group as many food safety issues are already 
discussed in such groups as the U.S.-Japan Trade Forum and 
the U.S.-Japan Regulatory Reform and Competition Policy 
Initiative.  MHLW,s Ueda, however, flatly stated his 
Ministry would refuse to participate in this initiative as 
food safety should be based on science and not discussed in 
the context of trade or economics.  The topic is sensitive 
politically, he said, and MHLW fears discussing it in the 
Sub-Cabinet framework would do more damage to the bilateral 
relationship. 
 
¶29. (SBU) DNSA Price said this rejection of the proposal 
without due consideration is indicative of the Japanese 
 
TOKYO 00005678  008 OF 017 
 
 
government,s unwillingness to engage meaningfully on any 
number of economic matters of importance to the bilateral 
relationship.  The idea behind the Sub-Cabinet is to be able 
to discuss every economic issue of importance to the two 
sides and to have all pertinent agencies present; the MHLW 
reaction was outrageous.  U/S Keenum too noted the USG intent 
is to share science among experts so that commerce between 
our two countries is not needlessly interrupted.  What we 
need to do is to learn when there is an incident that affects 
food safety, how do we react and inform the public.  Although 
Kohno stressed that Japan wanted to communicate with the 
United States on food safety matters, the MHLW Deputy 
Minister continued to insist the Sub-Cabinet was not the 
appropriate framework to discuss the question given Japan,s 
domestic political situation. 
 
--------------- 
Regional Issues 
--------------- 
 
Regional Architecture 
--------------------- 
 
¶30.  (SBU)  DFM Kohno opened by pointing to the historical 
factors underpinning development of East Asia's regional 
economic architecture.  He emphasized the need for 
institutions to develop not only in response to new regional 
and global challenges, but also because of the continued need 
for confidence-building measures and the tremendous 
differences in wealth and overall development among countries 
in the region.  Creating current institutions -- the ASEAN 
Regional Forum, ASEAN Plus 3, and the East Asian Summit (EAS) 
-- had been a painstaking process realized only within the 
past decade, Kohno said.  The main proposals for a broader 
economic architecture, he added, existed only in the form of 
studies. 
 
¶31.  (SBU)  METI Deputy Minister Toyoda explained Japan's 
strategy is two-fold: a network of bilateral economic 
partnership agreements promoting trade and investment 
liberalization and a broader regional architecture addressing 
the gaps in development among Asian economies.  He added the 
recently established Economic Research Institute for Asia 
(ERIA) attached to ASEAN would support this effort.  Toyoda 
noted U.S. involvement in the region is still needed and 
indicated APEC remains a good forum for U.S.-Japan 
cooperation in this regard.  The U.S.-proposed Free Trade 
Area of the Asia-Pacific (FTAAP), based on APEC, is a future 
goal toward which progress should be accelerated, Toyoda 
stressed.  Japan's bilateral agreements with APEC members, 
along with regional initiatives based on ASEAN Plus 3 or the 
EAS countries, could serve as "building blocks" for an FTAAP. 
 In addition, Toyoda suggested establishing more "horizontal" 
agreements among some APEC member economies to lay groundwork 
for an eventual FTA covering all of APEC. 
 
¶32.  (SBU)  DNSA Price responded that Japan's approach to 
regional architecture makes it appear that Japan does not 
want a free trade agreement with the United States and is 
pursuing agreements that exclude it even though the U.S. 
market remains the main force for regional economic 
integration in Asia.  As a result, regional economic 
integration is getting stronger at the expense of American 
consumers.  Japan, DNSA Price noted, says it will deal with 
the United States on an FTAAP at some point in the future, 
but the immediate fact is that the United States is not a 
part of these emerging architectures.  The two countries each 
seem to be going their own way on this issue, he stressed. 
 
¶33.  (SBU) Assistant Secretary Sullivan added that close 
 
TOKYO 00005678  009 OF 017 
 
 
cooperation on regional security between Japan and the U.S. 
seems to be lacking on the economic side.  Commerce Acting 
U/S Padilla observed Japan seems to believe it can deal with 
the rise of China as an economic power on its own or with 
just the assistance of other countries in Asia.  Such an 
approach is Japan's choice to make, but, in Padilla's view, 
is not likely to succeed.  Asking rhetorically whether the 
United States and Japan were in an "FTA race," DNSA Price 
pressed the Japanese side to indicate what, in their view, 
the role of the United States in Asia-Pacific economic 
integration should be. 
 
¶34.  (SBU)  DFM Kohno, calling the U.S. side,s comments 
"confrontational," said Japan wants regional architecture in 
Asia to develop in a "balanced" way.  In addition, Asians 
want to find their own regional identity.  Kohno noted Japan 
will host APEC in 2010 and the United States will do so in 
¶2011.  Those years will be the opportunity to discuss broader 
regional architecture, he stated.  Finance Ministry DG Nakao, 
citing the growing importance of intra-regional trade to 
Japan, argued the Japan-proposed architectures for both trade 
and financial issues were not designed to exclude the United 
States (or the IMF).  Nevertheless, during the Asian 
Financial Crisis in 1997, it became clear Asian countries 
lacked effective mechanisms for economic coordination in the 
face of a "contagion" spreading through the increasingly 
integrated regional economy. 
 
¶35.  (SBU)  Noting ASEAN leaders had stressed to President 
Bush the importance of the United States in driving regional 
economic integration, DNSA Price pointed to an inconsistency 
in Japan's approach between the goal of establishing a "soft" 
regional architecture on political issues and hesitancy to 
move ahead on FTAAP.  Kohno cited the studies on different 
regional architecture proposals underway and suggested they 
would form the basis for discussions at APEC in 2010 and 
¶2011.  DG Otabe further postulated that ASEAN Plus 3, Japan's 
"ASEAN Plus 6" proposal, and APEC can all complement each 
other.  Different fora, however, might be better suited to 
different issues.  North Korea, for example, is the topic in 
the Six-party Talks and at the ARF, while the problem of 
yellow dust originating in China is probably better handled 
in the China-Japan-Korea trilateral meetings on environment 
matters.  This situation does make the existence of different 
fora contradictory, Otabe stressed.  Although FTAAP might not 
be achievable in the near term, evolution toward such a goal, 
as had been seen in the context of APEC's Bogor Declaration, 
is possible. 
 
¶36.  (SBU) Summarizing, DFM Kohno noted the U.S. side had 
registered its concern over Japan's regional architecture 
proposals.  DNSA Price added the recent first meeting between 
PM Fukuda and President Bush had gone well because both sides 
had sought such an outcome.  Other issues might arise in 
subsequent meetings between the two leaders where agreement 
might be more difficult, Price suggested.  Kohno responded PM 
Fukuda had indicated he wants to find a way to build 
synergies between Japan's relations with Asia and its ties to 
the United States. 
 
Burma 
----- 
 
¶37.  (SBU)  Assistant Secretary Sullivan expressed 
appreciation for Japan's decisions to restrict assistance to 
Burma following recent actions by the Burmese regime against 
anti-government protesters and opposition parties.  He noted 
Japan had indicated it was reconsidering assistance programs 
for Burma.  The United States and Japan together had sent a 
good message to the Burmese regime that it could not do 
 
TOKYO 00005678  010 OF 017 
 
 
"business as usual" following the suppression of its 
opponents, A/S Sullivan observed. 
 
¶38.  (SBU)  DFM Kohno agreed the U.S. and Japan should send 
the same message to the Burmese regime and expressed 
appreciation for the work of UN Special Envoy Gambari.  ASEAN 
was also making an effort to influence Burma,s regime, Kohno 
added.  He observed, however, Burma's natural gas resources 
are a major source of income for the ruling junta and 
multinational companies -- even U.S. firms --  are 
participating in gas exploration projects there.  Only a few 
states, Kohno stated, have leverage on the Burmese regime: 
China, India, Thailand, and -- on a diminishing basis -- 
Japan.  Japan had traditionally enjoyed good relations with 
Burma and canceling construction of a GOJ-funded human 
resource development center as a part of new sanctions had 
been a difficult decision because of the benefit the center 
could have brought the Burmese people.  The U.S. sanctions, 
Kohno asserted, frequently made life more difficult for the 
average Burmese, although he claimed to understand the U.S. 
agenda and the high degree of political attention paid to the 
Burma issue. 
 
¶39.  (SBU)  A/S Sullivan responded that recent U.S. sanctions 
had been targeted to put maximum pressure on the regime 
without causing undue hardship for the Burmese people. 
Regarding Kohno,s statement about U.S. companies operating 
in Burma, the company concerned had found itself in a 
situation where withdrawing from Burma would have resulted in 
a substantial payment to the regime.  Kohno observed Japanese 
companies in Iran faced a similar situation.  Kohno continued 
that the Japanese government would provide only humanitarian 
assistance to Burma along with canceling the human resources 
center project.  DNSA Price stated his understanding is that 
only one U.S. energy company has interests in Burma and that 
was through passive investment in a pipeline.  He asked 
whether Japan had information regarding U.S. companies 
engaged in gas exploration in Burma as well as in Iran's 
energy sector.  A/S Sullivan asked whether Japan will ban new 
private investment in Burma or in Iran.  METI VFM Toyoda said 
he would endeavor to confirm Japan's position on A/S 
Sullivan's question. 
 
Approaches to China 
------------------- 
 
¶40.  (SBU)  Kohno characterized Japan's December 1-2 High 
Level Economic Dialogue with China as the first opportunity 
for Japan to have cross-sectoral discussions with that 
country.  Contrary to expectations, he said, there had been a 
"frank exchange" of views.  Japan had reviewed its experience 
with the "economic bubble" and urged China to revalue its 
currency; Japan also raised future cooperation on trade and 
investment.  The Chinese side said economic overheating is a 
concern.  Kohno commented on the improved climate between 
Japan and China and the positive political momentum the 
meeting had established in advance of the upcoming visit by 
the Japanese Prime Minister. 
 
¶41.  (SBU) Deputy Finance Minister Naoyuki Shinohara added he 
had been surprised by the frankness of the talks and had 
found them fruitful.  While there was nothing new on exchange 
rate issues, the two sides did talk about the need for 
flexibility and the Japanese government raised the issue of 
irresponsible lending, which elicited no response from the 
Chinese side.  The finance ministries had also met, he said. 
China, Shinohara continued, is an area where Japan and the 
U.S. could accomplish much more together than alone. 
 
¶42.  (SBU)  Treasury Under Secretary McCormick agreed with 
 
TOKYO 00005678  011 OF 017 
 
 
Shinohara,s evaluation.  At the upcoming Strategic Economic 
Dialogue, the U.S. message would be that we were committed to 
market-based currency valuation.  U/S McCormick continued 
that the Chinese did not feel they had adequate control over 
monetary policy.  The U.S. side reviewed areas of discussion 
with China beyond financial regulation and currency 
valuation, including product safety, energy and environment, 
financial services liberalization, and investment.  The U.S. 
is actively exploring how to move forward on a Bilateral 
Investment Treaty (BIT) with China and also sensed movement 
on energy and environment with China. 
 
¶43.  (SBU) Commerce Acting U/S Padilla elaborated on the need 
for dialogue and negotiation, appropriate WTO actions to 
enforce rights, and, where justified, application of 
anti-dumping measures.  He said that the EU that day had 
initiated its first anti-dumping action against China.  The 
U.S. side noted the EU had been extremely interested in 
talking with us during the recent Transatlantic Economic 
Council about working together on China.  The U.S. side also 
emphasized the long-term, strategic nature of the SED and 
explained other fora such as the Joint Commission on Commerce 
and Trade are used to take up issues such as China,s use of 
industrial policy and technology standards to benefit Chinese 
companies; product safety; and government procurement.  The 
United States saw areas of common interest with Japan, 
perhaps working together in the WTO, but also noted that a 
"gang-up approach" could be counterproductive in certain 
cases. 
 
¶44.  (SBU)  Toyoda agreed the U.S. and Japan should not "gang 
up" on China, and that a "coordinated approach" would make 
more sense than a "joint approach."  He agreed that a number 
of shared concerns exist.  The East Asia Summit, however, is 
not a good forum at which to discipline China, Toyoda 
continued, because the United States is not a member. 
 
Doha and WTO Issues 
------------------- 
 
¶45.  (SBU)  Opening on the Doha Development Agenda, Kohno 
said he expected agreement on modalities no earlier than the 
end of March 2008, by which time there should be a balanced 
text, supported by a large number of partners.  He asked what 
the U.S. domestic context for a discussion of Doha would be 
at that time.  Regarding tariffs on environmental goods, 
Kohno supported the U.S. position to end duties on imports of 
such products.  The U.S. concept was the same as Japan,s 
suggestion to the United Nations in September, he claimed, 
and both countries need to turn their attention to moving the 
process forward. 
 
¶46.  (SBU)  The METI Deputy Minister Toyoda added that 
countries should look to complete the DDA during the current 
U.S. administration; noting that "we are running out of 
time."  DNSA Price restated the message that all members of 
the Sub-Cabinet had given during their meetings, i.e., that 
successfully completing the DDA is President Bush,s highest 
foreign economic policy priority. 
 
¶47.  (SBU) DUSTR Veroneau emphasized the need to gain 
commitments by advanced developing countries, led by Brazil, 
to trade liberalization, by focusing on substance and seeking 
reasonable gains.  Japan and the United States need to remain 
coordinated in keeping the pressure on these partners. 
Regarding trade promotion authority, WTO members need to 
focus on their domestic situations respectively and on what 
we can obtain in Geneva.  The United States must see a good 
substantive result in the next series of talks to keep the 
DDA on track.  If the United States and Japan and other key 
 
TOKYO 00005678  012 OF 017 
 
 
WTO partners work out agreements with demonstrable benefits 
for our economies, legislatures would be reluctant to undo 
those gains. 
 
¶48.  (SBU) DNSA Price expressed concern that Japan was 
invoking Trade Promotion Authority (TPA) as an excuse for not 
wanting to negotiate seriously.  If the United States were to 
get a good agreement, he assured, President Bush would sign 
it.  Commerce Acting U/S Padilla too said it would be hard 
for Congress to walk away from a signed multilateral 
agreement, adding that a deal needed to be concluded in the 
current administration.  By the end of January, he continued, 
countries would be able to put together the big picture and 
assess their overall interest. 
 
¶49.  (SBU) DNSA Price added he brought a letter for Prime 
Minister Fukuda from the President which asked Japan to set a 
high level of ambition for the Round.  Agriculture U/S Keenum 
added U.S. agricultural interests are ready to support a Doha 
result that is ambitious on market access.  The United 
States, he continued, is putting real cuts in payments to 
farmers on the table, but needs real market access to secure 
U.S. farm sector support.  He commended Japan,s support for 
the U.S. position in support of in-kind food aid. 
 
¶50.  (SBU)  Ministry of Agriculture, Forestry, and Fisheries 
Counselor Yamashita said that Japan was a major food importer 
and, despite differences, has  a good relationship with the 
United States.  He hopes to sustain this through the 
completion of the DDA. 
 
Agricultural Reform 
------------------- 
 
¶51.  (SBU)  Turning to agricultural reform, Yamashita 
continued that Japan remains engaged and had cut 
trade-distorting subsidies, recalling measures approved in 
April 2007 to stabilize farms.  However, the opposition 
Democratic Party of Japan sought to include legislative 
measures to compensate farmers for differences between cost 
and unit price.  The LDP is reconsidering eligibility for 
such payments.  Still, he asserted, the Japanese government 
wanted to advance reforms. 
 
¶52.  (SBU) U/S Keenum applauded Japan for the April 2007 farm 
legislation to move toward "green box" (i.e., 
non-trade-distorting) payments.  He noted a contradiction, 
however, in that Japan wants to get away from small, 
inefficient farms and to provide incentives to grow based on 
subsidies, but to quality farmers must raise multiple crops. 
With an average farm size of four hectares, raising multiple 
crops would be difficult.  Yamashita disagreed, saying 
multiple crops were not a precondition for green box 
supports.  U/S Keenum acknowledged the USG faces its own 
challenges in reconciling policy goals with farm legislation, 
noting that the current draft Farm Bill includes subsidy 
measures the U.S. Administration opposes.  He added it seems 
unlikely Congress will pass a farm bill in 2007.  This 
situation could have WTO ramifications if the United States 
had to implement the 1949 farm bill in the absence of new 
legislation. 
 
Development Assistance/TICAD IV 
------------------------------- 
 
¶53.  (SBU)  MOFA Deputy Minister Kohno -- Japan's G-8 Sherpa 
-- said development would be a major theme for Japan,s G-8 
Presidency.  Because progress toward the Millennium 
Development Goals would be reviewed in 2008, Japan 
anticipated criticism of the G-8 and asked how best to 
 
TOKYO 00005678  013 OF 017 
 
 
approach the topic.  He suggested promoting G-8 cooperation 
in global health, noting the exchange on this point between 
President Bush and Prime Minister Fukuda.  The issue had a 
"vertical aspect" of dealing with specific diseases and a 
"horizontal" aspect related to improving health systems.  In 
addition to attacking a disease like malaria, improving 
water/sanitation as well as education was important. 
Furthermore, Japan wants to approach issues related to Africa 
through the TICAD conference, Kohno said, focusing on a) 
sustainable development, through trade and investment 
promotion, b) empowering Africans in post-conflict countries 
to help themselves better, and c) peace consolidation or 
peace-building.  TICAD was based on the principles of respect 
for African ownership of its development and demonstrating 
donor support; Japan also wants to promote Asia-Africa 
cooperation through the conference. 
 
¶54.  (SBU)  On the future of the Strategic Development 
Alliance (SDA), Kohno expressed concern over a perceived 
decline in momentum.  Positive outputs included case studies 
on Pakistan and Indonesia; discussion of themes like disease 
in Africa; and support in Pakistan,s FATA region for the 
fight against terrorism.  Still, the SDA, he said, needs 
revitalization. 
 
¶55.  (SBU)  Kohno also raised China,s activities in African 
and other developing countries, saying its behavior, such as 
lending to countries which had received debt relief and using 
Chinese labor on infrastructure development projects rather 
than local workers, undermined internationally agreed 
approaches to furthering development.  Moreover, China,s 
approach toward resource-rich countries is not transparent. 
He noted the Heiligendamm process would start soon and the 
question of how to allow emerging countries to engage should 
be considered. 
 
¶56.  (SBU)  A/S Sullivan focused on the importance to the G-8 
of follow-through on previous initiatives.  He cited the 
President,s announcement of an additional $30 billion over 
five years in funding for global HIV/AIDS programs as an 
example of U.S. follow through on a G-8 commitment.  On the 
SDA, A/S Sullivan invited Japan to offer suggestions on next 
steps.  He noted in some areas the SDA works well.  The SDA 
represents strategic coordination on aid and a sign of a 
mature relationship between Japan and the United States. 
Under the SDA, guidance came from the capitals, but 
coordination needs to take place on the ground.  Africa, A/S 
Sullivan noted, also seems ripe for strategic coordination 
and he asked for Japanese ideas.  U/S McCormick added one 
problem is Africa is not a two-way dialogue and suggested the 
U.S. and Japan work together on a multilateral approach to 
African development. 
 
¶57. (SBU) Noting the U.S. and Japan are the largest donors in 
Afghanistan, A/S Sullivan strongly urged Japan to complete 
the Kandahar-Herat ring road.  The project had been underway 
for about three years, he emphasized, and Japan,s portion is 
the last to be completed.  He noted it was vital to enhancing 
Afghan economic development and security.  The project,s 
completion would be a great deliverable for the G-8, and the 
U.S. had offered to help Japan finish the road, if need be. 
Kohno appeared unprepared on this point and said he would 
look into the issue. 
 
Climate Change 
-------------- 
 
¶58.  (SBU)  Saying Japan is proactive on climate change, not 
passive as some criticize, Deputy Foreign Minister Kohno 
noted Japan had worked toward a post-Kyoto framework, 
 
TOKYO 00005678  014 OF 017 
 
 
collaborating with the U.S. in the process.  He stated Prime 
Minister Fukuda had carried on the Abe initiative, calling on 
the world to cut emissions in half by 2050.  Kohno reiterated 
the three principles that drove Japan,s policy (all major 
emitters should participate; the framework should be flexible 
and diverse; and the framework must achieve compatibility 
between environmental preservation and sustainable growth) 
and highlighted Japan,s proposal to set up an ad hoc working 
group in the UN Framework Convention on Climate Change 
(UNFCCC)process to discuss mechanisms. 
 
¶59.  (SBU) Kohno emphasized Japan supports President Bush,s 
Major Economies initiative.  Japan would work closely with 
the White House Council on Environmental Quality and others. 
Kohno hoped the Major Economies process would make a 
constructive contribution to the UNFCCC to complete a 
post-Bali roadmap by end-2009.  He stressed Japan,s support 
of a sector-oriented approach such as that in the 
Asia-Pacific Partnership on Clean Energy and Climate (APP). 
The APP, he said, could be broadened and he hoped it would 
have an impact on the process in the UNFCCC.  Kohno concluded 
stating the next half-year would be crucial and that he 
wanted continuing cooperation with the United States. 
 
¶60.  (SBU) METI DM Toyoda emphasized three points.  First, 
Japan attempted to engage China and India bilaterally where 
possible and had launched cooperative activities with each. 
At the December 1-2 Japan-China ministerial talks, Japan 
encouraged China to embrace the APP approach.  China, he 
said, wanted access to technology and finance and Japan 
agreed to ten model projects involving technology transfer. 
Toyoda stressed Japan was monitoring IPR protection in each 
case.  Second, Toyoda emphasized the importance of innovative 
technology.  METI had a draft plan for technological 
innovation to achieve "Cool Earth 50."  He noted Japan,s 
interest in developing clean coal technologies and hoped to 
use the Sub-Cabinet to encourage new cooperation for the G-8. 
 Toyoda hoped as well Energy Secretary Bodman would 
participate in the P5 and G8 Energy Ministerials in 2008. 
Third, he stressed that a framework to meet the challenges of 
global warming must be effective, and to be effective would 
need to be more than what has been suggested by the European 
Union. 
 
¶61.  (SBU)  DNSA Price noted the congruence between the U.S. 
and Japan on climate change and stressed the two countries 
need to articulate a joint vision to the G-8 and in the Major 
Economies process.  The joint fact sheet issued during Prime 
Minister Fukuda,s visit to Washington laid out a common 
approach to a post-2012 framework.  The elements included a 
focus on technology, compatible with DM Toyoda,s comments. 
The key question, DNSA Price noted, was how to penetrate the 
perceptions created by the EU and a number of NGOs that 
traded "binding commitments" for inclusion of the major 
emerging market economies in a program of action to reduce 
greenhouse gases.  What is the value of a judgment in a 
possible lawsuit years later that says a country or countries 
did not live up to an agreement, relative to the benefits of 
getting India and China to act now?, Price queried. 
 
¶62.  (SBU) The USG agrees a post-2012 framework needs to 
involve all countries, that all countries should articulate a 
medium-term goal, that there needs to be flexibility in 
measures, and that each country would develop an 
environmentally effective and economically sustainable 
national mix of policies and measures needed to reach the 
medium term goal.  The next question was, as each country 
articulated its mix, how to fit this into the international 
framework.  The United States believes developed countries 
must help finance developing country efforts, but that there 
 
TOKYO 00005678  015 OF 017 
 
 
must be a connection between financing and commitment.  He 
confirmed plans for a Major Economies meeting at the end of 
January in Hawaii.  Treasury U/S McCormick echoed the 
importance of Japan and the U.S. standing together to ensure 
China and India are part of the commitment. 
 
¶63.  (SBU)  DNSA Price asked that Japan work with the United 
States to develop a clean technology fund, which allows 
donors to determine access to financing.  He also reiterated 
the need for Japan to support the US-EU proposal in the WTO 
to eliminate tariff and non-tariff barriers in 40 products 
that contributed to reducing GHG emissions.  DNSA Price noted 
the inconsistency between providing concessional financing 
for technology, on the one hand, and governments taxing the 
import of those technologies.  The United States welcomes 
voluntary liberalization of trade in such goods by individual 
countries.  (Note: Japan called at the September UN high 
level meeting for voluntary elimination of tariffs on 
environmentally friendly goods.  End note.) 
 
¶64.  (SBU)  A/S Sullivan further suggested Japan and the U.S. 
could influence other countries by sending a joint team to 
work with the OECD to develop "the economics of climate 
change" which OECD Secretary General Gurria had proposed as 
an agenda item for the upcoming OECD Ministerial.  Kohno 
suggested it would be difficult and said Japan wanted to 
avoid a U.S.-Japan confrontation with the European Union. 
However, the issue of including all major carbon emitters 
must be resolved.  He wanted to create a consensus with some 
in the G-8.  Noting the similarity of this idea with A/S 
Sullivan,s suggestion, Kohno added further discussions on a 
scenario for working with the OECD. 
 
¶65.  (SBU)  MOF DM Shinohara pointed to the new financing 
mechanism called for by Japan,s "Cool Earth 50" to 
illustrate the potential in a multilateral approach to 
financing, as opposed to the bilateral efforts undertaken to 
date.  He said the U.K. and U.S. approaches on the proposed 
fund were somewhat different in scope and modality, but Japan 
is interested in further exchanging views.  U/S McCormick 
explained a single issue remained unresolved between the two 
approaches.  The United Kingdom had endorsed the concept of a 
fund supporting clean technology adoption, adaptation, and 
deforestation, and for political reasons wanted to discuss 
all three.  The United States thought there should be a means 
to resolve this slight difference. 
 
 
---------------- 
Bilateral Issues 
---------------- 
 
Beef 
---- 
 
¶66.  (SBU)  DNSA Price urged the Japanese government not to 
underestimate the importance of resolving the beef issue as 
soon as possible.  The United States is looking for a "prompt 
and full" reopening of the Japanese market.  U/S Keenum said 
our understanding was that the two governments had convened 
experts level meetings over the summer to work on a consensus 
document.  Coming out of those talks, however, the Japanese 
government seemed more interested in recommending a 30-month 
solution which fell short of international standards.  Under 
the OIE, Keenum continued, U.S. beef is safe to trade, 
provided there is effective removal of specified risk 
materials. The  United States has implemented the necessary 
safeguards.  In continuing to put up barriers to U.S. beef, 
Japan is "selectively" choosing not to abide by its WTO 
obligations. 
 
TOKYO 00005678  016 OF 017 
 
 
 
¶67.  (SBU)  Kohno repeated that Japan's preferred approach to 
resolve the beef issue is the same as that first stated at 
the summer 2007 bilateral experts level meetings in Tokyo: 
Japan wanted to recommend to Japan's Food Safety Commission 
(FSC) a liberalization of trade to allow import of beef from 
cattle up to 30 months.  The government, Kohno continued, is 
not ready to submit a recommendation at this stage that would 
bring Japan into OIE compliance at a later stage.  DNSA Price 
underscored that the United States is looking for a "date 
certain" on full reopening.  U/S Keenum echoed the point, 
noting that U.S. beef is being "held hostage" to Japan's 
political situation.  DUSTR Veroneau noted the level of 
frustration in Washington over this issue.  Kohno offered no 
new information or insights.  He concluded that the Japanese 
government might move ahead "unilaterally" toward a 30-month 
solution. 
 
Postal Banking, Insurance and Express Delivery 
--------------------------------------------- - 
 
¶68.  (SBU) The U.S. delegation congratulated Japan on its 
efforts to privatize Japan Post.  Veroneau stated adequate 
risk management capabilities and a level playing field, such 
as equal customs treatment in international express delivery, 
are the most important issues to address in moving forward in 
the privatization.  MOF Deputy DG General Nakao said his 
ministry would carefully monitor the new organizations to 
ensure they maintain a proper risk management stance. 
 
Pharmaceuticals and Medical Devices 
----------------------------------- 
 
¶69.  (SBU)  Commerce U/S Padilla urged Japan not to penalize 
innovation by imposing low reimbursement caps on 
pharmaceuticals and medical devices through its "Special 
Re-pricing Rules for Market Expansion" measure.  As Japan's 
population ages, it will need more innovation and not fewer 
medications, he said.  More than 20 percent of the most 
popular drugs currently available on the world market are not 
available in Japan.  MHLW,s Ueda responded while the GOJ 
understands industry concerns, Japan faces tight fiscal 
constraints and must manage healthcare costs.  MHLW is 
looking at the most equitable re-pricing policies for the 
2008 revision and is considering subjecting all drugs within 
a comparator category to the same re-pricing guideline, Ueda 
explained.  The Ministry welcomes industry feedback on this 
proposal. 
 
Investment 
---------- 
 
¶70.  (SBU) Japan continues to seek to double the amount of 
foreign direct investment (FDI) coming into the country and 
has been cooperating with the United States to attain that 
goal, Toyoda stated.  The U.S.-Japan Investment Initiative 
has helped improve Japan,s business environment and the 
governments have sponsored three seminars to promote 
investment in both countries.  Japan has relatively few 
investment treaties with other countries due to its 
insistence on high standards, Toyoda continued.  Japan 
started negotiations on an investment treaty with China in 
March 2007 but the talks bogged down due to China,s 
unwillingness to liberalize. 
 
¶71.  (SBU) DNSA Price suggested the United States and Japan 
should work together in the OECD, G-8, and other fora to 
ensure adequate rules are adopted to protect outward 
investors, particularly in developing countries.  Conversely, 
the U.S.-Japan Business Council should launch an effort to 
 
TOKYO 00005678  017 OF 017 
 
 
educate the Japanese and American publics about the benefits 
of FDI to the domestic economy.  A/S Sullivan noted the 
Heiligendamm G-8 statement on investment and the President,s 
recent statement on the importance of foreign investment.  It 
would be useful, he continued, if the Fukuda government 
reaffirmed the Koizumi and Abe goals of boosting foreign 
investment in Japan.  He also suggested reconvening the Japan 
Investment Council; it has not met in over a year.  Noting 
the U.S. is pursuing bilateral investment treaties with a 
number of countries, and the importance of presenting a 
common front in demanding high standards, for example in 
talks with China, he suggested it might be useful to include 
a comparison of our treaties in the bilateral investment 
dialogue.  DNSA Price noted that cooperating to maintain high 
standards for investment agreements is important for Japanese 
global companies active and investing around the world, as 
well as for U.S. firms. 
 
Antidumping Act of 1916 
----------------------- 
 
¶72.  (SBU) DFM Kohno stated a Japanese company faces a 
possible injunction by a U.S. court for being in violation of 
the Anti-Dumping Act of 1916 if the Supreme Court over-rules 
the decision of the 8th Circuit Court of Appeals.  The Act is 
inconsistent with U.S. WTO commitments.  The GOJ would like 
the State Department to convey support for the 8th Circuit 
Court,s ruling to the Supreme Court.  A/S Padilla replied 
the USG has repealed the anti-dumping act in question. 
However, it is not appropriate for the Executive Branch to 
offer an opinion to the Supreme Court if not specifically 
asked by the Court to do so.  It is also unclear whether the 
Court would choose to hear the case.  If the past is any 
indication, the odds seem quite low. 
 
100 Percent Container Scanning 
------------------------------- 
 
¶73.  (SBU) METI DM Toyoda expressed concerns regarding the 
potential disruption of the global supply chain should the 
U.S. require 100 percent scanning of shipping containers. 
The United States has heard Japan,s concerns, but the law 
mandates the scanning, said U/S Padilla.  The United States, 
he continued, will establish practical and realistic measures 
and timelines to implement the program.  He also noted the 
law allows for the implementation deadline to be extended in 
two year increments, providing some flexibility, if warranted. 
DONOVAN