VZCZCXRO9949
RR RUEHFK RUEHKSO RUEHNH
DE RUEHKO #1742/01 2110812
ZNR UUUUU ZZH
R 300812Z JUL 09
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC 5004
INFO RUEHFK/AMCONSUL FUKUOKA 5584
RUEHNH/AMCONSUL NAHA 7914
RUEHOK/AMCONSUL OSAKA KOBE 9393
RUEHKSO/AMCONSUL SAPPORO 6102
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/TREASURY DEPT WASHDC

UNCLAS SECTION 01 OF 03 TOKYO 001742 
 
SENSITIVE 
SIPDIS 
 
STATE PASS USTR, EAP/J, NSC - JIM LOI 
 
E.O. 12958: N/A 
TAGS: EINV ETRD PGOV JA
SUBJECT: THE DPJ ELECTION MANIFESTO: POTENTIAL NEW JAPANESE MARKET 
OPPORTUNITIES AND CHALLENGES 
 
SENSITIVE BUT UNCLASSIFIED.  PLEASE HANDLE ACCORDINGLY. 
 
¶1. (SBU) SUMMARY. The Democratic Party of Japan (DPJ) released its 
election "manifesto" (platform) on July 27 intend to highlight the 
party's efforts to reform and revitalize the Japanese economy and 
its social safety net.  The 55-point election manifesto includes no 
new economic or social safety net proposals, nor does it clarify how 
a DPJ government would pay for its JPY 16.8 trillion yen in 
projects.  Thus, questions remain as to the ability of the party to 
finance all of the promises it is making (septel).  Several of the 
DPJ's proposals, if they are fully-funded and implemented, could 
offer U.S. companies new market access possibilities but also some 
potential new challenges.  The American Chamber of Commerce in Japan 
(ACCJ) Board of Governors has generally welcomed the DPJ's economic 
proposals.  However, the agriculture support proposals are 
potentially damaging to U.S. exports and raise serious WTO 
questions.  The party's ability to gain greater trust from the 
Japanese business community and electorate in the year ahead, should 
it win the election and become the ruling party, rests on its 
ability to implement its economic campaign promises and revive the 
Japanese economy.  END SUMMARY. 
 
¶2. (SBU) The basic thrust of the DPJ's election manifesto could be 
described as economic populism.  Examples include the proposal to 
establish a JPY31,000/year child allowance or free breast and 
cervical cancer screening for women.  Further examples include a 
proposal to support farm commodities via direct payments to farmers. 
 The child allowance could stimulate consumption and improve sales 
for U.S. companies if consumers increase expenditures on durables 
and non-durable items.  Investment analysts have noted a recent 
increase in shares of firms related to baby products as the market 
anticipates increasing demand for such goods. 
 
¶3. (SBU) Embassy Tokyo reviewed the DPJ's 55-point manifesto to 
determine where potential American business opportunities exist 
should a DPJ government win the August 30 election.  We also provide 
analysis of proposals that could negatively impact American trade 
with Japan should the DPJ implement is campaign pledges. 
 
U.S.-JAPAN EPA AND ASIAN REGIONAL INTEGRATION 
--------------------------------------------- 
¶4. (SBU) The DPJ's manifesto calls for the conclusion of a 
U.S.-Japan Free Trade Agreement and further deepening of ties with 
Asian neighbors, including through the Asia Pacific Economic 
Cooperation forum.  However, the party's platform includes 
contradictory policies that would impede Japan's ability to conclude 
a bilateral FTA with the U.S.  On the one hand, the DPJ recognizes 
both Japanese and U.S. private sector calls for and the importance 
of concluding a bilateral FTA as a way to strengthen U.S.-Japan 
relations and to reform trade and investment.  However, the DPJ also 
calls for the establishment of a direct payment system where each 
farmer and rancher will be entitled to subsidies that compensate for 
the losses caused by the difference between production costs and 
sales prices.  Depending on implementation, it could raise WTO 
Agreement issues with respect to Japan's agriculture subsidies and 
may impede needed agricultural reforms in Japan.  Implementation of 
this approach could also complicate Japan's ability to engage 
meaningfully in Asian regional trade initiatives such as the FTAAP. 
 
¶5. (SBU) The DPJ manifesto also calls for the creation of a Food 
Safety Agency in charge of risk management.  The DPJ would 
consolidate the MAFF and MHLW food safety related sections while 
strengthening the function of the Food Safety Commission.  The 
objective, which could injure competitive U.S. agricultural exports, 
includes the establishment of: the Food Traceability System to 
verify the product history from farm to table; the expansion of the 
scope of mandatory COOL labeling to include processed products; the 
deployment of food safety officers to major exporting countries; the 
resurrection of the subsidy for domestic BSE blanket cattle testing; 
and the strengthening of beef import controls (from BSE countries) 
including total (country-wide) import suspension in the event of a 
violation.  Taken together, these measures, if implemented, appear 
to create new obstacles for U.S. agricultural trade and would also 
undermine the feasibility of U.S.-Japan FTA negotiations. 
 
WALKING BACK FROM POSTAL PRIVATIZATION 
-------------------------------------- 
¶6. (SBU) The DPJ manifesto also calls for the "fundamental review" 
of the postal services in order to increase the "convenience for the 
people."  Specifically, it calls for: (1) the passage of a bill to 
freeze the sale of the stocks of Japan Post Holdings, Japan Post 
Insurance and Japan Post Bank (IPO freeze bill), as soon as 
possible; and (2) review of the current "4-company structure" of the 
 
TOKYO 00001742  002 OF 003 
 
 
Japan Post group and reconstructing a system which ensures universal 
service of all of the services offered at post offices, and in doing 
so; (3) ensuring that the three postal services (mail delivery, 
postal savings and postal insurance) are offered in an 
"integrated/unified manner". 
 
¶7. (SBU) These modifications would be a significant reversal from 
the basic framework laid out in the postal privatization laws if 
implemented.  Furthermore, private sector competitors would be 
placed at a significant competitive disadvantage if the postal 
entities were allowed to expand their businesses without any 
restraints while any plans for privatization are stalled.  It would 
also raise concerns with Japan's ability to create a level-playing 
field with private sector competitors and possibly the transparency 
of the process. 
 
¶8. (SBU) Ironically, postal privatization was the focus of the snap 
election called by former Prime Minister Koizumi in 2005, which 
resulted in an overwhelming victory for the LDP in the Lower House 
(more than 2/3rds), and it served as the "symbol" of the Koizumi 
reforms.  The mood for walking back the Koizumi-reforms, with claims 
that they have been too market-oriented, has grown in recent years, 
and the "unprecedented referendum" in favor of postal privatization 
expressed by the people only four years ago will be tested in the 
August 30 election. 
 
DEEPER CO2 REDUCTIONS, EXPANDED RENEWABLE 
BUYBACK SCHEME 
----------------------------------------- 
¶9. (SBU) The DPJ Manifesto calls for cutting CO2 emissions to 25% 
below 1990 levels (which equates to a 31% reduction below 2005 
levels) by 2020.  The mid-term target far exceeds the 15% cut below 
2005 levels that Prime Minister Aso announced in June.  To achieve 
this the DPJ proposes to (1) establish an emissions trading system, 
a platform shared by the ruling party; (2) expand the solar power 
buyback scheme METI is currently implementing to include additional 
renewable energy sources such as wind and biomass; and (3) introduce 
a tax on greenhouse gas emissions. 
 
¶10. (SBU) Industry organizations such as the Keidanren and the Japan 
Iron and Steel Federation have criticized the DPJ's reduction target 
as impossible to achieve in the face of fierce global competition. 
METI officials and DPJ politicians with expertise in energy and 
environmental policy have suggested in recent discussions the DPJ 
may adopt a less ambitious target once it faces the realities of 
governing.  Nevertheless some investment analysts view the DPJ 
stance as boding well for environmental technologies which could 
result in market opportunities for U.S. firms. 
 
ASSISTANCE TO SMALL AND MEDIUM-SIZED 
ENTERPRISES (SMES) 
-------------------------------------- 
¶11. (SBU) The DPJ, which is focused on the fate of small and 
medium-size companies, proposes to assist these SMEs (companies with 
less than %100 million of stated capital) by reducing the applicable 
corporate tax rate from 18 to 11 percent for two years.  This 
revision aims to provide greater tax relief than the GOJ's FY-2009 
tax revision for SMEs, which reduced the tax on an annual return of 
up to %8 million from 22 percent to 18 percent.  Because over 67% of 
Japanese companies (according to a National Tax Agency survey) are 
not paying any tax because they are in deficit, and given the 
limited amount of the abatement, further reduction of the tax rate 
for SMEs is unlikely to promote substantial growth in capital 
investment.  Additionally, few U.S. companies doing business in 
Japan or considering entering the market fall into the SME category, 
so there is likely little economic benefit for American firms. 
 
¶12. (SBU) COMMENT: If the DPJ becomes the ruling party following the 
August 30 Lower House elections, the Japanese public will have a 
clear 55-point score card to grade the party on its ability to 
implement its policy proposals, particularly its economic proposals. 
 There are potential market opportunities for U.S. companies in 
green technologies/energy, but these are balanced out by potentially 
market distorting policies in postal privatization and agriculture. 
Assessing a grade to the DPJ's manifesto is presently difficult 
because the party does not yet know the bureaucratic and fiscal 
constraints it will operate under if it wins the upcoming election. 
These "brakes," and a better understanding of the negative 
repercussions of some of its proposals (reversing postal 
privatization and ill-planned agricultural reform), may result in 
revisions to some of the more ill-conceived plans in the manifesto. 
 
 
 
TOKYO 00001742  003 OF 003 
 
 
¶13. (SBU) The ACCJ Board of Governors has assessed positively the 
DPJ's general economic platform in recent meetings with Emboffs, 
noting that the party's thinking has generally matured as its 
chances of governing become more realistic.  However, some have also 
questioned whether the DPJ will be able to cultivate a pool of 
economic experts from outside the party to implement its policies, 
similar to the role Heizo Takenaka performed in the Koizumi cabinet. 
 END COMMENT. 
 
ZUMWALT