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C O N F I D E N T I A L SECTION 01 OF 05 TOKYO 002890 
 
SIPDIS 
 
STATE FOR EAP/J, EAP/EP, AND EEB 
STATE PASS USTR FOR AUSTR CUTLER, MBEEMAN, AND DLEE 
USDA/FAS FOR BERMAN 
NEC FOR LSUMMERS 
 
E.O. 12958: DECL: 12/11/2019 
TAGS: ETRD EAGR EINV APEC PREL JA
SUBJECT: AUSTR CUTLER RAISES BILATERAL TRADE IRRITANTS AND 
COOPERATION WITH JAPANESE OFFICIALS 
 
REF: A. TOKYO 2709 
     ¶B. TOKYO 2715 
     ¶C. TOKYO 2768 
 
Classified By: Deputy Chief of Mission James P. Zumwalt; 
Reasons 1.4 (b) and (d) 
 
¶1.  (C) Summary:  Government of Japan (GOJ) officials -- 
politicians and bureaucrats alike -- told AUSTR Wendy Cutler 
during her December 10 visit to Tokyo they are frustrated by 
the challenges with the new government's political 
transition, most notably inconsistencies in the decision 
making process.  They spoke favorably of a senior level 
economic dialogue with the United States, but had different 
views on how it should be structured.  Ministry of Foreign 
Affairs Director General Suzuki told AUSTR Cutler that his 
ministry has now received the political green light to move 
forward with updating the U.S.-Japan Regulatory Reform 
Initiative, and expressed an overall positive reaction to the 
U.S. proposal for this work.  AUSTR Cutler also urged the GOJ 
to resolve several bilateral trade irritants, including those 
related to insurance, autos, and access for U.S. beef.  On 
autos, Ministry of Economy, Trade and Industry Director 
General Okada noted Cutler's concern regarding the lack of 
Big 3 auto company participation in Japan's cash for clunkers 
program.  He asserted that the program is not discriminatory 
since some European models already qualify, but left the door 
open on finding a solution to U.S. concerns.  On insurance, 
Cabinet Office Senior Vice Minister Furukawa listened 
carefully to Cutler's suggestions that we use the window of 
opportunity presented by Japan's current review of Japan Post 
to quietly address level playing field concerns.  He 
cautioned the U.S. to be careful, noting that too much 
attention by the USG could be exploited by politicians like 
Minister Kamei who are determined to reverse Japan Post's 
partial privatization.  Director General Suzuki offered 
privately that in presenting U.S. views to politicians on the 
Japan Post issue, Cutler should also express concerns 
regarding Japan's adherence to its WTO obligations.  On APEC, 
Director General Okada shared Cutler's concern that Japan may 
be setting an overly expansive APEC agenda to make meaningful 
progress during 2010 when it chairs the forum.  AUSTR Cutler 
urged the GOJ to prioritize its agenda to focus a manageable 
set of issues.  End summary. 
 
¶2.  (SBU) Assistant U.S. Trade Representative for Japan, 
Korea, and APEC Affairs Wendy Cutler discussed a broad range 
of bilateral trade and regional cooperation issues, including 
APEC, autos, insurance, and beef during meetings December 10 
with Senior Vice Minister and Director of the National 
Strategy Office Motohisa Furukawa, Parliamentary Vice 
Minister Shuji Kira, Deputy Foreign Minister Yoichi Otabe, 
Ministry of Economy, Trade and Industry (METI) Director 
General for Trade Policy Hideichi Okada, and Ministry of 
Foreign Affairs (MOFA) Director General for Economic Affairs 
Yoichi Suzuki. 
 
Difficult Transition from Bureaucrats to Politicians 
--------------------------------------------- ------- 
 
¶3.  (C) Senior Vice Minister Furukawa appeared reluctant to 
suggest names of senior level officials with whom the USG 
could engage on economic and trade issues, offering instead 
that Japan is in the midst of a "once-in-a-hundred-years" 
political transition, a change he likened to the magnitude of 
the 2008 "Lehman Shock" on the global economy.  The 
Democratic Party of Japan (DPJ), he said, is working to wrest 
decision making authority from the hands of the bureaucrats 
and put it in those of the politicians.  Unfortunately, this 
transition is "not going so well", Furukawa conceded.  He 
attributed this difficulty to several factors, in particular 
the GOJ's inability to remove "entrenched" senior civil 
servants (who are protected legally from being fired).  In 
some cases, bureaucrats still lead the decision making 
 
TOKYO 00002890  002 OF 005 
 
 
process and the DPJ is struggling to establish the best 
mechanism by which information can move up from the 
bureaucrats to the politicians.  Furukawa acknowledged that 
the (clumsy) way in which the DPJ handles decisions has 
sometimes created strains in the bilateral relationship, 
which can be exacerbated further by the limited foundation 
for frank discussions that exists between the USG and the new 
DPJ-led government.  Whether the change is "good or bad" 
remains to be seen, but politicians must lead the government, 
he insisted.  Director General Okada echoed similar 
frustrations with day-to-day operations. 
 
Regulatory Reform Initiative 
---------------------------- 
 
¶4.  (SBU) Director General Suzuki said he now had just 
received approval from Foreign Minister Okada to consult with 
other parts of the GOJ on USTR's proposal for future 
Regulatory Reform Initiative talks.  Suzuki said MOFA would 
recommend some changes, but by and large is receptive to the 
U.S. suggestions and hopes to provide a response shortly.  He 
likes the idea of establishing a Food Safety Working Group, 
but expressed skepticism the Agriculture Ministry would be 
comfortable with including discussions on animal health.  In 
terms of "building block" projects, Suzuki expressed interest 
in working together on third-country issues in such areas as 
standards. 
 
Senior Level Economic Dialogue 
------------------------------ 
 
¶5.  (C) Echoing statements Deputy Prime Minister Naoto Kan 
and he made during their November 14 meeting with National 
Economic Council (NEC) Director Lawrence Summers (ref A), 
Senior Vice Minister Furukawa said he supports a senior level 
bilateral economic dialogue; he suggested to AUSTR Cutler 
that Deputy Prime Minister Naoto Kan could lead Japan's 
participation.  AUSTR Cutler said the USG favors a dialogue 
that leads to tangible outcomes (APEC, development 
assistance, and cooperation on issues involving China came up 
in subsequent discussions as possible areas for senior level 
engagement).  Furukawa asserted a senior level dialogue is 
necessary to ensure healthy bilateral economic ties.  He 
likened the U.S.-Japan relationship to that of an old married 
couple in which one half of the partnership may feel 
neglected or hold long standing grievances that, if left 
unaddressed, "can lead to divorce".  It is important to 
consider the perspective of both sides, he said. 
 
¶6.  (C) Deputy Foreign Minister Otabe separately expressed 
surprise Furukawa would suggest that Deputy Prime Minister 
Kan lead a senior level dialogue.  He doubted the efficacy of 
a ministerial level dialogue, an idea favored by certain GOJ 
officials as well as the American Chamber of Commerce Japan, 
noting this type of framework yielded limited results during 
the 1970s.  Otabe asserted it makes more sense for METI Vice 
Minister Ishige and himself to chair a dialogue with USTR and 
State.  His travel schedule for 2010 will take him to Canada 
about once a month for G8 meetings and he therefore could 
travel easily to Washington, as needed.  Director General 
Suzuki conveyed similar doubts about Deputy Minister Kan 
leading a senior level dialogue, noting for example that Kan 
would have a difficult time engaging on bilateral issues such 
as beef. (Comment: With MOFA's career vice ministers having 
long been the main U.S. interlocutors in senior-level 
economic policy discussions, cautionary comments about 
allowing Japan's political leaders to step in as the main 
interlocutors with U.S. deputies are not surprising.) 
 
Autos 
----- 
 
¶7.  (SBU) AUSTR Cutler outlined concern with Japan's vehicle 
purchase subsidy program -- in particular the extent to which 
 
TOKYO 00002890  003 OF 005 
 
 
Japanese autos benefited from the now discontinued U.S. 
equivalent "cash-for-clunkers" program -- and urged the GOJ 
to resolve this issue expeditiously.  Noting that both the 
White House and Congress have also expressed concerns, she 
cited the lack of consideration for autos imported into Japan 
under the PHP (preferential handling procedure) program, 
which allows for streamlined importation of low-volume auto 
imports (2,000 or fewer per model) without the need for fuel 
efficiency tests (ref C). 
 
¶8.  (SBU) Director General Okada told AUSTR Cutler he had not 
yet seen the letter from Tokyo-based Big-3 auto 
representatives to METI sent December 7 concerning their 
recommendations about how to address the issue of limited 
coverage under Japan's automobile purchase incentive program 
for imports, but that he will give it careful consideration. 
Referring to the recent Cabinet decision to continue the 
program until September 30, 2010, Okada said he was unclear 
whether the extension entails any modifications to the 
existing requirements.  (NOTE: The GOJ's December 8 economic 
policy package, entitled "Emergency Economic Measures for 
Reassurance and Economic Growth Tomorrow," included a six 
month extension of the current eco-car subsidy program 
through the end of September 2010.  On December 15, the 
Cabinet approved a second supplemental budget to finance 
mainly the policy package, including JPY 260.9 billion (USD 
2.9 billion) for the eco-car subsidy program.  Post expects 
the Diet to approve the budget in February 2010. END NOTE.) 
Okada noted that while seven out of the 10 top selling models 
under the U.S. cash-for-clunkers program were Japanese, 81 
percent of these vehicles were manufactured in North America, 
according to data compiled by Ward's Automotive Reports.  He 
said METI is working to compile U.S.-specific data. 
 
¶9.  (SBU) Okada claimed the "cash for clunkers" moniker 
sometimes applied to Japan's incentive program creates 
misperceptions about its primary purpose, which he said is to 
promote sales of enviro-friendly vehicles with improved fuel 
efficiency.  He claimed Japan's program is 
non-discriminatory, noting that although no U.S. imports 
currently qualify under Japan's program, 30-40 percent of 
European models do.  Director General Suzuki suggested the 
best solution would be for U.S. manufacturers to propose a 
enviro-friendly vehicle to be imported into Japan (e.g., the 
Ford Explorer II).  AUSTR Cutler replied that the lead times 
and costs associated with introducing a new model into the 
niche Japan market made this proposal infeasible, and instead 
urged that the GOJ seek ways to include U.S. models.  With a 
clear indication given by her counterparts of Japan's 
preparedness to leave the door open to work with the U.S. to 
find a solution, AUSTR Cutler agreed on the need to stay in 
close touch to resolve this issue. 
 
Japan Post Insurance and Level Playing Field Concerns 
--------------------------------------------- -------- 
 
¶10. (SBU) AUSTR Cutler told Director General Suzuki that the 
USG continues to remain neutral about whether Japan Post 
should be privatized and believes that is a decision for 
Japan to make.  She noted the U.S. and Japan have an 
important opportunity to work together to resolve these 
concerns, particularly before Japan completes its review  of 
postal reforms and introduces new legislation governing Japan 
Post Insurance, which is expected to be passed before next 
July's election. She urged the GOJ to give equal 
opportunities for foreign stakeholders to provide input 
during its review of postal reform policies, noting the 
recent decision to not invite foreign business associations 
to a hearing held December 11 on the future of the postal 
services is unhelpful. 
 
¶11.  (C) Concerning the GOJ's reversal of efforts to promote 
a level playing field for U.S. insurance companies, AUSTR 
Cutler told Director General Suzuki that U.S. industry has 
 
TOKYO 00002890  004 OF 005 
 
 
approached the USG with concerns about their ability to 
compete.  She said that the USG has been reviewing Japan's 
WTO commitments and has some serious concerns.  She explained 
USG attorneys have so far identified three areas where they 
believe a strong case can be made to show Japan is in 
violation of its "national treatment" commitments under the 
WTO: 
 
1) access to the postal network (foreign insurance companies 
are permitted to sell limited products at roughly 1,000 post 
offices; Japan Post Insurance is able to offer its full 
product range at more than 20,000 post offices); 
 
2) cooperation with other Japan Post group companies on 
strategic business objectives (unlike Japan Post group 
entities, private companies are prohibited from joint 
ownership of insurance, banking, and non-financial operations 
of foreign companies; and 
 
3) differential enforcement of insurance laws (the Financial 
Services Agency, or FSA, appears to give more favorable 
treatment to Japan Post Insurance in enforcement matters). 
 
¶12.  (C) Suzuki said he would follow up on AUSTR Cutler's 
suggestion that Japanese embassy officials discuss these 
possible violations with USG attorneys.  (NOTE: Japanese 
Embassy officials from MOFA and Ministry of Internal Affairs 
and Communications (MIC) visited USTR on December 14 to ask 
for more details on the three areas AUSTR Cutler identified. 
END NOTE.)  In a subsequent discussion, Suzuki suggested to 
AUSTR Cutler privately that, when raising our level playing 
field concerns with officials at the political level, the USG 
should also raise our concerns about Japan's compliance with 
its  WTO commitments on trade issues.  He said METI Minister 
Naoshima is sensitive to possible violations of Japan's 
multilateral trade commitments and that even Minister Kamei 
understands the importance of abiding by international rules 
-- even if he also plays by his own political rules.  Suzuki 
said timing is critical since Minister Kamei will most likely 
push ahead with drafting new legislation as soon as the Diet 
convenes in mid January.  He said he will talk to key 
officials who work with Senior Vice Minister for the 
Financial Services Agency and Postal Reform Kouhei Ohtsuka 
and asked that either the DCM or EMIN meet with Ohtsuka 
directly as well.  He suggested the embassy also engage MIC 
Parliamentary Secretary Kensei Hasegawa on this issue. 
 
¶13.  (C) Senior Vice Minister Furukawa acknowledged U.S. 
concerns about the lack of a level playing field between 
Japan Post Insurance and foreign companies, but asked for 
understanding as the GOJ continues to consider next steps 
related to Japan Post's recently frozen privatization 
process.  He cautioned that too much attention by the U.S. 
could be exploited by certain politicians (a reference to 
Minister Kamei).  Vice Minister Kira separately noted that 
many DPJ parliamentarians did not support the bill to stop 
the sale of Japan Post shares, but that other factors were 
also at play such as the DPJ's need to maintain its ruling 
coalition (that includes Kamei's People's New Party), at 
least until the July 2010 Upper House election.  Director 
General Suzuki noted domestic insurance providers are 
similarly concerned about Japan Post Insurance's market 
power.  The challenge is for the bureaucracy to keep up with 
developments in the political process; everything in the GOJ 
is on "short notice" these days, he said. 
 
APEC and Regional Architecture 
------------------------------ 
 
¶14.  (SBU) Senior Vice Minister Furukawa agreed Japan and the 
U.S. have a real opportunity for cooperation in the 
Asia-Pacific Economic Cooperation (APEC) forum and for 
strengthening the organization as back-to-back chairs in 2010 
and 2011.  AUSTR Cutler identified promotion of "green 
 
TOKYO 00002890  005 OF 005 
 
 
growth", energy efficiency, and intellectual property rights 
protection as areas where the U.S. and Japan also share 
common objectives and concerns, and that bilateral efforts on 
these issues could serve as models for the region.  Director 
General Okada applauded the close cooperation on APEC issues, 
but also expressed concern that Japan had set so ambitious an 
agenda that it may not be able to make all of its targets in 
¶2010.  AUSTR Cutler concurred, noting that Japan's agenda has 
become increasingly broad and potentially unmanageable.  She 
urged the GOJ to prioritize its work to focus on a set of 
relevant and meaningful issues.  Okada said Japan is 
undertaking a similar prioritization process vis-a-vis its 
Japan-China-South Korea, ASEAN 3, and ASEAN 6 trade 
liberalization discussions.  AUSTR Cutler cautioned that 
Japan needs to be careful not to inadvertently create lower 
standard agreements that in turn become models within APEC 
for a Free Trade Area of the Asia Pacific (FTAAP).  Asked 
about Prime Minister's intentions concerning the East Asian 
Community (EAC) concept, Vice Minister Kira said the Hatoyama 
administration considers its relationship with the United 
States to be the most important bilaterally and sees APEC as 
an key framework for U.S.-Japan cooperation. 
 
Doha Development Agenda 
----------------------- 
 
¶15.  (C) Deputy Foreign Minister Otabe expressed his hope the 
Doha Development Agenda negotiations can be accelerated 
towards a successful conclusion.  He said his State Minister 
had pressed his Chinese counterpart in Geneva to show more 
flexibility in negotiations with the U.S.  Both China and 
India need to take into account political considerations in 
the U.S. to facilitate a deal, Otabe said.  Japan wants to 
work with the U.S., but it would help if the USG also made 
more concrete proposals that reflect its "real position." 
Director General Suzuki said he was relieved METI Minister 
Naoshima was able to join Agriculture Minister Akamatsu in 
Geneva last week for the WTO meetings, noting there had been 
worries that Japan would send the wrong message if only 
Minister Akamatsu had represented Japan. 
 
¶16.  (U) AUSTR Cutler cleared this message after her 
departure from post. 
ROOS