VZCZCXRO3700
PP RUEHFK RUEHGH RUEHKSO RUEHNAG RUEHNH
DE RUEHKO #0389/01 0570204
ZNR UUUUU ZZH
P 260204Z FEB 10
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC PRIORITY 9651
INFO RUEHBJ/AMEMBASSY BEIJING PRIORITY 3253
RUEHFR/AMEMBASSY PARIS PRIORITY 6627
RUEHUL/AMEMBASSY SEOUL PRIORITY 9934
RUEHFK/AMCONSUL FUKUOKA PRIORITY 9017
RUEHHK/AMCONSUL HONG KONG PRIORITY 6906
RUEHNAG/AMCONSUL NAGOYA PRIORITY 6010
RUEHNH/AMCONSUL NAHA PRIORITY 1349
RUEHOK/AMCONSUL OSAKA KOBE PRIORITY 2835
RUEHKSO/AMCONSUL SAPPORO PRIORITY 9503
RUEHGH/AMCONSUL SHANGHAI PRIORITY 0654
RUEHIN/AIT TAIPEI PRIORITY 7589
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RHEHAAA/NSC WASHDC PRIORITY
RUEATRS/TREASURY DEPT WASHDC PRIORITY
RUEHBS/USEU BRUSSELS PRIORITY

UNCLAS SECTION 01 OF 03 TOKYO 000389 
 
SENSITIVE 
SIPDIS 
 
STATE FOR E, EEB AND EAP/J 
NSC FOR JLOI, DRUSSELL 
USTR FOR AUSTR WCUTLER, MBEEMAN, AND DLEE 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PGOV JA
SUBJECT: AUSTR CUTLER SHARES JAPAN POST CONCERNS WITH 
CABINET OFFICE SENIOR VICE MINISTER OHTSUKA 
 
REF: A. 09 TOKYO 2890 
     ¶B. 09 TOKYO 2921 
     ¶C. TOKYO 0170 
     ¶D. TOKYO 0282 
 
SENSITIVE BUT UNCLASSIFIED.  CONTAINS BUSINESS SENSITIVE 
INFORMATION. 
 
¶1.  (SBU) SUMMARY:  On February 24, Assistant United States 
Trade Representative (AUSTR) Wendy Cutler raised USG concerns 
with the GOJ's draft outline on postal reform legislation 
with Cabinet Office Senior Vice Minister for Financial 
Services and Postal Reform Kouhei Ohtsuka, a key architect 
behind the document.  She noted that the draft language 
strongly suggested Japan was moving farther away from 
establishing a level playing field between Japan Post and 
private sector companies and urged Japan to seriously 
consider both U.S. concerns and Japan's WTO obligations as it 
proceeds with postal reform.  Ohtsuka, who asserted he was 
well aware of the USG position, characterized postal reform 
as the most challenging political issue currently facing 
Japan.  Cutler and Ohtsuka agreed to work together 
cooperatively and quietly to craft a win-win solution and to 
prevent postal reform from becoming politicized.  END SUMMARY. 
 
POSTAL REFORM THE MOST CHALLENGING ISSUE FACING JAPAN 
--------------------------------------------- -------- 
 
¶2.  (SBU) AUSTR for Japan, Korea, and APEC Affairs Wendy 
Cutler met with Cabinet Office Senior Vice Minister Kouhei 
Ohtsuka February 24 to share USG concerns with the GOJ draft 
outline on postal reform legislation.  Ohtsuka, who authored 
the draft, said he welcomed the opportunity to exchange views 
on the draft and said he had read the public comment on 
postal reform submitted last December by the USG.  AUSTR 
Cutler acknowledged Ohtsuka's key role on this issue and 
expressed appreciation for the open and transparent manner in 
which the GOJ has thus far proceeded on postal reform.  She 
also noted her understanding that the draft was an attempt to 
balance divergent, competing, and politically sensitive 
interests on the issue. 
 
¶3.  (SBU) Ohtsuka acknowledged the difficulty with assembling 
the draft.  He went on to say that postal reform is the most 
challenging political issue currently facing Japan, and 
expressed his regret the issue has not always moved forward 
in a logical way.  Reiterating points made during his meeting 
earlier this month with the DCM (Ref D), Ohtsuka emphasized 
the diverse nature of financial systems around the world and 
the need to recognize Japan's postal system as a unique 
example in that regard. 
 
¶4.  (SBU) AUSTR Cutler reiterated the USG does not take a 
position on whether Japan Post should be privatized.  Rather, 
she focused her comments on the USG's long-standing concerns 
about the preferential treatment of Japan Post compared to 
private companies in the insurance, banking, and express 
delivery sectors.  AUSTR Cutler went on to emphasize the USG 
was not seeking special treatment for U.S. companies. 
Rather, the USG seeks equal treatment so all private 
companies can compete with the Japan Post group companies on 
an equal basis.  AUSTR Cutler also cautioned Japan should 
bear in mind its international obligations under the WTO as 
it moves forward with its review. 
 
¶5.  (SBU) Ohtsuka said he understands the USG position but 
asked that Washington bear in mind three points.  First, the 
GOJ is not moving away from the basic policy of privatizing 
the Japan Post group companies.  He did say, however, that 
improvements to the overall system are necessary and will 
take time before this objective is achieved.  Second, the GOJ 
 
TOKYO 00000389  002 OF 003 
 
 
aims to improve and make more stable Japan's overall 
financial system, a key component of which are the Japan Post 
financial companies.  Ohtsuka claimed that although Japan may 
not be able to satisfy 100 percent of USG demands as it moves 
forward with the reform, developments are moving in a good 
direction.  Third, Ohtsuka said the GOJ will endeavor to 
ensure a level playing field, but due to certain constraints 
stakeholders may not be completely satisfied.  He reiterated 
he will remain open to dialogue as reform progresses, with 
the hope this will lead to greater understanding and better 
reform. 
 
MAJOR CONCERNS WITH THE CURRENT DRAFT OUTLINE 
--------------------------------------------- 
 
¶6.  (SBU) AUSTR Cutler said the USG is increasingly concerned 
the GOJ is moving in a troubling direction with its postal 
reform, and cited the following examples: 
 
1) lifting of the ban "in principle" on the sale of third 
sector insurance products; 
 
2) unclear moves on providing access for private sector 
companies to the Japan Post network; 
 
3) raising the caps on postal insurance policies and postal 
savings deposits; 
 
4) allowing the postal entity to provide both financial and 
non-financial services, which is prohibited for private 
sector companies; 
 
5) special tax treatment for postal companies; and 
 
6) creating a special law governing the holding company, 
which would include a regulatory special carve out for small 
post offices. 
 
While explaining this was not an exhaustive list, AUSTR 
Cutler cautioned such policies appeared to move Japan further 
away from establishing a level playing field and call into 
question Japan's compliance with its WTO GATS national 
treatment obligations. 
 
¶7.  (SBU) On third sector insurance products, Ohtsuka thought 
it unlikely Japan Post Insurance would get into this sector 
right away.  He did admit, however, that this is an area of 
increasing importance to Japanese citizens and that he 
expects many companies would enter this market.  Ohtsuka 
speculated Japan Post Insurance would probably seek to 
partner with private sector companies in this business.  He 
gave assurances there would be a level playing field going 
forward on this issue. 
 
¶8.  (SBU) Regarding access to the postal network, Ohtsuka 
said the Japan Post financial companies should be given the 
ability to partner with private sector companies to 
distribute products through the Japan Post network; this 
would create a win-win situation for both sides.  He pointed 
out that some private sector companies are already selling 
products at a limited number of post offices.  Ohtsuka 
asserted increased access would be good for both the postal 
entities and the private sector companies. 
 
¶9.  (SBU) On the issue of raising caps on policies and 
deposits, Ohtsuka claimed the current cap is too low for 
users.  Once privatization is completed, all caps must be 
eliminated, he said, as is called for in the current postal 
privatization law.  Ohtsuka repeated that full privatization 
would take some time.  Therefore, some level of cap will be 
maintained. 
 
TOKYO 00000389  003 OF 003 
 
 
 
¶10.  (SBU) On the remaining concerns specifically elaborated 
by AUSTR Cutler, Ohtsuka responded by repeating that the 
GOJ's objective is for the Japan Post group companies to 
become private companies at some point in the future.  For 
the time being, Japan Post Insurance and Japan Post Bank 
should be private entities with "high public interest," said 
Ohtsuka.  By emphasizing they will treated as ordinary 
companies, Ohtsuka appeared to indicate the continuing 
application of the Insurance Business Law and Banking Law to 
these companies.  Ohtsuka pointed out that the postal reform 
legislation is still being worked on and encouraged AUSTR 
Cutler to follow how these elements will be reflected in the 
final legislation. 
 
WORKING TOGETHER TO AVOID POLITICIZATION AND WTO DISPUTE 
--------------------------------------------- ----------- 
 
¶11.  (SBU) Ohtsuka acknowledged the importance of Japan's WTO 
obligations.  Additionally, he wants to avoid a situation 
where postal reform becomes either a bilateral political 
issue or the subject of a WTO dispute.  Ohtsuka repeatedly 
noted the unique character of the postal system in Japan's 
financial system and that the GOJ is taking steps to improve 
the overall financial system, which, he said, included moving 
toward a more level playing field. 
 
¶12.  (SBU) AUSTR Cutler said she was encouraged by Ohtsuka's 
understanding of Japan's WTO obligations.  She urged Japan to 
seriously consider U.S. level playing field concerns and 
Japan's WTO obligations as it moves forward.  AUSTR Cutler 
emphasized the importance of working together cooperatively 
and quietly toward a win-win solution that avoids political 
conflict and WTO litigation. 
 
¶13.  (U) AUSTR Cutler cleared this message after departure 
from Post. 
ROOS