Cablegate: Austr Cutler Shares Japan Post Concerns With

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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

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