Identifier
Created
Classification
Origin
06BEIJING9501
2006-05-18 06:20:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Beijing
Cable title:  

CHINA'S AMBITIOUS FREE TRADE AGREEMENT AGENDA FOR

Tags:  ETRD WTRO ECON CH AS NZ SA 
pdf how-to read a cable
VZCZCXRO8915
PP RUEHCN RUEHGH
DE RUEHBJ #9501/01 1380620
ZNR UUUUU ZZH
P 180620Z MAY 06
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC PRIORITY 5778
RUCPDOC/USDOC WASHDC PRIORITY
INFO RUEHCN/AMCONSUL CHENGDU 6262
RUEHGZ/AMCONSUL GUANGZHOU 0498
RUEHHK/AMCONSUL HONG KONG 7392
RUEHGH/AMCONSUL SHANGHAI 4564
RUEHSH/AMCONSUL SHENYANG 6076
RUEHIN/AIT TAIPEI 5551
RUEHGV/USMISSION GENEVA 1058
RUEHSG/AMEMBASSY SANTIAGO 0227
RUEHIL/AMEMBASSY ISLAMABAD 6365
RUEHJA/AMEMBASSY JAKARTA 1816
RUEHKL/AMEMBASSY KUALA LUMPUR 2247
RUEHGP/AMEMBASSY SINGAPORE 8586
RUEHBK/AMEMBASSY BANGKOK 4156
RUEHML/AMEMBASSY MANILA 8741
RUEHPF/AMEMBASSY PHNOM PENH 0883
RUEHVN/AMEMBASSY VIENTIANE 3976
RUEHGO/AMEMBASSY RANGOON 4343
RUEHHI/AMEMBASSY HANOI 3426
RUEHBD/AMEMBASSY BANDAR SERI BEGAWAN 0484
RUEHWL/AMEMBASSY WELLINGTON 0538
RUEHBY/AMEMBASSY CANBERRA 9214
RUEHRH/AMEMBASSY RIYADH 0538
RUEHKU/AMEMBASSY KUWAIT 0564
RUEHMK/AMEMBASSY MANAMA 0206
RUEHMS/AMEMBASSY MUSCAT 0011
RUEHDO/AMEMBASSY DOHA 0183
RUEHSA/AMEMBASSY PRETORIA 0371
RUEHRK/AMEMBASSY REYKJAVIK 0006
UNCLAS SECTION 01 OF 06 BEIJING 009501 

SIPDIS

SENSITIVE

SIPDIS

USDOC FOR DAS LEVINE AND ITA/MAC/AP/MCQUEEN

STATE PASS USTR STRATFORD, WINTER, ALTBACH

GENEVA PASS USTR

E.O. 12958: N/A
TAGS: ETRD WTRO ECON CH AS NZ SA
SUBJECT: CHINA'S AMBITIOUS FREE TRADE AGREEMENT AGENDA FOR
2006

REFS: A) BEIJING 6453, B) BEIJING 6849, C) CANBERRA 1845,
D) SANTIAGO 2322, E) WELLINGTON 366

UNCLAS SECTION 01 OF 06 BEIJING 009501

SIPDIS

SENSITIVE

SIPDIS

USDOC FOR DAS LEVINE AND ITA/MAC/AP/MCQUEEN

STATE PASS USTR STRATFORD, WINTER, ALTBACH

GENEVA PASS USTR

E.O. 12958: N/A
TAGS: ETRD WTRO ECON CH AS NZ SA
SUBJECT: CHINA'S AMBITIOUS FREE TRADE AGREEMENT AGENDA FOR
2006

REFS: A) BEIJING 6453, B) BEIJING 6849, C) CANBERRA 1845,
D) SANTIAGO 2322, E) WELLINGTON 366


1. (SBU) Summary: Chinese Ministry of Commerce (MOFCOM)
Minister Bo Xilai announced in early 2006 an ambitious plan
for nine free trade agreements (FTAs) covering twenty-seven
countries, according to MOFCOM officials. These twenty-
seven countries represent 18 percent of China's imports and
11 percent of Chinese exports, but the proposed agreements
would not cover all traded goods. China's growing demand
for raw materials, energy, and light manufactured goods to
support its export-led growth is fueling the trade
component of the PRC's broader "go out" policy. Preferring
to engage first in relatively easy-to-win FTAs focusing
only on goods, China is meeting resistance in negotiating
FTAs with more developed countries. Trade in services and
investment have been relegated to later stage negotiations
except in the case of Australia, which is seeking a
comprehensive FTA.


2. (SBU) Summary continued. China is implementing early
stage trade agreements with ASEAN, Chile and Pakistan this
year. Negotiations with Australia, New Zealand and the
Gulf Cooperation Council (GCC) are expected to conclude
over the next one to two years. China is conducting
feasibility studies with Iceland and South Africa.
Paragraphs 8 - 20 summarize the status of FTAs. Comment
follows. End Summary.

Overall Strategy Unclear but Easy FTAs Come First
-------------- --------------


3. (SBU) Asked to comment on press reports in early 2006
that indicated that Minister Bo planned to conclude nine
FTAs covering twenty-seven countries, Ms. Wang Jingning,
Deputy Director (Division II) of the Department of
International Trade and Economic Affairs (DITEA) at MOFCOM
confirmed that an ambitious FTA agenda exists. She
clarified, however, that several of the previously
announced bilateral negotiations have already concluded
initial "Early Harvest" multi-round talks with tariff
reductions being implemented this year. Two regional

agreements (ASEAN and the Gulf Cooperation Council) cover
sixteen countries. According to an Australian Embassy
official based in Beijing, Australia has not set a
timetable for concluding an FTA this year.


4. (SBU) While a focus on ASEAN is a strategic initiative
for China's expansive trade agenda (the five ASEAN members
accounted for 8 percent of total PRC trade in 2005),China
has not announced plans for several countries that are
large and growing trade partners (Brazil, India and
Russia). Both Brazilian and Indian embassy officials based

BEIJING 00009501 002 OF 006


in Beijing have stated that FTA talks are highly unlikely
in the near term. Countries that account for far smaller
trade with China are actively engaged in negotiations
(Chile, Pakistan and New Zealand). According to Ms. Zhang
Bin, Deputy Director (Division I) of MOFCOM's DITEA,
China's criteria for launching FTA negotiations are good
political relations, an increasing trend in trade and a
large potential market.


5. (SBU) Several Latin American diplomats based in Beijing
have commented that the China-Chile FTA, which was
negotiated relatively easily, is not an apt model for the
rest of the region. These diplomats believe that it would
be harder for their countries to agree on tariff reductions
for Chinese products that would not hurt their domestic
producers. DITEA's Zhang commented that Chile initiated
talks on the FTA with China at an APEC meeting (see reftel
B). Since China's basic criteria were met, negotiations
moved quickly.

China's FTA Negotiations Focusing on Goods
--------------


6. (SBU) China's recent FTA agreements have tended to focus
on trade in goods followed by services and investment (e.g.
Chile, ASEAN and GCC). According to MOFCOM officials, the
goods component is most easily negotiated. Services and
investment agreements, they contend, are more complicated
and take longer to complete. The Australian FTA
discussions, however, include goods, services, and
investment (the outcome of arduous discussions according to
an Australian diplomat based in Beijing). Australian
officials are uncertain whether negotiations will in fact
follow the Memorandum of Understanding guidelines
established for the FTA talks with China (see para 16-18).

Organizational Limits on an Aggressive FTA Agenda
-------------- --------------


7. (SBU) According to Deputy Director Wang Jingning of
MOFCOM DITEA Division II, two DITEA divisions with a staff
of 20 persons are responsible for most FTA negotiations.
Many of these 20 DITEA officials are relatively junior with
limited trade negotiating experience. Division One covers
Chile, the GCC and Pakistan. Wang's division (Division
Two) covers ASEAN and New Zealand. Because of limited
DITEA staffing, responsibilities for FTA negotiations with
Australia were shifted to MOFCOM's Department of WTO
Affairs. (Note: The WTO Affairs Department was created at
about the time of China's 2001 WTO accession and, at least
initially, was largely staffed by officials formerly in
DITEA. End note.) DITEA and the WTO Affairs Department
both report to Vice Minister Yi Xiaozhun. Deputy Director

BEIJING 00009501 003 OF 006


Wang and her colleagues expressed strong interest in USG
FTA talks with South Korea and in USG staffing size for FTA
negotiation delegations and support.

Summary of FTA Agreements and Status
--------------


8. (U) Chinese FTA negotiators divide their negotiations
into three phases. First the negotiators engage in "Early
Harvest" talks that focus on tariff reductions on
relatively non-controversial goods that can be implemented
quickly. Recent Early Harvest agreements were launched and
implemented within two years. The next phase is the
launching of "Normal" negotiations which involve goods and
services that require more effort. Lastly the negotiators
tackle "Sensitive" track items which include the most
contentious goods, services and investment sectors.
According to Wang, the Chinese Government attempts to limit
the number of goods placed on sensitive lists in FTA
negotiations in two ways. First, the total value of
sensitive items should not exceed ten percent of total
goods traded bilaterally based on 2001 statistics. Second,
the sensitive list should include no more than 500 items at
the harmonized schedule (six-digit tariff line) level.


9. (SBU) Tariff reductions on a wide variety of goods with
Chile, Pakistan, and ten countries in Southeast Asia (the
ASEAN-5: Indonesia, Malaysia, Singapore, Thailand and the
Philippines; CLMV: Cambodia, Laos, Myanmar, Vietnam; and
Brunei) will come into effect in 2006. MOFCOM officials
initially expected to conclude agreements in goods with New
Zealand, Australia and the GCC by the end of 2006, but now
believe it may take a bit longer. Chinese Premier Wen
Jiabao recently announced that he expects an agreement with
Australia in the next one to two years (see para 16-18).
Wang stated that FTA feasibility studies are now underway
with Iceland and South Africa. If the outcomes of the
feasibility studies are positive, MOFCOM could begin "Early
Harvest" negotiations within one year, Wang said.

ASEAN
--------------


10. (SBU) An Early Harvest Agreement on Trade in Goods was
signed in November, 2004 with tariff reduction on 7,000
eight-digit tariff-line items beginning July, 2005. By
2010 ninety percent of tariffs are to be eliminated.
Negotiations on trade in services and on investment are
ongoing. This is the most significant Early Harvest
Agreement China has concluded to date.

Chile
--------------

BEIJING 00009501 004 OF 006




11. (U) China and Chile signed an "Early Harvest" agreement
in November, 2005 with tariff reductions to begin in July,

2006. Ninety-seven percent of tariffs are to be eliminated
by 2015. Subsequent negotiations are expected. According
to previous reporting (see reftel D) the FTA focused only
on goods to accelerate conclusion of this agreement.

Pakistan
--------------


12. (U) Targeted tariff reductions on three thousand
products began in April, 2006, one year after the "Early
Harvest" Agreement was signed. Within two years 1,000
tariffs are to be eliminated entirely.

Hong Kong and Macau
--------------


13. (SBU) Ongoing discussions regarding trade
liberalization continue. The mainland is interested in
increasing tourism opportunities. No timeframe for
formalization of agreements has been set, according to
MOFCOM officials.

Gulf Cooperation Council (GCC)
--------------


14. (SBU) The GCC includes Saudi Arabia, United Arab
Emirates, Kuwait, Bahrain, Oman, and Qatar. The UAE is the
2006 chair of the group which rotates yearly. Three trade
negotiation rounds have been conducted as of early May

2006. Saudi Embassy Charge Maghrabi told Econoffs that he
expects China and Saudi Arabia to conclude an agreement in
goods only (no energy items) by the end of 2006. Mr. Cao
Jiachang, Director in MOFCOM's West Asia Department, said
the FTA talks with Saudi Arabia were progressing smoothly.


15. (SBU) The third round of negotiations was held in
January, 2006 and covered custom inspections and sanitary
and phytosanitary (SPS) trade remedies. Previous rounds
were conducted in June, 2005 (trade and economy, investment
protection, establishing a Joint Commission on Commerce and
Trade) and April, 2005 (trade in goods, tariffs,
intellectual property rights and technology transfer).

Australia
--------------


16. (SBU) According to an Australian embassy official in
Beijing, Premier Wen's remarks during his recent visit to
Australia regarding conclusion of an FTA within one to two
years were encouraging. The Chinese and Australians are

BEIJING 00009501 005 OF 006


currently engaged in quarterly discussions on their FTA and
thirty Australian negotiators are expected to arrive in
Beijing on May 22nd for the fifth round of talks. Goals
for this round include agreement on the text of the FTA.


17. (SBU) The Fourth Round, completed in Canbera in March,
2006, produced a Memorandum of Uderstanding for
"comprehensive" negotiations including goods, services, and
investments. This was the hardest point to come to
agreement on, according to this Australian Embassy
official, since the Chinese preferred to discuss only
goods, leaving trade and investment to an unspecified time
in the future. The Australian Government has not committed
itself to a specific timetable. Based on Embassy Canberra
reporting (see reftel C) there is some doubt on the part of
an Australian trade negotiator as to whether China will
indeed follow through on a comprehensive negotiation.


18. (SBU) The March 2006 MOU established the completion
date for the feasibility study period and also included
Australian recognition of China's full market economy
status. (Note: Australia thereby gave up seeking recourse
to sections 15 and 16 of the Protocol of Accession of the
PRC to the WTO and paragraph 242 of the WTO Report of the
Working Party on the Accession of China. China has been
pushing for this recognition, because it limits anti-
dumping actions that can be initiated by its trade
partners. End note.)

New Zealand
--------------


19. (SBU) According to the New Zealand Deputy Chief of
Mission in Beijing, the fifth round of negotiations went
well. The Chinese negotiating team was technically
oriented and very interested in formalizing an agreement
(See ref E for another account.) Trade in goods and
intellectual property rights are the main issues being
discussed. They are exploring establishment of a Joint
Commission on Commerce and Trade (JCCT) similar to the
USG's JCCT but are meeting resistance from the Chinese.
New Zealand officials are under significant pressure from
NZ businesses to have an IPR-related mechanism to resolve
disputes, according to a New Zealand Embassy Economic
Official.

Iceland and South Africa
--------------


20. (SBU) China has begun preliminary feasibility studies
with no set timetable for Iceland and South Africa. Asked
why these two countries with minimal trade relations would
be chosen, DITEA Deputy Director Wang surmised that those

BEIJING 00009501 006 OF 006


countries had approached China, seeking more access to
China's large and growing market.

Comment
--------------


21. (SBU) Comment: While China's historically large
trading partners fall outside of Minister Bo's free trade
agreement agenda for 2006, China is pursuing a steady trade
liberalization plan. These early "wins" give the trade
negotiating teams more experience on relatively easier
agreements as they tentatively approach larger trade
partners. Recent Chinese discussions with Russia, Brazil
and India did not include formal FTA negotiations but
rather laid the groundwork for future exchanges and formal
dialogues. For China, the FTAs also offer more political
dividends and fewer costs than pushing forward in
multilateral fora like the WTO Doha Development Round
multilateral trade liberalization negotiations. It is
likely that China's attempts to negotiate future FTAs will
be more difficult and will take longer than their earlier
agreements. End Comment.


RANDT