Identifier
Created
Classification
Origin
07BEIJING2091
2007-03-29 09:18:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Beijing
Cable title:  

U/S LAVIN, MOFCOM VM MA DISCUSS SED, JCCT, MARKET

Tags:  ETRD BEXP KIPR WTRO EINV CH 
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VZCZCXRO8564
RR RUEHCN RUEHGH RUEHVC
DE RUEHBJ #2091/01 0880918
ZNR UUUUU ZZH
R 290918Z MAR 07
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC 6276
RUCPDOC/USDOC WASHDC
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUEHOO/CHINA POSTS COLLECTIVE
RULSDMK/DEPT OF TRANSPORTATION WASHDC
RHEHNSC/NSC WASHDC
RUEHGV/USMISSION GENEVA 1694
UNCLAS SECTION 01 OF 05 BEIJING 002091 

SIPDIS

SENSITIVE
SIPDIS

USDOC FOR 1000/ITA/US/FLAVIN
USDOC FOR ITA DAS KASOFF
USDOC FOR 4420/ITA/MAC/OCM/MCQUEEN
USDOC FOR 3132/ITA/USFCS/OIO/EAP/RD/ZARIT/DESARRAN
USDOC FOR IMPORT ADMINISTRATION - LORENTZEN
TREASURY FOR SMITH/DOHNER/HAARSAGER/BAKER/CUSHMAN
STATE PASS USTR FOR STRATFORD/ALTBACH/WINTER/CELICO
NSC FOR JSHRIER/KTONG
TRANSPORTATION FOR OFFICE OF INTERNATIONAL AVIATION
GENEVA FOR USTR

E.O. 12958: N/A
TAGS: ETRD BEXP KIPR WTRO EINV CH
SUBJECT: U/S LAVIN, MOFCOM VM MA DISCUSS SED, JCCT, MARKET
ACCESS AND IPR, MARCH 28, 2007


UNCLAS SECTION 01 OF 05 BEIJING 002091

SIPDIS

SENSITIVE
SIPDIS

USDOC FOR 1000/ITA/US/FLAVIN
USDOC FOR ITA DAS KASOFF
USDOC FOR 4420/ITA/MAC/OCM/MCQUEEN
USDOC FOR 3132/ITA/USFCS/OIO/EAP/RD/ZARIT/DESARRAN
USDOC FOR IMPORT ADMINISTRATION - LORENTZEN
TREASURY FOR SMITH/DOHNER/HAARSAGER/BAKER/CUSHMAN
STATE PASS USTR FOR STRATFORD/ALTBACH/WINTER/CELICO
NSC FOR JSHRIER/KTONG
TRANSPORTATION FOR OFFICE OF INTERNATIONAL AVIATION
GENEVA FOR USTR

E.O. 12958: N/A
TAGS: ETRD BEXP KIPR WTRO EINV CH
SUBJECT: U/S LAVIN, MOFCOM VM MA DISCUSS SED, JCCT, MARKET
ACCESS AND IPR, MARCH 28, 2007



1. (SBU) Commerce Under Secretary Lavin informed Ministry
of Commerce (MOFCOM) Vice Minister Ma Xiuhong that
unaddressed market access and IPR issues, the possibility
of countervailing duty cases against China this year and
the potential for a deterioration in the bilateral economic
and trade relationship this year necessitate further
bilateral work and corrective action by China to be able to
generate positive momentum in that trade and economic
relationship. U/S Lavin enumerated specific concerns
regarding IPR protection, telecommunications services,
movies, pharmaceuticals, civil aviation, securities,
insurance and the automotive and steel sectors, and
cautioned China that an expected March 30 decision in a
countervailing duty (CVD) case may not be to China's liking
nor the only such case this year. VM Ma emphasized the
importance of the Strategic Economic Dialogue to promoting
positive developments in the bilateral relationship and
enumerated Chinese concerns about U.S. high-tech export
controls, market economy status, and recent Congressional
action aimed at making reviews of foreign investment in the
United States stricter. VM Ma said China would use the six
months following the upcoming CVD preliminary ruling to
continue discussions with the United States. Both sides
agreed to consider whether the Joint Commission on Commerce
and Trade could be convened in Beijing in the first week of
August and discussed a possible buying/investment mission
and signing ceremony in conjunction with the May SED
meeting. End summary.

Bilateral Trade, SED, JCCT and Chinese Issues
--------------


2. (SBU) Vice Minister Ma opened by saying the meeting
should help preparations for the next Strategic Economic

Dialogue (SED) and Joint Commission on Commerce and Trade
(JCCT) meetings. The 2006 JCCT had properly handled a
number of issues and laid a proper foundation for
development of trade and economic relations later in the
year. Joint efforts, including at the JCCT, had led to a
2006 year-on-year increase of U.S. exports to China of
nearly 33 percent. While Chinese investment in the United
States remains limited, U.S. investment in China continued
to grow in 2006, especially in services sectors. Even so,
the trade imbalance grew, and increasing imports from the
United States is a high priority for the Chinese Government
in 2007. Proposed trade bills targeting China introduced
in the U.S. Congress show a growth in U.S. trade
protectionism. Both sides should seek mutual benefits,
identify points where interests converge, and intensify
cooperation.


3. (SBU) Ma asserted that due to the direct initiation
and support by our heads of state, the December 2006 SED
was successfully convened. The Chinese side attaches great
importance to the SED, and the frequent exchanges of
delegations in preparation for SED II in Washington shows
that the United States does also. In preparing for SED II,
China places emphasis on several issues.

Export Controls
--------------


4. (SBU) VM Ma said China has grave misgivings about the
forthcoming export control regulation, even while
recognizing that USDOC is revising that regulation based on
recent bilateral consultations. High-tech trade has much
room for further progress. U/S Lavin noted Commerce A/S
Padilla's January visit to China for high-tech discussions
and China's own comments about the draft regulation. Many
of China's views have been incorporated in the revised
draft. Only a small percentage of U.S. exports to China
are subject to export controls and the United States is
pleased to continue discussions on the topic and to improve
further ts procedures. The United States considers the

BEIJING 00002091 002 OF 005


new export controls to be a case of a successful transition.

A/D and CVD
--------------


5. (SBU) China has been closely following U.S. anti-
dumping and now CVD investigations of Chinese products.
China asks that its previously expressed views will be
given full consideration, VM Ma said. U/S Lavin noted that
a preliminary ruling in the current CVD investigation will
likely be issued on March 30, and while he could not say
what the ruling will be, China should anticipate the
possibility that the ruling will not be positive in China's
view. More CVD cases could well follow later in the year.
Nothing is inherently unfair about recourse to CVD cases
and such action is permitted to the United States as a WTO
member. China should move away from subsidies if it wishes
to avoid CVD cases. Both sides should consider how this
could affect trade relations this year, and China should
address outstanding trade problems as part of the response
to managing trade issues this year. VM Ma expressed great
regret that the decision might not be positive. Use of
anti-dumping and CVD cases, not granting market economy
status to China after nearly 30 years of economic reform,
and use of third-country pricing data -- these strike China
as unfair and as discriminatory, violating the fundamental
WTO principle of non-discrimination. One can only expect a
negative impact on bilateral trade from such a ruling. In
response to U/S Lavin's observation that numerous Chinese
officials and press accounts discuss subsidies available to
Chinese companies and therefore recourse to CVD cases
should not be a surprise, VM Ma asserted that China does
not use any WTO-prohibited subsidies. In any event, China
stands ready to continue communications on this matter in
the six-month period following issuance of the preliminary
ruling.

Investment in the United States
--------------


6. (SBU) Legislation in the U.S. House of Representatives
to make reviews of foreign investments in the United States
stricter is worrisome and may have a negative impact on the
interest of Chinese firms to invest in the United States.
However, China has noted with interest USDOC's announcement
of a new initiative to attract inward investment. China
seeks a fair and transparent investment environment for its
companies and looks to expand the new area of two-way
investment. U/S Lavin responded that while China is not a
specific target of the inward investment initiative, China
could be a major beneficiary of it. The United States
welcomes foreign investment. Investment decisions should
be made for business reasons, not political reasons. He
urged that any news of possible investment announcements to
be made by Chinese companies in the run-up to the May SED
meeting be passed to the U.S. side as early and fully as
possible.

Market economy status for China
--------------


7. VM Ma expressed hope that through concerted efforts
substantial progress might yet be achieved on China's goal
of receiving market economy status from the United States.
She acknowledged that real progress on this issue requires
time. In wrapping up her presentation of issues of concern
to China, she noted that new issues will emerge with time,
so bilateral trade consultations will never cease -- but the
bilateral relationship is a long-time thing in itself.

Potential for Deterioration If Issues Not Addressed
-------------- --------------


8. (SBU) U/S Lavin prefaced his enumeration of specific

BEIJING 00002091 003 OF 005


concerns with a candid brief regarding why bilateral
economic relations face the prospect of deterioration this
year. The trade imbalance continues to grow amidst a
general perception of unfair trade practices in China, and
U.S. market access issues raised for two years have not
been addressed; and despite many Chinese Government
initiatives on IPR protection, the general perception
remains that severe IPR problems persist in China. A
political shift in Washington away from trade
liberalization and more towards trade nationalism with the
aforementioned factors contribute to a more negative
atmosphere this year. He then enumerated several
representative areas of no progress or severe market
restrictions even after two years of raising these issues.

U.S. Concerns Largely Unaddressed
--------------

Telecoms
--------------


9. (SBU) China is one of the world's largest markets for
providers of telecommunications services, but U.S. telecom
firms can't compete in China after two years of raising
market access issues. VM Ma noted that at the 2006 JCCT,
China had agreed to lower the market access threshold
(capitalization requirement),and that exchanges with U.S.
officials and with Chinese officials show progress is on
the way. U/S Lavin repeated that nothing has changed yet
for U.S. telecom providers.

Pharmaceuticals
--------------


10. (SBU) The United States has sought IPR protection for
active pharmaceutical ingredients (API) for two years, but
nothing has changed in this period. The 2006 JCCT had
instructed the relevant working group to study the issue,
VM Ma replied.

Movies
--------------


11. (SBU) The U.S. movie industry is almost completely
closed out of the Chinese market, with no change in market
access conditions over the last two years. VM Ma's replies
did not address this point.

Civil Aviation
--------------


12. (SBU) China remains a highly or severely restricted
market, U.S. airlines cannot compete in China as they hope
to. U/S Lavin acknowledged VM Ma's point that the 2004
Civil Aviation Agreement had increased frequencies for
transpacific flights, but strongly emphasized that demand
for more flights exceeds the increased limit, thus the
market remains severely restricted. VM Ma noted current
bilateral civil aviation negotiations related to the SED.
She added that Chinese airlines have been only able to use
some of their increased frequencies, while airlines from
the world's largest developed country already were making
full use of their allotted frequencies. She noted that the
airlines of the two countries have considerably different
levels of competitiveness but policy elements such as the
difficulties for Chinese citizens to get U.S. visas and the
absence of Approved Destination Status for the United
States making Chinese tour group travel to the United
States difficult under Chinese regulations also impact the
civair situation. In implementation of the 2004 civair
agreement, the Chinese side has not entered as fully into
the U.S. market as the U.S. side has entered into the
Chinese market. Nonetheless, further progress in two-way
civil aviation liberalization can be realized.

BEIJING 00002091 004 OF 005



Securities and Insurance
--------------


13. (SBU) U.S. firms are largely barred from operating in
the securities sector in China. U.S. insurance companies
are unable to obtain local licenses in China. VM Ma
replied that the Ministry of Finance, the U.S. Treasury
Department and other relevant agencies are discussing these
issues and reports reaching the Vice Minister, including
some from U.S. sources, indicate certain progress.

Automotive and Steel Sectors
--------------


14. (SBU) U/S Lavin briefly noted U.S. concerns about
these sectors, including that U.S. automotive companies
cannot wholly own auto manufacturers in China. VM Ma's
considerably longer reply dwelt on foreign-invested auto
firms' market shares in China and foreign automaker CEOs'
statements of satisfaction about business in China.

IPR
---


15. (SBU) In response to U/S Lavin's statement about
severe IPR problems still extant in China, VM Ma noted that
she and U/S Lavin had already had an exchange of views on
the topic at that day's luncheon. She further remarked
that at the 2006 JCCT meeting, both sides had discussed IPR
concerns and developments. While the two sides' statements
may have differed in substance, they were useful to
illuminate perspectives and to inform subsequent
intensification of efforts in this area.


16. (SBU) In wrapping up the issues discussion, U/S Lavin
reiterated the potential for negative developments in the
trade and economic relation if China does not take action
on market access and IPR issues. VM Ma urged that both
sides strengthen cooperation on trade and economic issues
and address concerns in accordance with the five principles
outlined by Premier Wen Jiabao when he met with President
Bush in Washington in December 2003. Politicization of
trade and economic issues will be detrimental to the
overall relationship. MOFCOM looks forward to maintaining
its good existing relationship with USDOC and to making
progress on issues of concern to both sides.

JCCT Timing
--------------


17. (SBU) U/S Lavin suggested consideration of the first
week of August 2007 for the next meeting of the JCCT, to be
held in Beijing. It was agreed that MOFCOM Americas
Director-General He Ning and Commerce DAS Ira Kasoff will
hold expert discussions to ascertain the feasibility of
that date.

SED Buying Mission - and Chinese Investments?
--------------


18. (SBU) U/S Lavin recalled earlier comments about a
possible Chinese mission to purchase U.S. goods at the time
of the May SED meeting. He urged fullest and soonest news
of details, so that visa facilitation and stateside support
could be arranged, and urged China to consider what
contract signings might be part of an event at the Commerce
Department. VM Ma said indeed MOFCOM is working with
Chinese Chambers of Commerce to plan a buying mission, with
MOFCOM a necessary player in order to facilitate visa
issuance by the U.S. Embassy. Particular contract signings
will be determined by the participating companies
themselves. Information will be conveyed to USDOC as
available. There may also be some investment signings.

BEIJING 00002091 005 OF 005


China hopes to move forward the two wheels of trade and
investment at the same time. U/S Lavin welcomed news of
the buying mission and further recommended that MOFCOM also
pass along news of planned investment signings as available.
DAS Kasoff and DG He Ning will discuss further the issue of
a signing ceremony.

Meeting Participants
--------------


19. (U) United States Participants:

USDOC International Trade Administration Under Secretary
Frank Lavin
Commerce Deputy Assistant Secretary for Asia Ira Kasoff
Embassy Minister-Counselor for Economic Affairs Robert Luke
Embassy Acting Minister-Counselor for Commercial Affairs
William Brekke
Embassy Special Counsel to the Secretary of Commerce
Caroline Katzin
Embassy Trade Facilitation Office Director Ira Belkin
Embassy Economic Section Deputy Chief Christopher Beede
(notetaker)
Embassy Commercial Officer and First Secretary David
Gossack
USDOC Office of the Chinese Economic Area International
Trade Specialist Ellen Szymanski
Embassy Commercial Specialist Hu Bin
Interpreter


20. (U) Chinese Participants (all Ministry of Commerce
except for Ma Enzhong):

Vice Minister Ma Xiuhong
Director-General of the Treaty and Laws Bureau Shang Ming
Director-General of the Fair Trade Bureau Li Ling
Director-General for American and Oceanian Affairs He Ning
Deputy Director-General of the WTO Affairs Department Chai
Xiaolin
Deputy Director-General of the Fair Trade Bureau Liang
Shuhe
Deputy Director-General of the Department of Industry Zhou
Ruojun
Deputy Director-General of the Department for Cooperation
with Foreign Countries Chen Lin
State Intellectual Property Protection Office Deputy
Secretary-General Ma Enzhong

SIPDIS
Foreign Affairs Department Director Yuan Yuan (interpreter)


21. U) This report has been cleared by U/S Lavin.

RANDT