SED SESSION II: INTEGRITY OF TRADE, DECEMBER 12, 2007

UNCLASSIFIED SECTION 01 OF 04 BEIJING 007557

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SENSITIVE
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STATE FOR EAP/CM SECOR/YAMAMOTO
STATE PASS USTR STRATFORD/WINTER/MAIN
STATE PASS IMPORT SAFETY WORKING GROUP

E.O. 12958: N/A
TAGS: ECON ETRD EAGR TBIO BEXP HHS CH
SUBJECT: SED SESSION II: INTEGRITY OF TRADE, DECEMBER 12, 2007

(U) THIS MESSAGE IS SENSITIVE BUT UNCLASSIFIED. PLEASE HANDLE
ACCORDINGLY. NOT FOR DISTRIBUTION OUTSIDE USG CHANNELS.

Summary
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1. (SBU) Summary: During a December 12 working lunch, the United
States and China stressed that product quality and the safety of
food and drugs pose a complicated new challenge in a global economy.
Both sides said trading partners should increase dialogue and
cooperation and called for science-based regulations and responses
to these issues. Warning that "finger-pointing" is
counterproductive, Chinese officials claimed that quality and safety
issues only affect a small percentage of Chinese exports. Health
and Human Services (HHS) Secretary Michael Leavitt said product
quality and food/drug safety were global problems and that USG and
American public interest in this issue was not exclusive to China.
Both sides welcomed new agreements in the area of food and product
safety. Treasury Secretary Henry Paulson said the cooperative way
the two governments have dealt with these issues within the
Strategic Economic Dialogue should serve as a model for dealing with
other bilateral issues. On transparency, SCLAO Vice Chairman Zhang
Qiong said both sides had agreed to respect and build upon their
international obligations on transparency and noted the importance
of public participation in the drafting of regulations. End
Summary.

Food and Product Safety: a Global Challenge
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2. (SBU) During a December 12 working lunch, Vice Premier Wu Yi
said the issues of product quality and the safety of food and drugs
pose a new challenge that requires joint efforts by all trading
partners. She welcomed the December 11 signing of two agreements
for bilateral cooperation: one between Health and Human Services
(HHS) and AQSIQ on food and feed and another between HHS and SFDA on
drugs and medical devices. HHS Secretary Michael Leavitt said the
two agreements were the beginning of a long process of working
together, and that the United States and China had an opportunity to
show leadership in creating new tools and mechanisms needed to
ensure the quality of products traded in a global marketplace.


3. (SBU) Leavitt described five important lessons he learned during
the negotiations of the two binding Memoranda of Agreement and in
leading President Bush's interagency working group on import
safety:

1) The issue of quality and safety of imports reflects the
maturation of the global marketplace and will require new tools
developed by governments and the private sector.

2) There are multiple perspectives on the issue within and between
governments, requiring better communication and cooperation within
and between governments.

3) Certifiable international standards are necessary to provide
interoperability between different systems in different trading
economies, in order to achieve our common goals.

4) Transparency is essential for promoting greater trust which
leads to smoother and faster trade transactions and success in a
global market.

5) Product quality and safety is not a short-term issue. It will
require continued cooperation and course corrections over a long
period of time.

China's Ministry of Health (MOH)
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4. (SBU) Newly-appointed Minister of Health Chen Zhu said the
inclusion of food safety on the SED agenda showed the vision of both
governments in addressing an issue that affects every household in
the world, since potential threats know no national boundaries.
Chen said MOH plays an important role in ensuring the safety of food
in China through licensing of the catering and restaurant industry.
MOH is also working on a standardized system of nutritional labeling
for food products. Minister Chen said that MOH is combining law
enforcement with efforts to educate the public. In the past three
months, he said, MOH and local authorities have inspected 3.7
million businesses and found 99.5% were operating in compliance with
their licenses.

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5. (SBU) Minister Chen described the creation of the Chinese
government's Leading Group on Food Safety, chaired by Wu Yi, as a
milestone. He said the Chinese government's approach follows a
risk-based process grounded on sound science. He noted that the
food risk evaluation process in China has actually helped goods from
the United States enter the Chinese market, citing a case in which
Chinese scientists disproved allegations that whiskey from the
United States contained dangerous substances.

MOH Seeks Bilateral Cooperation
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6. (SBU) Minister Chen said bilateral cooperation should take into
account differences between Chinese and American food production
practices. He claimed Chinese agricultural producers engaged in
"natural" farming, and were not familiar with using chemicals and
pesticides, in contrast to the industrial agricultural system of the
United States. He also raised the issue of diet, citing the example
of high levels of the antibiotic ractopamine in pork imported from
the United States. This posed a threat in China, he said, because
unlike Americans, Chinese eat pork livers where residue of the drug
accumulates. The Minister called for science-based bilateral
dialogue, as opposed to media-driven discussion, and assured the
American side that China enforces its rules equally regardless of
whether foodstuffs are domestically produced or imported.


7. (SBU) Chen said MOH needs scientific cooperation from the USG on
evaluating food for contamination and disease, and on models for
monitoring food safety. He also urged better cooperation between
the two governments on publicizing information on food safety. He
welcomed the two Agreements between HHS and counterpart agencies,
and also noted that MOH had renewed an agreement with HHS on
HIV/AIDS prevention, care, treatment and research. Finally, Chen
reported that he had discussed with Secretary Leavitt the inclusion
of traditional Chinese medicine (TCM) in the agenda for future SED
meetings. Secretary Leavitt said he had agreed to seriously
consider the idea, which Vice-Premier Wu Yi welcomed. (Note: HHS
has approached MOH to propose that, rather than placing TCM directly
inside the SED, the two sides should make TCM part of a US-China
Health and Medical Symposium, or the United States-China Health Care
Forum, either of which could take place contiguously to SED IV. End
note.)

SFDA: Translating Words into Action
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8. (SBU) Picking up on the theme of drug safety and product quality
as global challenges, State Food and Drug Administration (SFDA)
Commissioner Shao Mingli said no country can rely only on its own
system to guarantee the quality and safety of imports. He noted
that SFDA has cooperated with the U.S. Food and Drug Administration
(FDA) for many years and welcomed the December 11 agreement on drugs
and medical devices. Shao said SFDA was interested in increasing
cooperation because China and the United States have common
interests, despite having different social systems. Shao said SFDA
is interested in more bilateral exchanges to share information on
adverse drug reactions and adverse incidents with medical devices,
in regular exchanges of personnel, and in joint investigations of
cases of counterfeit drugs and medical devices.

Secretary Gutierrez: Innovation Conference

SIPDIS
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9. (SBU) Commerce Secretary Gutierrez reported the results of the
December 10 Innovation Conference which attracted over 100 leaders
from business, government and academia. Gutierrez said innovation
was best fostered where there is rule of law, transparency,
market-based policies and merit-based competition. He said he was
very pleased by the commitment from Vice Minister Li of the Ministry
of Science and Technology (MOST) to cooperate with the United States
under the principles of equality, achievement sharing, and respect
for international practices, and that the United States Department
of Commerce looks forward to further cooperation with MOST.

AQSIQ
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10. (SBU) AQSIQ Minister Li Changjiang noted that AQSIQ cooperates
with counterpart agencies in the United States, including the
Environmental Protection Agency (EPA),and that a pending AQSIQ-EPA
agreement on regulating trade in waste materials will be the newest

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achievement of strengthened bilateral cooperation. Only with
cooperative mechanisms in place, he said, can the United States and
China guarantee the safety and quality of imports and exports.


11. (SBU) Li said the quality of Chinese exports to the United
States and Japan is "ninety-nine percent" satisfactory, but that
media coverage in the United States focuses only in the
non-satisfactory "one percent." However, he said the "one percent"
is important--only by addressing these problem goods can the United
States and China achieve their common goal. The Minister stressed
that all exporting countries, including the United States and Japan,
have a problem "one percent." "We have a long way to go," he said,
"to achieve zero risk." Minister Li said AQSIQ was interested in
learning from HSS and FDA's vast experience, and looked forward to
further cooperation to build mutual trust.

MOFCOM
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12. (SBU) Vice Premier Wu Yi introduced Vice Minister of Commerce
Chen Deming, whom she said the State Council Standing Committee
would name Minister on December 20. Chen Deming described MOFCOM's
role in ensuring product quality and food safety, particularly a
pilot program for information-sharing between relevant Chinese
government ministries now being implemented in Shenzhen
Municipality, which MOFCOM will extend nationally. Chen said the
program targets export producers, and seeks to control export market
access through compulsory certification and inspections.
Information shared between quality inspectors, tax collectors and
other agencies enables MOFCOM to track the compliance of companies
with product quality and safety regulations, and to hold them
accountable. He noted that 444 companies have been penalized in
Shenzhen under the program so far, and two companies have had their
licenses revoked in connection with tainted pet food cases. Chen
said MOFCOM is setting standards based on international norms, and
is conducting training programs on product safety and international
standards. Chen Deming said that "finger pointing" was not helpful,
and that the key to ensuring safe exports lies in effective
cooperation.

Paulson: Model for Bilateral Engagement
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13. (SBU) Treasury Secretary Paulson closed the discussion by noting
that no one had envisioned discussing these issues when the SED was
first established. He said the SED allows for bilateral engagement
on this issue with a minimum of acrimony, and said this is the way
the United States and China need to work together on other bilateral
issues. (Note: At the closing press conference a day later,
Secretary Paulson commented that the agreements reached on safety of

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food/feed and drugs/medical devices were proof of the value of the
SED process. "Rather than engaging in finger-pointing," he said,
"our two governments were quick to come together and work out a way
forward," he said. End note.)

SCLAO: Regulatory Transparency
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14. (SBU) Zhang Qiong, Vice Chairman of China's State Council
Legislative Affairs Office (SCLAO),commended recent efforts at
strengthening bilateral cooperation on regulatory transparency. He
reported that the United States and China had reached agreement on
four points related to transparency:

1) It is important and valuable for governments to solicit public
opinion on draft rules and regulations, which Zhang said is
consistent with President Hu Jintao's call for legislators to seek
the views of the general public in carrying out their legislative
work.

2) Both sides agreed to establish a mechanism to discuss
administrative rule-making and administrative licensing. (Note:
Zhang raised the transparency of the U.S. visa process as an
illustrative example. End note.)

3) Both sides would respect and build upon their international
commitments on transparency.

4) The two sides will continue discussing means to foster the
participation of stakeholders in the drafting of laws and
regulations.


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15. (SBU) Vice Premier Wu described the discussion of transparency
as highly productive, and said she agreed with Secretary Leavitt's
view that transparency can foster trust, make the process of
regulation an inspection smoother, and increase competitiveness for
those companies that have good records of compliance with
regulations.

Randt