U/S LAVIN AND CITB SECRETARY WONG DISCUSS TRADE

UNCLAS SECTION 01 OF 03 HONG KONG 000012

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EAP/CM
STATE FOR EB/TPP
STATE PASS USTR BHATIA/STRATFORD/WINTERS/CELICO
USDOC ITA LAVIN/MACQUEEN
GENEVA FOR USTR

E.O. 12958: N/A
TAGS: EAIR ECON ETRD EINV KIPR WTO HK
SUBJECT: U/S LAVIN AND CITB SECRETARY WONG DISCUSS TRADE
ISSUES


1. (SBU) SUMMARY: Franklin L. Lavin, Under Secretary of
Commerce for International Trade, met with Joseph Wong, Hong
Kong Commerce, Industry, and Technology Secretary on December
8 to discuss the Doha Round, the Secure Freight Initiative,
anti-dumping, intellectual property rights (IPR),aviation
services, and the U.S.-China Strategic Economic Dialogue
(SED). Wong stated that the Hong Kong government (HKG) has
three trade priorities: the success of Doha, Hong Kong's
continuing economic integration with the mainland, and
ensuring Hong Kong companies benefit from the Closer Economic
Partnership Agreement (CEPA) with the mainland. Lavin
encouraged the HKG to join the Secure Freight Initiative, to
open its aviation services market and to reconsider
provisions in the new Copyright Amendment that have the
potential to create dangerous loopholes in Hong Kong's IPR
regime. Lavin forecast increased U.S.-Chinese trade friction
in 2007, citing the slowdown of economic reform in China, the
shift in power in the U.S. Congress and public concerns in
the U.S. over the trade deficits. Wong acknowledged the
trade deficit, but stated that U.S. export control measures
contribute to the trade imbalance. END SUMMARY.


2. (SBU) Wong opened by citing Hong Kong's top three trade
priorities. The first is to see the Doha Round succeed. The
multi-lateral trading system must not breakdown and must
remain able to resolve trade disputes, Wong stated. The
second priority is to continue Hong Kong's economic
integration with the mainland, while maintaining autonomous
WTO and APEC status. Third, the HKG wants to ensure that
Hong Kong companies continue to benefit from the Closer
Economic Partnership Agreement (CEPA) between Hong Kong and
the mainland by gaining preferential access to the mainland
market. Wong explained that companies registered in Hong
Kong from twenty-seven service sectors can take advantage of
CEPA and that Hong Kong registration, not ownership, is the
key to obtaining CEPA benefits. Wong expressed interest in
the Strategic Economic Dialogue, noting that Hong Kong
benefits from improved U.S.-China relations.


3. (SBU) Lavin stated that the United States remains
committed to the Doha Development Round and thanked the HKG
for its continued support. He also noted that Hong Kong has
done a superb job with the CEPA; at least two U.S. companies
in Hong Kong, Crown and UPS, have obtained increased access
to mainland China through CEPA.


4. (SBU) Lavin told Wong that Hong Kong's WTO negotiator in
Geneva, a member of the "Friends of Anti-Dumping Negotiations
Group," has expressed unhelpful views on anti-dumping
regulations that could hurt the multi-lateral trading system.
Lavin underscored that anti-dumping regulations give
countries the ability to prevent abusive trade practices,
engender more confidence in the multi-lateral trading system
and promote even greater trade flows. Wong responded that
Hong Kong is not against anti-dumping as an instrument, but
wants to avoid abuses of anti-dumping measures. He
acknowledged that the multi-lateral trading system needs
anti-dumping regulations, but suggested that the rules need
clarification. Lavin said the USG appreciates Wong's
explanation, but the Hong Kong's negotiator has expressed
much more radical views.


5. (SBU) Lavin then praised Hong Kong for developing and
implementing an integrated container security system in its
seaport. The United States recognizes that integrated
container scanning systems must effectively scan containers
while not burdening port operators nor restricting the free
flow of trade. Lavin urged the HKG to join the U.S. Secure
Freight Initiative (SFI). Wong responded that the HKG hopes
to reach an agreement with the USG on HKG's participation in
the SFI, but that the agreement should facilitate the flow of
Hong Kong goods through U.S. ports.


6. (SBU) Moving to intellectual property rights, Lavin
acknowledged the progress Hong Kong has made on the IP front.
Noting U.S. stakeholder concerns regarding Hong Kong's
proposed Copyright Amendment, Lavin questioned why the HKG

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appeared to want to take a step backward in allowing the use
of devices that circumvent technological protection measures.
Wong replied that the CITB-proposed amendment does not
permit selling of or dealing in copyrighted materials, but
provides a defense that allows a circumventor to absolve
liability if he can establish that the circumvention is done
for the purpose of carrying out a non-infringing act. Lavin
stated that this provision could be abused and proposed that
Wong meet with U.S. IP stakeholders to discuss this and other
IP concerns.


7. (SBU) Lavin then asked why Hong Kong had not yet fully
opened its aviation services sector, particularly considering
that HKG policies of opening its seaport to all vessels and
its telecom sector to foreign operators have resulted in Hong
Kong becoming a world leader in these two fields. Wong
replied that CITB does not directly deal with aviation
negotiations, which falls under the Economic Development and
Labor Bureau's purview, and as such did not wish to comment.
Lavin commented that aviation services do not exist in a
vacuum, but have wide-ranging impact across the commercial
spectrum, including job creation/retention, the movement of
goods and services, and other issues that clearly involve
CITB. Still, Wong deferred and did not offer any substantive
comment on this issue.


8. (SBU) In response to Wong's questions regarding the
U.S.-China Strategic Economic Dialogue (SED),Lavin stated
that he anticipates some increased trade friction between the
U.S. and China in 2007 due to the slowdown of the economic
reform in China, the shift in the U.S. political landscape
due to the mid-term election results, and public concerns in
the United States over the trade deficit. He noted that the
PRC has not yet responded to a number of pressing U.S. trade
concerns, so the SED may provide an opportunity for the two
sides to discuss the future of our economic/trade
relationship and for the United States to convince the PRC to
be more responsive. Wong stated that the PRC's 11th
Five-year Plan emphasizes measures aimed at increasing
consumer demand and greater markets for products, which may
improve the current trade deficit. Additionally, he noted
that the United States appears fearful of relaxing overly
restrictive export controls that limit the PRC's ability to
import U.S. products. Lavin accepted that the PRC is
focusing on improving consumer buying power; he stressed,
however, that the possible long-term improvement in China's
buying power does not mitigate the perception in the United
States of an unfair trade relationship. Lavin cited two
examples: the PRC's slow rate of approval for U.S. retailers
to operate in China and the lack of foreign credit cards in
China. Regarding export controls, Lavin responded that all
countries utilize export controls and that the PRC's frequent
citation of export controls -- which affect a minute
percentage of traded goods -- as a key reason for the trade
deficit indicates that the PRC is not willing to address
trade problems seriously.


9. (U) U.S. Participants

Under Secretary Frank Lavin
Acting Consul General Marlene Sakaue
FCS Chief Stewart Ballard
Economic Officer Craig Reilly


10. (U) Hong Kong Participants

CITB Secretary Joseph Wong
Deputy Secretary for CITB Christopher Wong
Assistant Director General for Trade and Industry Joyce Tam



11. (U) During his visit to Hong Kong Lavin participated in
the following press related activities:

-Off-the-record meetings with the following journalists:
Keith Bradsher, Bureau Chief, New York Times Hong Kong; Guy
de Jonquires, Asia columnist, Financial Times, Hong Kong;

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Mary Kissel, Asian Editor, Asian Wall Street Journal.

-Anthony Yuen, Editor and Anchor of Hong Kong's Phoenix TV
interviewed Lavin.

-U/S Lavin gave "on-the-record" remarks on the future of
U.S.-China trade relations to a group of business people at a
luncheon hosted by the American Chamber of Commerce in Hong
Kong. The event was well attended with approximately 30
business people and over 15 print and TV journalists.

-U/S Lavin completed his day of press meetings with a live
appearance on Bloomberg TV's "Asia Business Tonight,"
interviewed by Susan Li.


12. This report was cleared by U/S Lavin's staff.




Sakaue