CBP'S LABUDA URGES HKG TO IMPROVE TEXTILE ENFORCEMENT

UNCLAS SECTION 01 OF 02 HONG KONG 000232 SIPDIS State/EB/TPP/ABT LERSTEN Commerce/ITA/OTEXA D'ANDREA STATE PASS TO USTR QUESENBERRY, HEYLINGER STATE PASS TO CBP LABUDA SIPDIS E.O. 12958: N/A TAGS: ECON ETRD KTEX HK CH SUBJECT: CBP'S LABUDA URGES HKG TO IMPROVE TEXTILE ENFORCEMENT COOPERATION SENSITIVE BUT UNCLASSIFIED. PLEASE HANDLE ACCORDINGLY. ¶1. (SBU) Summary: Janet Labuda, Director of Textile Enforcement and Operations Division, Office of International Trade at U.S. Customs and Border Protection (CBP),and Scott Quesenberry, USTR Special Textile Negotiator, met with Hong Kong government (HKG) officials to discuss the Memorandum of Understanding on U.S. - Hong Kong Cooperation in Trade in Textiles and Apparel Goods. Labuda expressed concern that the 2005 and 2006 Joint Observation Visits (JOVs) reveal that the United States still receives high levels of textile and apparel imports from Hong Kong textile factories that either have been reported as closed or have cancelled their registrations to export to the United States. Labuda urged the HKG to proactively provide CBP with information on all factories that cancel or fail to renew their factory registration. The HKG responded that legal mechanisms in Hong Kong do not allow for sharing of such confidential material, but were willing to open investigations on companies that the U.S. suspects of committing textile violations. END SUMMARY. ¶2. (SBU) Labuda opened the meeting by stating that the United States finds the Memorandum of Understanding on U.S. - Hong Kong Cooperation in Trade in Textiles and Apparel Goods (MOU) a useful tool in reducing textile violations and ensuring legitimate trade. The MOU, signed in 2005, covers U.S. and Hong Kong Customs cooperation in the form of Joint Observation Visits (JOVs) to provide both governments with information to stop illegal textile and apparel shipments. Labuda noted, however, that CBP is concerned about the continued inability to visit many "high risk" factories. During the November 2005 and December 2006 JOVs, the majority of Hong Kong factories targeted for investigation could not be visited because they had closed, cancelled their factory registration, or outright refused admission to the investigating team (see para 3 for data on visits). ¶3. (SBU) The JOV figures for 2006 and 2005 were: December 2006 JOV: 206 factories targeted; 139 (67%) could not be visited; 92/139 were closed or had cancelled registration; 15/139 refused admission to the team; �0A;32/139 are under investigation; November 2005 JOV: 172 factories targeted; 127 (74%) factories could not be visited; 65/127 were closed or had cancelled registration; 24/127 refused admission to the team; 38/127 were under investigation (high potential); 3/172 were visited with evidence of illegal transshipment uncovered; 8/172 were visited and determined to have high potential for transshipment; 26/172 were visited and determined to have low potential for transshipment; 3/172 were visited with no evidence of transshipment Uncovered; ¶4. (SBU) Labuda also explained that CBP uncovered a large number of factories that have cancelled their factory registration, but still ship textiles to the United States. She asked repeatedly for Hong Kong to provide CBP with the names of factories that fail to renew their registration or suddenly renew it after it has lapsed. This information, she reiterated, would facilitate CBP's ability to identify illegal shipments, take law enforcement action, and impose penalties on violators. The HKG responded that providing such information outside of an active law enforcement investigation violated Hong Kong's privacy regulations. Belinda Kwan, Assistant Director-General for Trade and Industry at the Hong Kong Trade and Industry Department, noted numerous times that the decision not to renew a factory registration is not necessarily an indication of fraud. The HKG views such actions as a business decision over where a company hopes to sell its products. She noted that if there is no evidence of illegal activity, neither the HKG nor its employees can share that information with a third party without the consent of the HONG KONG 00000232 002 OF 002 people or companies concerned. She proposed that, if the U.S. was concerned about a specific factory, it could provide the HKG with the name and reasons for its concern. The HKG would subsequently use this information to open an official law enforcement investigation if the suspicion was legitimate and resources allow. ¶5. (SBU) Labuda also remarked that the U.S. and Hong Kong have different methods for gathering statistics and analyzing data. She stated that these differences were effective in determining companies to target for a JOV, particularly when both sides - using different methodologies - identified the same manufacturing facility as a factory of concern. She urged increased data-sharing and the comparison of statistics to help refine the procedures for identifying companies of concern that should be visited in future JOV's. She also requested further information on how the HKG targets companies to undergo a Factory Audit Check (FAC) and stated that the U.S. will continue to detain goods from facilities under FAC investigation. Kwan responded by stating a FAC is technically a law enforcement investigation and, therefore, the HKG only conducts such checks on companies it suspects of textile violations. Labuda also stated that any information that the HKG provides to CBP in order to assist in the detection of instances of violations would be extremely helpful. Labuda mentioned that other economies in the region are working very closely with CBP by providing information on suspect containers and shipments. ¶6. (SBU) Labuda concluded the meeting by proposing an additional JOV in 2007, which the HKG welcomed. Labuda then provided the HKG with a list of Hong Kong companies that are connected with seizures of illegal textiles into the United States and asked for information to determine whether these entities actively participated in textile violations or were unaware of their connection to an illegal shipment. She noted that CBP would like to re-invigorate information sharing, including the quarterly targeting initiative, and would provide the HKG with information on high-risk companies on a regular basis. The HKG reiterated that they would follow up on her requests, as resources allow. The HKG also asked CBP to refrain from identifying the MOU and JOV's as reasons for detaining textile shipments from Hong Kong at U.S. ports of entry, noting that it increases public pressure on the HKG, with some Hong Kong businesses opposing their close cooperation with the USG on textiles. Labuda responded that CBP never provides the specific intelligence that leads to detaining or seizing a shipment. 7 (SBU) The following people attended the meeting: Hong Kong Government: -- S.Y. Cheung, Head of Trade Controls, Hong Kong Customs and Excise -- Paul Sit, Principal Trade Controls Officer, Hong Kong Customs and Excise -- Belinda Kwan, Assistant Director-General, Trade and Industry (Systems),TID -- Eliza Lam, Principal Trade Officer (Systems),TID -- Erica Ng, Assistant Director-General of Trade and Industry (Americas),TID -- Doris Chan, Principal Trade Officer (Americas),TID U.S. Government: -- Janet Labuda, CBP Director, Textile Enforcement Operations Division -- Scott Quesenberry, Special Textile Negotiator, USTR -- Richard Powell, Senior CBP Representative, U.S. Consulate General, Hong Kong ¶8. (U) Janet Labuda of CBP has cleared this cable. Cunningham