UNCLAS SECTION 01 OF 03 SHANGHAI 000620

SIPDIS

SENSITIVE
SIPDIS

STATE FOR H AND EAP/CM
STATE PASS FEDERAL RESERVE BOARD FOR JOHNSON/SCHINDLER
SAN FRANCISCO FRB FOR CURRAN/LUNG
NEW YORK FRB FOR DAGES/CLARK
STATE PASS CEA FOR BLOCK
STATE PASS USTR FOR STRATFORD/WINTER/MCCARTIN/ALTBACH/READE
USDOC FOR 4420
USDOC FOR ITA/MAC DAS KASOFF, MELCHER AND MCQUEEN
TREASURY FOR EXEC - TSMITH, OASIA/ISA -DOHNER/BAKER/CUSHMAN
TREASURY FOR WRIGHT AND AMB HOLMER
NSC FOR MCCORMICK AND TONG

E.O. 12958: N/A
TAGS: OREP ECON PREL ETRD CH
SUBJECT: NODEL LARSEN DISCUSSES FOOD SAFETY IN SHANGHAI


SHANGHAI 00000620 001.2 OF 003


(U) This cable is sensitive but unclassified and for official
use only. Not for distribution outside of USG channels or via
the internet.


1. (SBU) Summary. Shanghai-based U.S. businessmen told visiting
Congressmen Rick Larsen (D-WA) and Mark Kirk (R-IL) that
concerns about China's food and product safety were
"legitimate." While China's laws and regulations were adequate,
the inability of the Central Government to implement these laws
created dangers for both U.S. and Chinese consumers. U.S.
businesses were also concerned that Chinese retaliatory measures
on imports from the United States would prove problematic for
their companies. China's newly passed Anti-Monopoly Law was not
targeted at U.S. businesses in China, according to Chinese
officials. End summary.


2. (SBU) Representatives Rick Larsen and Mark Kirk met with
Shanghai political leaders, U.S. business representatives, and
held a press conference with Chinese press during their August
31-September 1 non-official visit. Larsen and Kirk are
co-founders of the bi-partisan "U.S.-China Working Group" in the
House of Representatives. The Members were accompanied by Rep.
Larsen's Senior Legislative Aide Louis Lauter, Rep. Kirk's Chief
of Staff Lester Munson, Johns Hopkins School of Advanced
International Studies Professor David Lampton, and National
Defense University Professor Phillip Saunders. The NODEL was
sponsored by the National Committee on United States-China
Relations. The major themes of their discussions centered on
China's efforts to address its food and product safety concerns
and the impact of China's recently implemented anti-monopoly law.

-------------- --
Food And Product Safety Concerns Are Legitimate
-------------- --


3. (SBU) The NODEL met with Emerge Logistics Managing Director
Jeffrey Bernstein, B&L Group President Phil Branham, ALC
Advisors CEO Dale Colling, Cargill Investment President Norwell
Coquillard, Asia Media Managing Director Wm Patrick Cranley,
Hewitt Associates Consulting Regional Director (and Amcham
Chairman) Eric Fiedler, Baker & McKenzie Partner John Grobowski,
DE Global Managing Director Edward Gwinn, Charles Mo & Company
Principal Charles Mo, and Weyerhaeuser China Shanghai
Representative Office General Manager Zhang Renren at a meeting
sponsored by the American Chamber of Commerce on September 1.
In their opening comments, the Representatives noted their
interest in steps that can be taken to protect the American
consumer from unsafe imported products.


4. (SBU) ALC Advisors' Colling said that U.S. concerns over the
safety of food produced in China were legitimate concerns, not
only for the U.S. consumer, but also domestic Chinese consumers.
He said that when he had visited a turkey jerky plant in July,
he had been so horrified at the sanitation issues at the plant
that he had refused to enter the premises. Quality control and
enforcement of standards was something that the Chinese would
need to address in order to maintain the competitiveness of
their exports, he said.


5. (SBU) Cargill's Coquillard said that he spent a great deal of
time meeting with General Administration of Quality Supervision,
Inspection and Quarantine (AQSIQ). He was concerned about
politically-motivated retaliation against U.S. exports to China.
AQSIQ had "locked a couple of silos" due to perceived problems
with food products from the United States, including Chinese
complaints about "noxious weeds in American soybeans." Cargill
was "very concerned" about possible disruptions to their supply
chain here in China that would be caused if the AQSIQ insisted
on inspecting every shipment that arrived here. To address this
concern, Cargill was working to negotiate a "certified supplier"
status, he said.

SHANGHAI 00000620 002.2 OF 003




6. (SBU) Emerge Logistics' Bernstein said the problems with
China's food and product safety were not caused by poor laws and
regulation, but rather by China's inability to implement its own
laws. Implementing and enforcing its laws would be very costly
for the Chinese government and required addressing issues of
corruption. He noted that many Chinese factories had been
designated as "self inspecting work groups" in the past as a
result of bribes to Chinese officials.


7. (SBU) Bernstein also noted that AQSIQ has not been a lead
agency dealing with the United States over trade issues. AQSIQ
has never felt any pressure from the Chinese government to act
in a positive manner to address trade deficit or cost to
supplier issues. As such, it has "always felt free to take
potshots at the U.S. companies because it never had to deal with
any political fallout." Now, however, AQSIQ has come under
increased domestic and international scrutiny.


8. (SBU) Asia Media's Cranley said that a U.S. approach that
engaged the Chinese government and "put the onus on U.S.
companies to enforce their own specifications," would find
traction within the Chinese government. He favored a solution
that placed equal burden on all parties in the production chain
-- the manufacturer, the shipper, and the retailer.

-------------- --------------
Anti-Monopoly Law Does Not Target American Companies
-------------- --------------


9. (SBU) In a meeting on September 1, Minhang Party Secretary
Sun Chao told the Members that the newly-passed Anti-Monopoly
Law (AML) was "a very good law" and was necessary to regulate
market order. He emphasized that this law was not designed to
address issues within China stemming from its history of
state-owned enterprises. The goal of the AML was to protect
consumer rights.


10. (SBU) U.S. anti-monopoly laws and the new Chinese law "share
the same spirit." Since U.S. companies abide by U.S. laws in
the United States, Sun anticipated that they would not run into
any problems with the new law in China. "American companies
don't need to worry about this. It is not targeting U.S.
companies," he said.


11. (SBU) Sun was confident that Shanghai's development would
continue to be increasingly market-oriented. While there was
still room for future reforms, Sun said that Shanghai would
maintain its role leading China towards further reform and
opening-up.


12. (SBU) Sun said that Shanghai government officials are very
concerned about maintaining the integrity of its food supply and
export products. Any "complaining" about food-safety problems
is "healthy" since it helps the government solve the problem.
He had visited a local farm just two days previously where he
had been briefed on food safety efforts.


13. (SBU) Sun also noted that poor-quality Chinese products
affect the marketability of all "Made in China" goods. It is
the Chinese consumers, however, who bear the brunt of
product-safety problems since they are much closer to the source
and have fewer choices.


14. (SBU) Sun attributed the food and product safety problems
that China is experiencing to the "very fast development" of
China's market economy. The government's ability to monitor and
implement regulations has been unable to keep up with the pace
of this development. There are structural limits on government
as well, he said. He said that when he had transferred from his
position as mayor of the more urban Xuhui District in Shanghai

SHANGHAI 00000620 003.2 OF 003


to his current post as Party Secretary of Minhang District, he
had discovered that "the way of governing between these two
adjoining areas in Shanghai was totally different." While "we
speak the same language and are implementing the same
regulations," there were "big differences" between the two
districts.

--------------
Meeting with MPC Zhou Muyao
--------------


15. (SBU) The Members met with Shanghai Municipal Peoples
Congress (SHMPC) Vice Chairman Zhou Muyao on September 1.
Representative Kirk expressed his appreciation for the strong
"sister-city" relationship between Chicago and Shanghai. He
noted that Chicago Mayor Daley would be leading a delegation to
Shanghai in October.


16. (SBU) Representative Kirk said that Shanghai's role as
China's leading financial center meant that it had a role in
advocating for the greater opening up of China's financial
service sector to foreign competition, particularly in regard to
giving foreign banks more access. Zhou agreed, and said that
while "overall foreign policy is determined by the Central
Government, Shanghai has played an effective role in
communicating its concerns."


17. (SBU) In response to a question from Professor Lampton on
the SHMPC's use of the internet, Zhou said that the SHMPC uses
its official website to communicate directly with Shanghai
citizens. All meeting documents produced by the SHMPC are
posted on the website, he said. Shanghai citizens also use the
official website to engage in direct dialogue with the SHMPC.
(Note: In the earlier meeting with Minhang Party Secretary Sun
Chao, Sun said that he spends up to four hours every day reading
and responding directly to emails sent by his constituents
expressing their concerns. End note.)


18. (U) The delegation cleared this report.
JARRETT