CHINA EXPRESSES CONCERN OVER OCTG AND TIRES TRADE CASES

UNCLAS SECTION 01 OF 02 BEIJING 001149

SENSITIVE
SIPDIS

STATE PASS USTR FOR STRATFORD AND KEMP
DEPT OF COMMERCE FOR DAVID SPOONER, RONALD LORENTZEN AND MATTHEW
PRIEST

E.O. 12958: N/A
TAGS: ETRD EIND EMIN KFPC CH
SUBJECT: CHINA EXPRESSES CONCERN OVER OCTG AND TIRES TRADE CASES

1.(SBU) SUMMARY: On April 27, the Charge met with Ministry of
Commerce (MOFCOM) Vice Minister Zhong Shan at Zhong's request to
discuss two recent U.S. trade remedy petitions regarding OCTG (steel
pipe) and consumer tires. The Chinese requested the U.S. exercise
prudence in the cases, arguing that the difficulties of U.S.
industries were caused by the economic downturn and that trade
remedy measure would be unlikely to help. China also noted that the
actions could set a negative precedent for third countries eager to
justify protectionist trade measures, and were counterproductive to
our joint efforts to fight the global financial crisis (GFC). The
Charge said the USG would take Chinese concerns into account to the
extent allowed by U.S. trade law. END SUMMARY.

OCTG AND TIRE CASES VERY IMPORTANT TO CHINA
--------------


2. (SBU) On April 27, the Charge met with MOFCOM Vice-Minister Zhong
Shan, at MOFCOM's request, to discuss two recent trade case
petitions for steel pipe and tires. The two petitions of concern to
the Chinese are an antidumping and countervailing duty (AD/CVD)
petition on oil country tubular goods (OCTG) filed by U.S. producers
to the U.S. Commerce Department (DOC) and a China-specific 421
safeguard petition regarding consumer tires filed with the U.S.
International Trade Commission (USITC). Due to MOFCOM Minister Chen
Deming's current visit to the U.S. on a trade mission, the Chinese
side was represented by VM Zhong, as well as three deputy-director
generals (DDGs) from the Department of Foreign Trade, the Department
of Treaty and Law, and the Bureau of Fair Trade for Imports and
Exports.

CHINA REQUESTS U.S. PRUDENCE
--------------


3. (SBU) VM Zhong opened by stressing the mutual importance of
commercial relations between the U.S. and China, and said that given
the current GFC, the two countries must work closely together to
resolve trade friction and avoid protectionist measures. He stated
that China attaches great importance to the OCTG and tires
petitions, not only because of the large number of Chinese producers
involved, but also for the example it sets for third countries. VM
Zhong noted that the timing of the cases had not been in favor of
finding a solution, but he believes that a resolution to the issue
is in the interest of our combined efforts to counter the GFC. He
hopes the U.S. will exercise prudence regarding these two cases.

TRADE CASES WON'T HELP U.S. INDUSTRY
--------------


4. (SBU) VM Zhong expressed his view that even if the USG implements
trade remedy measures for the two petitions, these actions would be
unlikely to help the U.S. OCTG and tire industries. He thus
believes it makes more sense for the two countries to find a
mutually agreeable solution. China believes the current situation
of U.S. producers may have been caused by slack demand due to the
economic slowdown. GOC and Chinese industry remain open to discuss
arrangements on prices and quantities to promote development of
these industries.

U.S. SHOULD CONSIDER THE LARGER TRADE PICTURE
--------------


5. (SBU) VM Zhong noted that the GOC also receives industry pressure
on trade. During the National People's Congress (NPC) in March,
many NPC deputies requested to meet with him to express their
concerns over the restrictions on exports to the U.S. of Chinese
cooked chicken, or regarding imports to China of U.S. soybeans.
These concerns are understandable, but MOFCOM considered the overall
bilateral trade picture and helped persuade industry of the benefits
of the broader relationship. He hoped the USG would also work to
help its industry understand the benefits of trade.

CHINA HOPES TO AVOID A TRADE WAR
--------------


6. (SBU) VM Zhong expressed MOFCOM's concern that given the GFC, if
the two countries fail to resolve these cases and the result is
trade remedy measures, it will embolden third countries to use
similar methods to protect domestic industry. Some of those
countries are hoping for a trade war with China. China believes
such action would not be in the interest of our common objective to
resolving the GFC as quickly as possible. He reemphasized his
desire to focus on the larger trade picture. China, as the largest
developing country, and the U.S., as the most powerful developed
country, have complementary markets. VM Zhong is confident that the
prospects for increased bilateral trade are great. But he warned
that if trade friction with the U.S. got out of hand, the two
countries could risk descending into a trade war.

BEIJING 00001149 002 OF 002




7. (SBU) The Charge thanked VM Zhong for his frank opinions, and
promised to report the GOC concerns to the USG. He stated the U.S.
understands the importance China attaches to the two petitions, as
evidenced by the high-level representation at the meeting. But the
petition themselves originated from similar concerns, and were
initiated by U.S. industry and unions representing U.S. workers. As
such, the USG is under a legal obligation to consider these requests
and conduct investigations if the petitions meet the requirements of
U.S. trade law. He noted that if, as required by law, there is a
decision to proceed on the OCTG case, it does not mean that our
dialogue has failed. He asked that the GOC respect the U.S.
process, which would include careful investigation and analysis
before any recommendation or action.


8. (SBU) The Charge concluded by emphasizing that as close trading
partners, it is natural for China and the U.S. would have
differences regarding certain trade matters. The U.S. appreciates
the practical approach taken by the GOC on the cooked poultry and
soybean issues, and looks forward to continued discussion on such
issues. The USG is working hard on the poultry issue, and
appreciates China's efforts on soybeans. He assured the Chinese
that the concerns they expressed would be taken seriously by the
USG.

PICCUTA