SENATE FINANCE COMMITTEE STAFFERS VISIT HONG KONG

UNCLAS SECTION 01 OF 02 HONG KONG 000393

SENSITIVE
SIPDIS

STATE FOR EAP/CM
STATE FOR H

E.O. 12958: N/A
TAGS: ECON ETRD OREP PREL EINV HK
SUBJECT: SENATE FINANCE COMMITTEE STAFFERS VISIT HONG KONG

REF: A. HONG KONG 00333

B. 07 HONG KONG 00218


1. (SBU) Summary: Eleven U.S. Senate Finance Committee staff
members, led by International Trade Counsel Amber Cottle,
visited Hong Kong February 18-20. Their visit focused on
trade facilitation, trade security, and customs enforcement
with Hong Kong Government (HKG) and private sector
representatives. Local interlocutors voiced concerns over
U.S. consumer product safety and customs legislation,
particularly the lack of "transparency" and too-quick
implementation; they cautioned about possible repercussions
if trading partners viewed these as protectionist measures.
HKG interlocutors sought U.S. Government (USG) direction on
the future of the Secure Freight Initiative (detailed in Ref
A). The American Chamber of Commerce in Hong Kong (AmCham)
delivered a message to the StaffDel in support of free trade.
The AmCham also noted that the current U. S. foreign income
tax regulations impose a competitive disadvantage on
Americans participating in the international labor market.
On IPR, the HKG explained its reluctance to participate in
the Anti-Counterfeiting Trade Agreement (ACTA),despite
meeting its standards (Ref B). End Summary.

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CPSIA: Lack of Transparency Equals Business Reluctance
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2. (SBU) Vivian Lau, Deputy Director General for the Hong
Kong Trade and Industry Department (HKTID) raised concerns
over the U.S. Consumer Product Safety Improvement Act (CPSIA)
with the StaffDel. Lau indicated that Hong Kong/China
garment makers and small-to-medium-size manufacturers,
concerned with "ever-evolving" U.S. product safety rules and
lack of transparency, have recently opted to decline orders
from U.S. importers. The manufacturing trade seeks
guarantees that U.S.-bound products will not be rejected as a
result of new product safety laws. She cited the recent U.S.
District Court of New York ruling that applied restrictions
on phthalates content to all inventories, regardless of
manufacturing date. Lau also explained the CPSIA
requirements for "final product testing" make manufacturing
of certain goods inefficient and unprofitable. As an
example, Lau cited inputs that may go into producing a
child's organic cotton cloth jacket. The law requires
testing of the final item (i.e., the child's jacket) for
which only the buttons may contain small traces of the
restricted chemicals. This results in lab testing fees for a
completed product that provide no more information than would
testing of individual product components, she said. If
components were targeted and tested separately, the lab
testing fees and costs of goods could be reduced
tremendously, she added. When the StaffDel informed Lau that
the CPSIA only aligned U.S. legislation with European Union
(EU) standards, Lau indicated rapid CPSIA implementation and
uncertainty differentiated these regulations.

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Expats Call for Continued Support for Free Trade
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3. (SBU) The American Chamber of Commerce in Hong Kong
(AmCham) called for continued USG support for free trade. On
recent trade security initiatives (e.g. Container Security
Initiative, Secure Freight Initiative, Security Filing 10 2,
Customs-Trade Partnership Against Terrorism) and product
safety rules, AmCham cautioned that the "draconian"
interpretation of the rules and the lack of communication and
transparency could be viewed by trading partners as
protectionist measures. Trading partners could impose
similar security and safety rulings to U.S. exports and
disrupt trade flow. AmCham recognized that trade security
and product safety "have important and noble goals," but one
member remarked that "hastily implemented legislation seems
to lack practicality and reason." In order for the industry
to adjust, reasonable timing for implementation and clear
interpretation of the rules is needed, AmCham stressed.

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Foreign Income Tax: A Self-Imposed Competitive Disadvantage
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4. (SBU) AmCham members raised concerns about the current
U.S. tax burdens on Americans who work and reside abroad. As
no other developed nation taxes the foreign-earned income of
its citizens, this additional layer of cost and complexity is
a disadvantage for American expatriates and U.S. companies,
they said. To attract American employees to work overseas,

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corporations have to include "tax equalization agreements" in
remuneration packages. Under these agreements, companies
bear the U.S. income and Medicare tax burden for their
American employees, raising the cost of U.S. labor. When
these organizations contemplate cutting labor costs, U.S.
workers are usually the first dismissed, given their
disproportionate entitlements, the Chamber business
representatives said. AmCham members noted how the current
financial crisis has forced many U.S.-based companies
operating abroad to hire cheaper non-American management.
This further hurts U.S. exports because American managers
tend to source items from familiar U.S. brands, while foreign
managers will tend to source from their home country.
Similarly, international schools that educate the U.S.
expatriate community offspring have undergone large faculty
turnovers. American teaching professionals are being
replaced by "more affordable" non-Americans; U.S. teachers
return home and compete in an already competitive domestic
labor market. AmCham members stressed U.S. tax laws should
be revised to eliminate the competitive disadvatage faced by
American citizens working abroad.

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Intellectual Property Rights (IPR) Protection
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5. (SBU) The StaffDel met with officials from the Hong Kong
Intellectual Property Department (IPD),HKG's policy and
educational body on IPR, and with officers from Hong Kong
Customs and Excise Department (HKCE) to discuss local IPR
enforcement matters. While acknowledging challenges posed by
low-level syndicates of counterfeit goods sellers, IPD
Director Stephen Selby lauded successes by HKCE in combating
IPR infringement. He explained this was the result of
intelligence sharing among foreign and local law enforcement
agencies and the private sector. Selby was specifically
appreciative for training provided by the USG to local law
enforcement. On the question of HKG's reluctance to join the
Anti-Counterfeiting Trade Agreement (ACTA),Selby told
StaffDel that ACTA is for the "big boys" while Hong Kong is
only a small city. Note: Ref B previously reported Selby's
concerns over possible mainland Chinese reaction to ACTA,
particularly if the trade agreement ever expanded to include
Taiwan. At the time, the HKG asked to be kept informed of
the progress of ACTA, but opted to delay entering into any
formal discussions despite meeting ACTA standards. End note.


6. (SBU) The StaffDel did not have a chance to clear this
cable.
DONOVAN