EAST CHINA TIRE MAKER "DISAPPOINTED" WITH U.S. SAFEGUARDS

UNCLAS SECTION 01 OF 02 SHANGHAI 000397 SENSITIVE SIPDIS NSC FOR JLOI, DBELL STATE PASS USTR FOR DMARANTIS, TREIF, TSTRATEFORD, AMAIN, JGRIER DOC FOR IKASOFF, NMELCHER TREASURY FOR OASIA/DOHNER/WINSHIP GENEVA PASS USTR E.O. 12958: N/A TAGS: ECON EIND ETRD ETTC CH PREL SUBJECT: EAST CHINA TIRE MAKER "DISAPPOINTED" WITH U.S. SAFEGUARDS DECISION; IMPACT UNCERTAIN REF: BEIJING 2671 AND PREVIOUS SHANGHAI 00000397 001.2 OF 002 (U) This cable is sensitive but unclassified. Not for distribution outside USG channels. ¶1. (SBU) Summary: An East China-based tire manufacturer expressed disappointment in the "421" safeguards case for Chinese passenger car and light truck tires during a September 17 meeting. He complained that in spite of the imposition of new tariffs on Chinese tires, U.S. tire manufacturers would never produce low cost tires again, thereby making the ostensible goal of the safeguards action -- preserving and creating American jobs -- unattainable. He reasoned that the decision was politically motivated and ultimately would only injure Chinese industry and U.S. consumers. End Summary -------------- -------------- U.S. Orders Fall, Other Overseas Markets Pondered -------------- -------------- ¶2. (SBU) Shanghai Econoffs called on Giti Tire's Corporate Relations and Administration Director Shen Weijia September 17 to gauge the Chinese tire industry's reaction to the USG decision to impose safeguard tariffs on imports of Chinese tires under Section 421 of the Trade Act. Shen noted that at this early juncture the ultimate effect of the tariffs on Giti's operations was as yet unclear, but the most immediate impact has been a significant drop in tire orders in advance of the September 26 date on which tariffs would begin to be imposed. The U.S. market's reaction to the new price level would be the key determinant in assessing the action's cost, he added. Last year, according to Shen, Giti exported approximately seven million tires to the United States, worth over USD 200 million. In the U.S. market, Giti largely supplies after-market tires for passenger cars and light trucks, Shen said. Shen expected that Giti, following the U.S. safeguards action, would seek to expand into other markets across Southeast Asia, Australia and possibly Europe. Giti currently exports to over 100 different countries. ¶3. (SBU) Shen did not believe the safeguards action would result in an increase in mergers and acquisitions among smaller Chinese tire manufacturers, particularly in the short run. Most of the tire manufacturers that export to the U.S. are generally larger enterprises, he stated, because smaller-scale companies have difficulty meeting U.S. quality standards. -------------- Industry, Not Government, To Bear Costs -------------- ¶4. (SBU) Shen noted that Chinese tire producers would most likely need to reduce substantially overall tire production capacity. In response to media reports claiming that the USG safeguards action would affect 100,000 Chinese jobs, Shen said that he did not expect massive layoffs. Rather, he thought a more measured approach such as reducing work hours was the more probable outcome. In this way, he explained, the costs of the tariffs would be borne by industry rather than the government. Were the industries to simply institute massive job cuts, the government, in the form of the social safety net, would bear the brunt of the costs, Shen observed. ¶5. (SBU) When asked about media reports outlining China Rubber Industry Association proposals to increase the export tax rebate from 9 percent to 15 percent and to reduce the natural rubber import duty rate to 7 percent from 15 percent as mitigating factors, Shen felt that they would not be sufficient to offset the impact of the U.S. safeguards action. He noted that Giti will negotiate with its U.S. wholesalers to share part of the losses. Furthermore, the Chinese government will provide support for domestic tire manufacturers to build factories overseas, he said. -------------- -------------- Giti: Safeguards Decision Political, Not Economic -------------- -------------- ¶6. (SBU) Although Econoffs pointed out that the safeguards action is merely enforcement of trade laws, Shen argued that the action was made in response to political and not economic concerns. Calling Giti Tire the victim of an unfair trade action, Shen stated that the remedy would not preserve or create SHANGHAI 00000397 002.2 OF 002 any American jobs because the types of tires involved are simply no longer profitable to manufacture in the United States. Therefore, he reasoned, the USG was punishing innocent Chinese tire manufacturers guilty of no wrong-doing. -------------- Background on Giti Tire -------------- ¶7. (U) Giti Tire began its China operations in 1993 as a China-Singapore joint venture based in the Anhui provincial capital Hefei. Today, it operates a total of seven manufacturing plants in China scattered across five regions: Fujian, Anhui, Heilongjiang, Ningxia, and Chongqing. The seven plants employ approximately 23,600 staff. -------------- Comment -------------- ¶8. (SBU) Shen was surprisingly cordial during the meeting with Econoffs despite his obvious unhappiness at the USG safeguards decision. His statements, however, clearly reflect the "China as victim" narrative that is dominating public and private Chinese commentary regarding the U.S. action. CAMP