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

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U.S. Orders Fall, Other Overseas Markets Pondered
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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.

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Industry, Not Government, To Bear Costs
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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.

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Giti: Safeguards Decision Political, Not Economic
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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.

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Background on Giti Tire
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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.

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Comment
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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