VZCZCXRO8590
OO RUEHCN RUEHGH RUEHVC
DE RUEHBJ #4304/01 3292341
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O 242341Z NOV 08
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC IMMEDIATE 1008
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RUEATRS/DEPT OF TREASURY WASHDC IMMEDIATE
INFO RUEHOO/CHINA POSTS COLLECTIVE IMMEDIATE

UNCLAS SECTION 01 OF 02 BEIJING 004304 
 
SENSITIVE 
SIPDIS 
 
STATE PASS USTR FOR STRATFORD 
DEPT OF COMMERCE PASS TO DAVID SPOONER, RONALD LORENTZEN AND MATTHEW 
PRIEST 
 
E.O. 12958:  N/A 
TAGS: ETRD KTEX EIND CH
SUBJECT: CHINA CONCERNED OVER FUTURE TEXTILE PROTECTIONISM, 
EXPIRATION OF TEXTILE AGREEMENT 
 
1.(SBU) SUMMARY:  MOFCOM Director General for Foreign Trade Wang 
Shouwen met with U.S. Embassy officials to express concern over 
possible U.S. actions when the current Memorandum of Understanding 
(MOU) on Textile and Apparel Products expires at year's end.  He 
expressed concern that comments by President-elect Obama could be 
interpreted as protectionist, particularly in relation to textiles. 
DG Wang stated that China's textile and clothing industry had 
fundamentally changed:  diversifying export markets, decreasing 
fixed investment, and laying off workers.  He argued that China 
posed no threat to the U.S. textiles industry, and actions such as a 
421 safeguard request for textiles would only harm U.S. interests 
and the broader economic relationship.  DG Wang suggested renewed 
dialogue through the JCCT Textiles Working Group was the best way to 
resolve differences.  END SUMMARY. 
 
¶2. (SBU) On November 18, 2008, responding to a request from the 
Chinese side, Minister Counselor for Trade Affairs Christopher Adams 
and Senior Import Administration Officer Sarah Ellerman, met with 
Director General Wang Shouwen of the Department of Foreign Trade at 
the Chinese Ministry of Commerce (MOFCOM). 
 
Concerns about New Administration 
--------------------------------- 
 
¶3. (SBU) DG Wang explained that the Chinese government and Chinese 
industry was very satisfied with the administration of the MOU on 
Textile and Apparel Products.  The Chinese textile industry is 
looking forward to the Dec. 31, 2008, expiration of the MOU and an 
era of free and open trade, ending the past "discriminatory" 
treatment of Chinese textiles via multifiber agreement quotas and 
later EU and U.S. restraints. 
 
¶4. (SBU) However, DG Wang said the Chinese government and industry 
are very concerned over the possible future policies of incoming 
President-elect Obama.  DG Wang referenced a letter written by 
Senator Obama to the National Council of Textile Organizations on 
October 24, 2008, in which the Senator stated that he would make 
decisions regarding 421 cases and other trade remedy matters on 
their merits and not in accordance with any sort of trade ideology. 
DG Wang said the Chinese were also concerned about the recent 
instruction by House of Representatives Ways and Means Committee 
Chairman Rangel to the International Trade Commission to monitor 
imports of textiles categories covered by the current MOU. 
 
Chinese Textiles Not a Threat 
----------------------------- 
 
¶5. (SBU) DG Wang argued that exports from China do not pose a threat 
to the United States.  He claimed that, according to statistics from 
both sides, for the 21 textile categories subject to the quota, 
imports from China make up only 20 percent of the total imports into 
the United States. He also pointed out that thus far in 2008, the 
average utilization rate for all quota categories is 52.9 percent. 
Although we still have 1.5 months to go, this year's utilization 
rate is lower than last year. 
 
¶6. (SBU) DG Wang asserted that the textile and clothing industry in 
China is in a different position than it was a few years ago.  He 
claimed that the industry has improved IPR awareness and increased 
attention to corporate social responsibility.  The large exporters 
are mindful of potential problems if imports into the United States 
surge, so they are trying to diversify their sales.  Responding to 
MC Adams' observation that in 2005 when multi-fiber agreement quotas 
were lifted, imports had surged 600 percent, DG Wang said that in 
2004 the quota fill rate was very high.  Now he said it is about 53 
percent.  Neither importers nor exporters want a "rollercoaster" 
market, so the Chinese exporters no longer focus only on the U.S. 
market.  He also noted that factories had unrealistic expectations 
in 2004.  Now they are decreasing their investments in fixed assets 
and are more realistic.  He claimed that since the MOU with the 
European Union (EU) expired at the end of 2007, the EU has not 
experienced import surges. 
 
China Might "Take Action" 
------------------------- 
 
¶7. (SBU) DG Wang asserted imports from China would not flood the 
U.S. market.  He said that companies' investment in fixed assets has 
decreased; that of the 23 million employees in the textile industry, 
the Chinese industry has laid off 400,000 workers; and that some 
factories have closed. (Note: DG Wang acknowledged that the layoff 
statistic was based on incomplete data.)  He expressed concern that 
if the new U.S. administration employs protectionist trade measures, 
it could produce difficulties for China, and the Chinese side might 
have to "take action."  Layoffs of rural migrant workers threatened 
 
BEIJING 00004304  002 OF 002 
 
 
to undermine stability in urban/rural areas, he said. 
 
¶8. (SBU) DG Wang said imposing 421 safeguards would not help the 
U.S. textile industry.  He claimed U.S. importers need to source 
textile products internationally, so imports from other countries 
would likely fill any decrease in Chinese exports.  DG Wang noted 
that Chinese companies were the largest purchasers of U.S. cotton 
and that last year one-half of China's cotton imports were from the 
United States.  With the U.S. economy in a downturn, American 
families would likely want cheaper textiles from China.  He also 
pointed out that China buys large quantities of U.S. soybeans and is 
increasing its purchases of U.S. pork. 
 
Request for Dialogue 
-------------------- 
 
¶9. (SBU) DG Wang noted that China and the United States both have a 
much broader economic situation to manage.  He read the excerpt from 
President Bush's G20 Summit speech pledging to refrain from raising 
new barriers to investment and trade.  DG Wang said the Chinese side 
would like to resume meetings of the JCCT Textiles Working Group as 
a means to resolve differences, and recommended using the Steel 
Dialogue as a model for future meetings. 
 
¶10. (SBU) COMMENT:  While there are substantiated reports of textile 
and apparel sector layoffs, we are unable to confirm DG Wang's 
informal estimate of over 400,000 laid off workers.  Given China 
conscious effort to transition away from lower-end manufacturing, 
this number seems plausible, although there is no indication yet 
that these laid-off workers were unable to find alternative 
employment in other encouraged sectors.  Beijing's concern is that, 
with China's domestic demand now slowing and the drop off in foreign 
demand expected to accelerate, it will lead to a decline in 
employment opportunities for low-skilled laborers across the 
economy.  The government has stated that it fears such large-scale 
unemployment could lead to social instability.  In this environment, 
the Chinese side is closely watching the new Administration for any 
indications that it might be more protectionist than its 
predecessors.  END COMMENT. 
 
RANDT