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UNCLAS SECTION 01 OF 06 BEIJING 009501 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
USDOC FOR DAS LEVINE AND ITA/MAC/AP/MCQUEEN 
 
STATE PASS USTR STRATFORD, WINTER, ALTBACH 
 
GENEVA PASS USTR 
 
E.O. 12958: N/A 
TAGS: ETRD WTRO ECON CH AS NZ SA
SUBJECT: CHINA'S AMBITIOUS FREE TRADE AGREEMENT AGENDA FOR 
2006 
 
REFS: A) BEIJING 6453, B) BEIJING 6849, C) CANBERRA 1845, 
D) SANTIAGO 2322, E) WELLINGTON 366 
 
¶1. (SBU) Summary:  Chinese Ministry of Commerce (MOFCOM) 
Minister Bo Xilai announced in early 2006 an ambitious plan 
for nine free trade agreements (FTAs) covering twenty-seven 
countries, according to MOFCOM officials.  These twenty- 
seven countries represent 18 percent of China's imports and 
11 percent of Chinese exports, but the proposed agreements 
would not cover all traded goods.  China's growing demand 
for raw materials, energy, and light manufactured goods to 
support its export-led growth is fueling the trade 
component of the PRC's broader "go out" policy.  Preferring 
to engage first in relatively easy-to-win FTAs focusing 
only on goods, China is meeting resistance in negotiating 
FTAs with more developed countries.  Trade in services and 
investment have been relegated to later stage negotiations 
except in the case of Australia, which is seeking a 
comprehensive FTA. 
 
¶2. (SBU) Summary continued.  China is implementing early 
stage trade agreements with ASEAN, Chile and Pakistan this 
year.  Negotiations with Australia, New Zealand and the 
Gulf Cooperation Council (GCC) are expected to conclude 
over the next one to two years.  China is conducting 
feasibility studies with Iceland and South Africa. 
Paragraphs 8 - 20 summarize the status of FTAs.  Comment 
follows.  End Summary. 
 
Overall Strategy Unclear but Easy FTAs Come First 
--------------------------------------------- ---- 
 
¶3. (SBU) Asked to comment on press reports in early 2006 
that indicated that Minister Bo planned to conclude nine 
FTAs covering twenty-seven countries, Ms. Wang Jingning, 
Deputy Director (Division II) of the Department of 
International Trade and Economic Affairs (DITEA) at MOFCOM 
confirmed that an ambitious FTA agenda exists.  She 
clarified, however, that several of the previously 
announced bilateral negotiations have already concluded 
initial "Early Harvest" multi-round talks with tariff 
reductions being implemented this year.  Two regional 
agreements (ASEAN and the Gulf Cooperation Council) cover 
sixteen countries.  According to an Australian Embassy 
official based in Beijing, Australia has not set a 
timetable for concluding an FTA this year. 
 
¶4. (SBU) While a focus on ASEAN is a strategic initiative 
for China's expansive trade agenda (the five ASEAN members 
accounted for 8 percent of total PRC trade in 2005), China 
has not announced plans for several countries that are 
large and growing trade partners (Brazil, India and 
Russia).  Both Brazilian and Indian embassy officials based 
 
BEIJING 00009501  002 OF 006 
 
 
in Beijing have stated that FTA talks are highly unlikely 
in the near term.  Countries that account for far smaller 
trade with China are actively engaged in negotiations 
(Chile, Pakistan and New Zealand).  According to Ms. Zhang 
Bin, Deputy Director (Division I) of MOFCOM's DITEA, 
China's criteria for launching FTA negotiations are good 
political relations, an increasing trend in trade and a 
large potential market. 
 
¶5. (SBU) Several Latin American diplomats based in Beijing 
have commented that the China-Chile FTA, which was 
negotiated relatively easily, is not an apt model for the 
rest of the region.  These diplomats believe that it would 
be harder for their countries to agree on tariff reductions 
for Chinese products that would not hurt their domestic 
producers.  DITEA's Zhang commented that Chile initiated 
talks on the FTA with China at an APEC meeting (see reftel 
B).  Since China's basic criteria were met, negotiations 
moved quickly. 
 
China's FTA Negotiations Focusing on Goods 
------------------------------------------ 
 
¶6. (SBU) China's recent FTA agreements have tended to focus 
on trade in goods followed by services and investment (e.g. 
Chile, ASEAN and GCC).  According to MOFCOM officials, the 
goods component is most easily negotiated.  Services and 
investment agreements, they contend, are more complicated 
and take longer to complete.  The Australian FTA 
discussions, however, include goods, services, and 
investment (the outcome of arduous discussions according to 
an Australian diplomat based in Beijing).  Australian 
officials are uncertain whether negotiations will in fact 
follow the Memorandum of Understanding guidelines 
established for the FTA talks with China (see para 16-18). 
 
Organizational Limits on an Aggressive FTA Agenda 
--------------------------------------------- ---- 
 
¶7. (SBU) According to Deputy Director Wang Jingning of 
MOFCOM DITEA Division II, two DITEA divisions with a staff 
of 20 persons are responsible for most FTA negotiations. 
Many of these 20 DITEA officials are relatively junior with 
limited trade negotiating experience.  Division One covers 
Chile, the GCC and Pakistan.  Wang's division (Division 
Two) covers ASEAN and New Zealand.  Because of limited 
DITEA staffing, responsibilities for FTA negotiations with 
Australia were shifted to MOFCOM's Department of WTO 
Affairs.  (Note: The WTO Affairs Department was created at 
about the time of China's 2001 WTO accession and, at least 
initially, was largely staffed by officials formerly in 
DITEA.  End note.)  DITEA and the WTO Affairs Department 
both report to Vice Minister Yi Xiaozhun.  Deputy Director 
 
BEIJING 00009501  003 OF 006 
 
 
Wang and her colleagues expressed strong interest in USG 
FTA talks with South Korea and in USG staffing size for FTA 
negotiation delegations and support. 
 
Summary of FTA Agreements and Status 
------------------------------------ 
 
¶8. (U) Chinese FTA negotiators divide their negotiations 
into three phases.  First the negotiators engage in "Early 
Harvest" talks that focus on tariff reductions on 
relatively non-controversial goods that can be implemented 
quickly.  Recent Early Harvest agreements were launched and 
implemented within two years.  The next phase is the 
launching of "Normal" negotiations which involve goods and 
services that require more effort.  Lastly the negotiators 
tackle "Sensitive" track items which include the most 
contentious goods, services and investment sectors. 
According to Wang, the Chinese Government attempts to limit 
the number of goods placed on sensitive lists in FTA 
negotiations in two ways.  First, the total value of 
sensitive items should not exceed ten percent of total 
goods traded bilaterally based on 2001 statistics.  Second, 
the sensitive list should include no more than 500 items at 
the harmonized schedule (six-digit tariff line) level. 
 
¶9. (SBU) Tariff reductions on a wide variety of goods with 
Chile, Pakistan, and ten countries in Southeast Asia (the 
ASEAN-5: Indonesia, Malaysia, Singapore, Thailand and the 
Philippines; CLMV: Cambodia, Laos, Myanmar, Vietnam; and 
Brunei) will come into effect in 2006.  MOFCOM officials 
initially expected to conclude agreements in goods with New 
Zealand, Australia and the GCC by the end of 2006, but now 
believe it may take a bit longer.  Chinese Premier Wen 
Jiabao recently announced that he expects an agreement with 
Australia in the next one to two years (see para 16-18). 
Wang stated that FTA feasibility studies are now underway 
with Iceland and South Africa.  If the outcomes of the 
feasibility studies are positive, MOFCOM could begin "Early 
Harvest" negotiations within one year, Wang said. 
 
ASEAN 
----- 
 
¶10. (SBU) An Early Harvest Agreement on Trade in Goods was 
signed in November, 2004 with tariff reduction on 7,000 
eight-digit tariff-line items beginning July, 2005.  By 
2010 ninety percent of tariffs are to be eliminated. 
Negotiations on trade in services and on investment are 
ongoing.  This is the most significant Early Harvest 
Agreement China has concluded to date. 
 
Chile 
----- 
 
BEIJING 00009501  004 OF 006 
 
 
 
¶11. (U) China and Chile signed an "Early Harvest" agreement 
in November, 2005 with tariff reductions to begin in July, 
¶2006.  Ninety-seven percent of tariffs are to be eliminated 
by 2015.  Subsequent negotiations are expected.  According 
to previous reporting (see reftel D) the FTA focused only 
on goods to accelerate conclusion of this agreement. 
 
Pakistan 
-------- 
 
¶12. (U) Targeted tariff reductions on three thousand 
products began in April, 2006, one year after the "Early 
Harvest" Agreement was signed.  Within two years 1,000 
tariffs are to be eliminated entirely. 
 
Hong Kong and Macau 
------------------- 
 
¶13. (SBU) Ongoing discussions regarding trade 
liberalization continue.  The mainland is interested in 
increasing tourism opportunities.  No timeframe for 
formalization of agreements has been set, according to 
MOFCOM officials. 
 
Gulf Cooperation Council (GCC) 
------------------------------ 
 
¶14. (SBU) The GCC includes Saudi Arabia, United Arab 
Emirates, Kuwait, Bahrain, Oman, and Qatar.  The UAE is the 
2006 chair of the group which rotates yearly.  Three trade 
negotiation rounds have been conducted as of early May 
¶2006.  Saudi Embassy Charge Maghrabi told Econoffs that he 
expects China and Saudi Arabia to conclude an agreement in 
goods only (no energy items) by the end of 2006.  Mr. Cao 
Jiachang, Director in MOFCOM's West Asia Department, said 
the FTA talks with Saudi Arabia were progressing smoothly. 
 
¶15. (SBU) The third round of negotiations was held in 
January, 2006 and covered custom inspections and sanitary 
and phytosanitary (SPS) trade remedies.  Previous rounds 
were conducted in June, 2005 (trade and economy, investment 
protection, establishing a Joint Commission on Commerce and 
Trade) and April, 2005 (trade in goods, tariffs, 
intellectual property rights and technology transfer). 
 
Australia 
--------- 
 
¶16. (SBU) According to an Australian embassy official in 
Beijing, Premier Wen's remarks during his recent visit to 
Australia regarding conclusion of an FTA within one to two 
years were encouraging.  The Chinese and Australians are 
 
BEIJING 00009501  005 OF 006 
 
 
currently engaged in quarterly discussions on their FTA and 
thirty Australian negotiators are expected to arrive in 
Beijing on May 22nd for the fifth round of talks.  Goals 
for this round include agreement on the text of the FTA. 
 
¶17. (SBU) The Fourth Round, completed in Canbera in March, 
2006, produced a Memorandum of Uderstanding for 
"comprehensive" negotiations including goods, services, and 
investments.  This was the hardest point to come to 
agreement on, according to this Australian Embassy 
official, since the Chinese preferred to discuss only 
goods, leaving trade and investment to an unspecified time 
in the future.  The Australian Government has not committed 
itself to a specific timetable.  Based on Embassy Canberra 
reporting (see reftel C) there is some doubt on the part of 
an Australian trade negotiator as to whether China will 
indeed follow through on a comprehensive negotiation. 
 
¶18. (SBU) The March 2006 MOU established the completion 
date for the feasibility study period and also included 
Australian recognition of China's full market economy 
status.  (Note: Australia thereby gave up seeking recourse 
to sections 15 and 16 of the Protocol of Accession of the 
PRC to the WTO and paragraph 242 of the WTO Report of the 
Working Party on the Accession of China.  China has been 
pushing for this recognition, because it limits anti- 
dumping actions that can be initiated by its trade 
partners.  End note.) 
 
New Zealand 
----------- 
 
¶19. (SBU) According to the New Zealand Deputy Chief of 
Mission in Beijing, the fifth round of negotiations went 
well.  The Chinese negotiating team was technically 
oriented and very interested in formalizing an agreement 
(See ref E for another account.)  Trade in goods and 
intellectual property rights are the main issues being 
discussed.  They are exploring establishment of a Joint 
Commission on Commerce and Trade (JCCT) similar to the 
USG's JCCT but are meeting resistance from the Chinese. 
New Zealand officials are under significant pressure from 
NZ businesses to have an IPR-related mechanism to resolve 
disputes, according to a New Zealand Embassy Economic 
Official. 
 
Iceland and South Africa 
------------------------ 
 
¶20. (SBU) China has begun preliminary feasibility studies 
with no set timetable for Iceland and South Africa.  Asked 
why these two countries with minimal trade relations would 
be chosen, DITEA Deputy Director Wang surmised that those 
 
BEIJING 00009501  006 OF 006 
 
 
countries had approached China, seeking more access to 
China's large and growing market. 
 
Comment 
-------- 
 
¶21. (SBU) Comment:  While China's historically large 
trading partners fall outside of Minister Bo's free trade 
agreement agenda for 2006, China is pursuing a steady trade 
liberalization plan.  These early "wins" give the trade 
negotiating teams more experience on relatively easier 
agreements as they tentatively approach larger trade 
partners.  Recent Chinese discussions with Russia, Brazil 
and India did not include formal FTA negotiations but 
rather laid the groundwork for future exchanges and formal 
dialogues.  For China, the FTAs also offer more political 
dividends and fewer costs than pushing forward in 
multilateral fora like the WTO Doha Development Round 
multilateral trade liberalization negotiations.  It is 
likely that China's attempts to negotiate future FTAs will 
be more difficult and will take longer than their earlier 
agreements.  End Comment. 
 
 
RANDT