VZCZCXRO8564
RR RUEHCN RUEHGH RUEHVC
DE RUEHBJ #2091/01 0880918
ZNR UUUUU ZZH
R 290918Z MAR 07
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC 6276
RUCPDOC/USDOC WASHDC
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUEHOO/CHINA POSTS COLLECTIVE
RULSDMK/DEPT OF TRANSPORTATION WASHDC
RHEHNSC/NSC WASHDC
RUEHGV/USMISSION GENEVA 1694

UNCLAS SECTION 01 OF 05 BEIJING 002091 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
USDOC FOR 1000/ITA/US/FLAVIN 
USDOC FOR ITA DAS KASOFF 
USDOC FOR 4420/ITA/MAC/OCM/MCQUEEN 
USDOC FOR 3132/ITA/USFCS/OIO/EAP/RD/ZARIT/DESARRAN 
USDOC FOR IMPORT ADMINISTRATION - LORENTZEN 
TREASURY FOR SMITH/DOHNER/HAARSAGER/BAKER/CUSHMAN 
STATE PASS USTR FOR STRATFORD/ALTBACH/WINTER/CELICO 
NSC FOR JSHRIER/KTONG 
TRANSPORTATION FOR OFFICE OF INTERNATIONAL AVIATION 
GENEVA FOR USTR 
 
E.O. 12958:  N/A 
TAGS: ETRD BEXP KIPR WTRO EINV CH
SUBJECT: U/S LAVIN, MOFCOM VM MA DISCUSS SED, JCCT, MARKET 
ACCESS AND IPR, MARCH 28, 2007 
 
 
¶1. (SBU) Commerce Under Secretary Lavin informed Ministry 
of Commerce (MOFCOM) Vice Minister Ma Xiuhong that 
unaddressed market access and IPR issues, the possibility 
of countervailing duty cases against China this year and 
the potential for a deterioration in the bilateral economic 
and trade relationship this year necessitate further 
bilateral work and corrective action by China to be able to 
generate positive momentum in that trade and economic 
relationship.  U/S Lavin enumerated specific concerns 
regarding IPR protection, telecommunications services, 
movies, pharmaceuticals, civil aviation, securities, 
insurance and the automotive and steel sectors, and 
cautioned China that an expected March 30 decision in a 
countervailing duty (CVD) case may not be to China's liking 
nor the only such case this year.  VM Ma emphasized the 
importance of the Strategic Economic Dialogue to promoting 
positive developments in the bilateral relationship and 
enumerated Chinese concerns about U.S. high-tech export 
controls, market economy status, and recent Congressional 
action aimed at making reviews of foreign investment in the 
United States stricter.  VM Ma said China would use the six 
months following the upcoming CVD preliminary ruling to 
continue discussions with the United States.  Both sides 
agreed to consider whether the Joint Commission on Commerce 
and Trade could be convened in Beijing in the first week of 
August and discussed a possible buying/investment mission 
and signing ceremony in conjunction with the May SED 
meeting.  End summary. 
 
Bilateral Trade, SED, JCCT and Chinese Issues 
--------------------------------------------- 
 
¶2.  (SBU)  Vice Minister Ma opened by saying the meeting 
should help preparations for the next Strategic Economic 
Dialogue (SED) and Joint Commission on Commerce and Trade 
(JCCT) meetings.  The 2006 JCCT had properly handled a 
number of issues and laid a proper foundation for 
development of trade and economic relations later in the 
year.  Joint efforts, including at the JCCT, had led to a 
2006 year-on-year increase of U.S. exports to China of 
nearly 33 percent.  While Chinese investment in the United 
States remains limited, U.S. investment in China continued 
to grow in 2006, especially in services sectors.  Even so, 
the trade imbalance grew, and increasing imports from the 
United States is a high priority for the Chinese Government 
in 2007.  Proposed trade bills targeting China introduced 
in the U.S. Congress show a growth in U.S. trade 
protectionism.  Both sides should seek mutual benefits, 
identify points where interests converge, and intensify 
cooperation. 
 
¶3.  (SBU)  Ma asserted that due to the direct initiation 
and support by our heads of state, the December 2006 SED 
was successfully convened.  The Chinese side attaches great 
importance to the SED, and the frequent exchanges of 
delegations in preparation for SED II in Washington shows 
that the United States does also.  In preparing for SED II, 
China places emphasis on several issues. 
 
Export Controls 
--------------- 
 
¶4.  (SBU)  VM Ma said China has grave misgivings about the 
forthcoming export control regulation, even while 
recognizing that USDOC is revising that regulation based on 
recent bilateral consultations.  High-tech trade has much 
room for further progress.  U/S Lavin noted Commerce A/S 
Padilla's January visit to China for high-tech discussions 
and China's own comments about the draft regulation.  Many 
of China's views have been incorporated in the revised 
draft.  Only a small percentage of U.S. exports to China 
are subject to export controls and the United States is 
pleased to continue discussions on the topic and to improve 
further ts procedures.  The United States considers the 
 
BEIJING 00002091  002 OF 005 
 
 
new export controls to be a case of a successful transition. 
 
A/D and CVD 
----------- 
 
¶5.  (SBU)  China has been closely following U.S. anti- 
dumping and now CVD investigations of Chinese products. 
China asks that its previously expressed views will be 
given full consideration, VM Ma said.  U/S Lavin noted that 
a preliminary ruling in the current CVD investigation will 
likely be issued on March 30, and while he could not say 
what the ruling will be, China should anticipate the 
possibility that the ruling will not be positive in China's 
view.  More CVD cases could well follow later in the year. 
Nothing is inherently unfair about recourse to CVD cases 
and such action is permitted to the United States as a WTO 
member.  China should move away from subsidies if it wishes 
to avoid CVD cases.  Both sides should consider how this 
could affect trade relations this year, and China should 
address outstanding trade problems as part of the response 
to managing trade issues this year.  VM Ma expressed great 
regret that the decision might not be positive.  Use of 
anti-dumping and CVD cases, not granting market economy 
status to China after nearly 30 years of economic reform, 
and use of third-country pricing data -- these strike China 
as unfair and as discriminatory, violating the fundamental 
WTO principle of non-discrimination.  One can only expect a 
negative impact on bilateral trade from such a ruling.  In 
response to U/S Lavin's observation that numerous Chinese 
officials and press accounts discuss subsidies available to 
Chinese companies and therefore recourse to CVD cases 
should not be a surprise, VM Ma asserted that China does 
not use any WTO-prohibited subsidies.  In any event, China 
stands ready to continue communications on this matter in 
the six-month period following issuance of the preliminary 
ruling. 
 
Investment in the United States 
------------------------------- 
 
¶6.  (SBU)  Legislation in the U.S. House of Representatives 
to make reviews of foreign investments in the United States 
stricter is worrisome and may have a negative impact on the 
interest of Chinese firms to invest in the United States. 
However, China has noted with interest USDOC's announcement 
of a new initiative to attract inward investment.   China 
seeks a fair and transparent investment environment for its 
companies and looks to expand the new area of two-way 
investment.  U/S Lavin responded that while China is not a 
specific target of the inward investment initiative, China 
could be a major beneficiary of it.  The United States 
welcomes foreign investment.  Investment decisions should 
be made for business reasons, not political reasons.  He 
urged that any news of possible investment announcements to 
be made by Chinese companies in the run-up to the May SED 
meeting be passed to the U.S. side as early and fully as 
possible. 
 
Market economy status for China 
------------------------------- 
 
¶7.  VM Ma expressed hope that through concerted efforts 
substantial progress might yet be achieved on China's goal 
of receiving market economy status from the United States. 
She acknowledged that real progress on this issue requires 
time.  In wrapping up her presentation of issues of concern 
to China, she noted that new issues will emerge with time, 
so bilateral trade consultations will never cease -- but the 
bilateral relationship is a long-time thing in itself. 
 
Potential for Deterioration If Issues Not Addressed 
--------------------------------------------- ------ 
 
¶8. (SBU) U/S Lavin prefaced his enumeration of specific 
 
BEIJING 00002091  003 OF 005 
 
 
concerns with a candid brief regarding why bilateral 
economic relations face the prospect of deterioration this 
year.  The trade imbalance continues to grow amidst a 
general perception of unfair trade practices in China, and 
U.S. market access issues raised for two years have not 
been addressed; and despite many Chinese Government 
initiatives on IPR protection, the general perception 
remains that severe IPR problems persist in China.  A 
political shift in Washington away from trade 
liberalization and more towards trade nationalism with the 
aforementioned factors contribute to a more negative 
atmosphere this year.  He then enumerated several 
representative areas of no progress or severe market 
restrictions even after two years of raising these issues. 
 
U.S. Concerns Largely Unaddressed 
--------------------------------- 
 
Telecoms 
-------- 
 
¶9.  (SBU)  China is one of the world's largest markets for 
providers of telecommunications services, but U.S. telecom 
firms can't compete in China after two years of raising 
market access issues.  VM Ma noted that at the 2006 JCCT, 
China had agreed to lower the market access threshold 
(capitalization requirement), and that exchanges with U.S. 
officials and with Chinese officials show progress is on 
the way.  U/S Lavin repeated that nothing has changed yet 
for U.S. telecom providers. 
 
Pharmaceuticals 
--------------- 
 
¶10.  (SBU)  The United States has sought IPR protection for 
active pharmaceutical ingredients (API) for two years, but 
nothing has changed in this period.  The 2006 JCCT had 
instructed the relevant working group to study the issue, 
VM Ma replied. 
 
Movies 
------ 
 
¶11.  (SBU)  The U.S. movie industry is almost completely 
closed out of the Chinese market, with no change in market 
access conditions over the last two years.  VM Ma's replies 
did not address this point. 
 
Civil Aviation 
-------------- 
 
¶12.  (SBU)  China remains a highly or severely restricted 
market, U.S. airlines cannot compete in China as they hope 
to.  U/S Lavin acknowledged VM Ma's point that the 2004 
Civil Aviation Agreement had increased frequencies for 
transpacific flights, but strongly emphasized that demand 
for more flights exceeds the increased limit, thus the 
market remains severely restricted.  VM Ma noted current 
bilateral civil aviation negotiations related to the SED. 
She added that Chinese airlines have been only able to use 
some of their increased frequencies, while airlines from 
the world's largest developed country already were making 
full use of their allotted frequencies.  She noted that the 
airlines of the two countries have considerably different 
levels of competitiveness but policy elements such as the 
difficulties for Chinese citizens to get U.S. visas and the 
absence of Approved Destination Status for the United 
States making Chinese tour group travel to the United 
States difficult under Chinese regulations also impact the 
civair situation.  In implementation of the 2004 civair 
agreement, the Chinese side has not entered as fully into 
the U.S. market as the U.S. side has entered into the 
Chinese market.  Nonetheless, further progress in two-way 
civil aviation liberalization can be realized. 
 
BEIJING 00002091  004 OF 005 
 
 
 
Securities and Insurance 
------------------------ 
 
¶13.  (SBU)  U.S. firms are largely barred from operating in 
the securities sector in China.  U.S. insurance companies 
are unable to obtain local licenses in China.  VM Ma 
replied that the Ministry of Finance, the U.S. Treasury 
Department and other relevant agencies are discussing these 
issues and reports reaching the Vice Minister, including 
some from U.S. sources, indicate certain progress. 
 
Automotive and Steel Sectors 
---------------------------- 
 
¶14.  (SBU)  U/S Lavin briefly noted U.S. concerns about 
these sectors, including that U.S. automotive companies 
cannot wholly own auto manufacturers in China.  VM Ma's 
considerably longer reply dwelt on foreign-invested auto 
firms' market shares in China and foreign automaker CEOs' 
statements of satisfaction about business in China. 
 
IPR 
--- 
 
¶15.  (SBU)  In response to U/S Lavin's statement about 
severe IPR problems still extant in China, VM Ma noted that 
she and U/S Lavin had already had an exchange of views on 
the topic at that day's luncheon.  She further remarked 
that at the 2006 JCCT meeting, both sides had discussed IPR 
concerns and developments.  While the two sides' statements 
may have differed in substance, they were useful to 
illuminate perspectives and to inform subsequent 
intensification of efforts in this area. 
 
¶16.  (SBU)  In wrapping up the issues discussion, U/S Lavin 
reiterated the potential for negative developments in the 
trade and economic relation if China does not take action 
on market access and IPR issues.  VM Ma urged that both 
sides strengthen cooperation on trade and economic issues 
and address concerns in accordance with the five principles 
outlined by Premier Wen Jiabao when he met with President 
Bush in Washington in December 2003.  Politicization of 
trade and economic issues will be detrimental to the 
overall relationship.  MOFCOM looks forward to maintaining 
its good existing relationship with USDOC and to making 
progress on issues of concern to both sides. 
 
JCCT Timing 
----------- 
 
¶17. (SBU)  U/S Lavin suggested consideration of the first 
week of August 2007 for the next meeting of the JCCT, to be 
held in Beijing.  It was agreed that MOFCOM Americas 
Director-General He Ning and Commerce DAS Ira Kasoff will 
hold expert discussions to ascertain the feasibility of 
that date. 
 
SED Buying Mission - and Chinese Investments? 
--------------------------------------------- 
 
¶18.  (SBU)  U/S Lavin recalled earlier comments about a 
possible Chinese mission to purchase U.S. goods at the time 
of the May SED meeting.  He urged fullest and soonest news 
of details, so that visa facilitation and stateside support 
could be arranged, and urged China to consider what 
contract signings might be part of an event at the Commerce 
Department.  VM Ma said indeed MOFCOM is working with 
Chinese Chambers of Commerce to plan a buying mission, with 
MOFCOM a necessary player in order to facilitate visa 
issuance by the U.S. Embassy.  Particular contract signings 
will be determined by the participating companies 
themselves.  Information will be conveyed to USDOC as 
available.  There may also be some investment signings. 
 
BEIJING 00002091  005 OF 005 
 
 
China hopes to move forward the two wheels of trade and 
investment at the same time.  U/S Lavin welcomed news of 
the buying mission and further recommended that MOFCOM also 
pass along news of planned investment signings as available. 
DAS Kasoff and DG He Ning will discuss further the issue of 
a signing ceremony. 
 
Meeting Participants 
-------------------- 
 
¶19.  (U)  United States Participants: 
 
USDOC International Trade Administration Under Secretary 
Frank Lavin 
Commerce Deputy Assistant Secretary for Asia Ira Kasoff 
Embassy Minister-Counselor for Economic Affairs Robert Luke 
Embassy Acting Minister-Counselor for Commercial Affairs 
William Brekke 
Embassy Special Counsel to the Secretary of Commerce 
Caroline Katzin 
Embassy Trade Facilitation Office Director Ira Belkin 
Embassy Economic Section Deputy Chief Christopher Beede 
(notetaker) 
Embassy Commercial Officer and First Secretary David 
Gossack 
USDOC Office of the Chinese Economic Area International 
Trade Specialist Ellen Szymanski 
Embassy Commercial Specialist Hu Bin 
Interpreter 
 
¶20.  (U)  Chinese Participants (all Ministry of Commerce 
except for Ma Enzhong): 
 
Vice Minister Ma Xiuhong 
Director-General of the Treaty and Laws Bureau Shang Ming 
Director-General of the Fair Trade Bureau Li Ling 
Director-General for American and Oceanian Affairs He Ning 
Deputy Director-General of the WTO Affairs Department Chai 
Xiaolin 
Deputy Director-General of the Fair Trade Bureau Liang 
Shuhe 
Deputy Director-General of the Department of Industry Zhou 
Ruojun 
Deputy Director-General of the Department for Cooperation 
with Foreign Countries Chen Lin 
State Intellectual Property Protection Office Deputy 
Secretary-General Ma Enzhong 
 
SIPDIS 
Foreign Affairs Department Director Yuan Yuan (interpreter) 
 
¶21.  U)  This report has been cleared by U/S Lavin. 
 
RANDT