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RUEHCN/AMCONSUL CHENGDU PRIORITY 1180
RUEHGZ/AMCONSUL GUANGZHOU PRIORITY 0858
RUEHGH/AMCONSUL SHANGHAI PRIORITY
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RUEHIN/AIT TAIPEI PRIORITY 4675
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RUEHC/SECSTATE WASHDC PRIORITY 2938
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RHMFIUU/DEPT OF HOMELAND SECURITY WASHINGTON DC PRIORITY
INFO RUEHOT/AMEMBASSY OTTAWA PRIORITY 5116
RUEHFR/AMEMBASSY PARIS PRIORITY 0303
RUEHKO/AMEMBASSY TOKYO PRIORITY 4747
RUEHWL/AMEMBASSY WELLINGTON PRIORITY 0262

UNCLAS SECTION 01 OF 04 HONG KONG 002414 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
PASS TO EEB/TPP/ABT PAUL SAXTON 
STATE PASS TO USTR CHINA OFFICE/TIM WINELAND 
STATE PASS TO CONSUMER PRODUCTS SAFETY COMMISSION LAURIE 
HOPKINS/INTL PROGRAMS 
 
E.O. 12958: N/A 
TAGS: EAGR ECON ETRD PREL TBIO HK CH
SUBJECT: STAFFDEL NELSON PURSUES FOOD/TOY SAFETY AND TRADE 
ISSUES IN HONG KONG 
 
REF: A. HONG KONG 2217 
     ¶B. WELLINGTON 0845 
     ¶C. STATE 114788 
 
¶1. (SBU) Summary: House Energy and Commerce Committee Staff 
Delegation Nelson visited Hong Kong and Macau at the end of 
August to investigate import food and product safety, 
intellectual property rights and unfair trade practices. 
Meetings with Hong Kong and Macau government officials and 
private sector representatives revealed that Hong Kong and 
Macau continue to improve their import safety regimes by 
adding testing facilities, providing training for 
manufacturers, and drafting new food safety legislation. Food 
and product safety problems linked to mainland China's 
production facilities, once reported to Beijing officials, 
are often quickly and severely addressed, according to 
western journalists, industry and government sources. 
Challenges remain, however, including compliance with 
internationally accepted standards; frequently shoddy supply 
and production practices; importing companies moving quality 
control responsibilities from audit teams to manufacturers; 
increasing mainland production and labor costs; and unceasing 
demand for "the best deal" by importers.  Increased labor and 
safety compliance costs will push prices of Chinese goods up 
ten-percent next year, said Hong Kong manufacturers.  All 
interlocutors in Hong Kong expressed a clear recognition of 
the seriousness and urgency of the product safety issue.  End 
Summary. 
 
¶2. (SBU) The Consul General and staff briefed the staffdel on 
Hong Kong and Macau economic growth, ongoing trade security 
initiatives such as the Secure Freight Initiative (SFI), and 
Hong Kong and Macau efforts to protect intellectual property 
(the Hong Kong government passed a new copyright amendment in 
June).  DHS/ICE Assistant Attache highlighted successful 
partnerships with Hong Kong and Macau Customs regarding 
secure trade and enforcement of intellectual property rights. 
 USDA Foreign Agricultural Service (FAS) Attache shared key 
elements of food and product safety, including a hands-on 
tour at a local supermarket to discuss food labeling and 
inspection practices. 
 
Hong Kong Consular Corps on Product Safety 
------------------------------------------- 
 
¶3. (SBU) Consular corps representatives from Canada, France 
and New Zealand discussed their import safety concerns, which 
they see as a global problem.  The discussion touched upon 
the August product recall in New Zealand involving 
formaldehyde found on imported Chinese-made blankets, the New 
Zealand government's ongoing imported and domestic food 
safety review, and unfolding developments in the U.S. 
Consular corps members and the staffdel agreed to ongoing 
information sharing on the import safety issue, and expressed 
a desire to understand more about the Japanese import safety 
regime, touted to be among the best in the world, 
specifically regarding food imports from mainland China. 
 
AmCham and Industry on Product Safety 
-------------------------------------- 
 
¶4. (SBU) The American Chamber Board of Governors and key 
committee chairs expressed interest in the effects of new 
U.S. legislation on user fees, product liability, and trade. 
Noting the negative impact of recent food and product recalls 
on "Made in China" products, the Amcham officials recounted 
that U.S. companies instruct import traders to get "the best 
deal," with sourcing decisions being made over one year in 
advance.  This can lead to decisions based primarily on cost 
as opposed to product safety. To further cut costs, many 
global firms no longer have audit teams in Asia, as this role 
 
HONG KONG 00002414  002 OF 004 
 
 
has been shifted to manufacturers.  Members conveyed 
first-hand knowledge of processing facilities moving to 
Vietnam and Cambodia to avoid the political baggage of the 
"Made in China" label.  While this may solve negative public 
relations aspects of the product safety issue, it does not 
necessarily mean the products will be safer, they noted. 
 
¶5. (SBU) The Hong Kong Trade Development Council (TDC), The 
Hong Kong Toys Council, and Hong Kong Toy Manufacturers' 
Association also briefed the staffdel.  TDC stressed the 
important trade relationship between Hong Kong and the U.S., 
pointing out the link to Southern China, where a vast 
majority of the "Made in China" manufacturers are Hong Kong 
or foreign-invested enterprises.  TDC and the toy 
associations believe that recent mainland China government 
product safety regulatory changes will result "in fewer 
mainland suppliers, but better and higher quality and safer 
products...at a higher price."  Hong Kong manufacturers also 
anticipate a ten-percent increase in prices next year, as 
rises in the mainland's minimum wage, and increased product 
testing and compliance costs are passed along to buyers. 
This would conflict with U.S. importers' desire for the 
lowest possible price, they added. 
 
¶6. (SBU) The toy company associations reiterated their 
ongoing commitment to product safety and to human rights 
(reftel A).  Following the August recalls, toy manufacturers 
are investing in equipment for self-testing, and checking 
every batch of paint used in production.  In turn, they are 
emphasizing training and education for manufacturers and 
subcontractors, with a TDC-sponsored product safety seminar 
for all manufacturers scheduled for September 18 in Hong 
Kong.  When asked about two of the companies who produced 
toys caught up in the Mattel recalls, Foshan Lee Der and 
Early Light, they said: "Lee Der violated the law by 
producing and exporting goods that did not meet international 
standards.  Thus, the mainland authorities revoked the 
company's export license."  They were unable to provide 
comment regarding Early Light's situation because "the 
investigation is ongoing." 
 
Hong Kong Government on Product Safety 
--------------------------------------- 
 
¶7. (SBU) The Hong Kong Food and Environmental Hygiene 
Department (FEHD) and Centre for Food Safety provided the 
staffdel with details on Hong Kong's food safety best 
practices.  Highlights included details of FEHD's "farm to 
fork" approach to import safety; discussion of their good 
relationship with the mainland China and Guangdong Province 
food safety officials; development of Hong Kong's new food 
safety legislation; and management of import testing and 
surveillance programs.  FEHD told the staffdel that of the 
64,000 food samples collected and tested in 2006, a majority 
imported from the mainland, there was a failure rate of only 
0.3%, or 192 samples, which supports FEHD's claim that the 
vast majority of Hong Kong's food imports are safe. 
 
WSJ and NYT on Product Safety 
------------------------------ 
 
¶8. (SBU) The Wall Street Journal (WSJ) and New York Times 
(NYT) reporters based in Hong Kong confirmed that 
accountability within the supply/production chain is 
difficult to guarantee for "Made in China" products exported 
to the U.S.  The WSJ reporter indicated that, "there exists 
little incentive for local and provincial level enforcement 
officials to find problems" in their processing industries. 
However, once a problem is identified to Beijing, General 
Administration of Quality Supervision, Inspection, and 
Quarantine (AQSIQ) enforcement is quick and harsh, said the 
 
HONG KONG 00002414  003 OF 004 
 
 
journalists.  When asked about the ability of PRC Vice 
Premier Wu Yi to lead the mainland's food supervision and 
enforcement efforts, the reporters said that she was the 
expected person to head such a campaign, given her history as 
the "Iron Lady", but with the new Party Congress set to 
convene in October, NYT said it was unclear whether she would 
continue to carry the food safety mantle. 
 
Macau Government on Product Safety 
----------------------------------- 
 
¶9. (SBU) Macau SAR imports 90 percent of its consumer 
products from mainland China.  Consumer product safety is 
divided among four departments: 
     -Macau Civil and Municipal Affairs Bureau (IACM) handles 
fresh food and livestock; 
     -Economic Services monitors processed foods and imported 
goods; 
     -Customs and Excise monitors and seizes products at the 
border; and 
     -The Health Department oversees markets, restaurants and 
hospitals. 
Macau also has a Consumer Council which is the recipient of 
individual customer calls, and would issue a recall should 
one be required. 
 
¶10. (SBU) IACM and Customs inspect and test high volumes of 
mainland imported food products, with inconsistencies in 
these products being directly reported to the AQSIQ in 
Beijing.  For example, IACM takes random samples from 
approximately one-third of trucks hauling fresh produce 
originating from mainland farms licensed to export products 
to Macau.  Should a residue of pesticide be found, even if 
not at an officially unacceptable level, notice of the 
finding is sent to Beijing.  IACM officials indicated that 
once such a report is filed, the offending farm's export 
license is immediately revoked and they are no longer able to 
export to Macau,"they just disappear." This message was 
reiterated by Economic Services regarding processed food and 
consumer products as well. 
 
¶11. (SBU) Macau established a Food Safety Subcommittee in 
2004, as part of an effort to be designated a WHO "Healthy 
City in Asia," which recognizes communities for meeting 
criteria regarding healthy citizens and a health-conscious 
environment.  In addition, the Economic Services Department 
is currently drafting a consumer product safety regulation 
that directs companies to abide by international standards, 
and place liability at all levels: importer, manufacturer and 
retailer.  The draft is expected to be available before the 
end of the year, and Economic Services staff committed to 
sharing the document. 
 
Hong Kong and Macau: Intellectual Property Rights 
----------------------------- 
 
¶12. (SBU) The staffdel met with Hong Kong private sector 
firms (Pfizer, Eli Lilly, Microsoft and others), industry 
organizations (Motion Picture Association/International 
Federation Against Copyright Theft-Great China and Business 
Software Alliance) and the Hong Kong Customs and Excise 
Department regarding intellectual property rights in the 
region.  The groups were able to provide the staffdel 
numerous case studies demonstrating successful and 
unsuccessful enforcement actions, both in Hong Kong and 
mainland China. 
 
¶13. (SBU) Staffdel Nelson also met with Macau government 
officials at the Economic Services and Customs Bureaus to 
review IPR protection.  Customs officials confirmed their 
success in virtually eliminating optical disk fraud in the 
 
HONG KONG 00002414  004 OF 004 
 
 
last several years, and have turned their attention to other 
products, particularly pharmaceuticals.  Two pieces of 
legislation (55 and 99), aid in the prosecution and 
penalizing of retailers (10 cases in 2006).  Both Macau 
agencies indicated that they had strong working relationships 
with their counterparts in Hong Kong and mainland China. 
Cunningham