VZCZCXRO1190
PP RUEHCN RUEHGH RUEHVC
DE RUEHBJ #1492/01 1090130
ZNR UUUUU ZZH
P 180130Z APR 08
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC PRIORITY 6703
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEHHI/AMEMBASSY HANOI 3731
RUEHPF/AMEMBASSY PHNOM PENH 0964
RUCPDOC/USDOC WASHDC
RUEAUSA/DEPT OF HHS WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHMFIUU/DEPT OF HOMELAND SECURITY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RULSDMK/DEPT OF TRANSPORTATION WASHDC
RUEAWJA/DEPT OF JUSTICE WASHDC
RHEHNSC/NSC WASHDC
RHMFIUU/HQ EPA WASHINGTON DC

UNCLAS SECTION 01 OF 03 BEIJING 001492 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
EAP/PD FOR NIDA EMMONS 
STATE PASS TRANSPORTATION FOR NHTSA ABRAHAM/KRATZKE 
STATE PASS CONSUMER PRODUCTS SAFETY COMMISSION RICH O'BRIEN/INTL 
PROGRAMS 
STATE PASS USTR CHINA OFFICE/TIM WINELAND 
STATE PASS OMB/INT'L AFFAIRS 
STATE PASS HOMELAND SECURITY COUNCIL 
STATE PASS IMPORT SAFETY WORKING GROUP 
HHS FOR OGHA/STEIGER AND PASS TO FDA/LUMPKIN 
USDOC FOR 4420 MAC/OCEA/ACINO 
USDOC FOR 6300 MAS/HIJIKATA 
 
E.O. 12958: n/a 
TAGS: ECON ETRD BEXP CH
SUBJECT: TOY SAFETY IMPROVES, BUT OFFICIALS WARY OF IMPOSED CHANGE 
 
REFS: A. 07 Beijing 5899 
 
¶B. Beijing 359 
 
¶1. (U) SUMMARY: Eight months after the spate of massive toy recalls 
in the United States, Chinese toy exporters are paying more 
attention to the safety of their products and compliance with U.S. 
toy safety standards.  Conversations with industry representatives, 
standards experts, and other observers reveal that AQSIQ- and 
industry-sponsored training in major export centers on toy safety 
and monitoring supply chains has reached large audiences and raised 
awareness of safety issues. Regulators and Chinese firms overall are 
doing a better job at ensuring toy safety. However, the primary 
incentive for compliance with U.S. standards remains the fear of 
lost revenue by failing export certification tests, rather than a 
belief that U.S. standards actually make toys safer. Rising costs of 
labor and raw materials, an appreciating Renminbi, as well as 
importer requirements for third party testing are pushing toy 
manufacturers closer to the edge of profitability. Toy manufacturers 
are therefore wary of new U.S. legislation and toy industry 
initiatives that would create stricter requirements and increase 
costs. Some manufacturers have already moved to Vietnam and Cambodia 
to maintain their profit margins. A sustainable culture of quality 
at toy factories which could provide a basis for safer exports in 
the long-term is a work in progress, hindered by poor industry 
organization and a preference for the status-quo. END SUMMARY. 
 
AWARENESS IS UP, BUT PRE- AND 
POST-MARKET TESTING STILL NEEDED 
-------------------------------- 
 
¶2. (U) Awareness of U.S. toy safety requirements among manufacturers 
has increased significantly since last summer's spate of U.S. toy 
recalls, according to the China Toy Association (CTA) Executive Vice 
President and Secretary General Liang Mei. AQSIQ toy safety 
campaigns and crackdowns in Fall 2007 and Spring 2008 as well as 
CTA's own training and education programs have been effective at 
spreading the message about the importance of toy safety and 
standards compliance. Of about 8,000 toy manufacturers in China, 
some 5,000 export their toys overseas, and about 38% of the total 
toy export value is destined for the United States each year. All of 
those firms, Liang said, have strengthened their internal quality 
compliance systems. 
 
¶3. (U) AQSIQ measures to increase factory inspections and port 
sampling are the most sustainable way to verify the pre-market 
safety of toy exports, Liang continued. However, because pre-market 
sampling and testing cannot guarantee the 100% safety of all 
exported toys, post-market tools like the U.S. recall system will 
continue to play a major role in toy safety. When a recall happens 
in the United States, Liang said that AQSIQ suspends the 
manufacturer's exports for three to six months, which can drive the 
exporter to bankruptcy but ensures that the sub-standard products 
will not reach the market. The threat of business losses is 
therefore the biggest incentive for companies to make safe products 
and adhere to importer country standards. Commenting on proposed 
U.S. legislation and U.S. toy industry initiatives, Liang emphasized 
that CTA and the Chinese toy industry would prefer a 
government-to-government consensus approach on a simplified toy 
safety system, which would remove redundancies and hold down costs. 
 
EU OFFICIALS SEE 
SOME PROGRESS 
---------------- 
 
¶4. (U) European observers have noted improvements in the toy safety 
situation in China. Beijing-based EU-China Trade Project in early 
April hosted EU officials on a six-city visit to toy factories in 
Guangdong and other provinces, where they noted that toy companies 
 
BEIJING 00001492  002 OF 003 
 
 
overall are doing a better job at ensuring product safety. The 
delegation's forthcoming report will describe how Chinese toy 
companies are more familiar with U.S. safety standards than with 
those of the EU, and how some toy firms faced with rising costs are 
relocating their factories to Southeast Asian nations such as 
Cambodia and Vietnam. Key challenges for toy companies in China are 
the interpretation and understanding of standards' technical terms, 
as well as the difficulty of managing a multitude of importer 
country standards. Manufacturers repeatedly suggested to the 
delegation that "harmonized" international standards would simplify 
the task of standards compliance. The EU-China Trade Project senior 
advisor believes a program to support harmonized global toy safety 
standards could make a positive difference in improving long-term 
toy safety. 
 
AQSIQ, CHINESE FIRMS WARY 
OF STRICTER U.S. MEASURES 
------------------------- 
 
¶5. (U) The Toy Industry Association (TIA) and the American National 
Standards Institute (ANSI) presented the draft Toy Safety 
Coordination Initiative (TSCI) plan April 3 in Beijing to Chinese 
officials, the China Toy Association, and a small group of concerned 
Chinese manufacturers.  The TSCI plan, which responds to new 
requirements of pending Congressional legislation, calls for factory 
audits, a factory rating system, traceability, and testing by 
accredited third parties. Concerned about the new TSCI plan, an 
AQSIQ inspection officer at the event bluntly questioned its 
necessity.  Toy exports are already adequately tested, she noted, 
and AQSIQ is the most credible party to enforce product safety and 
raise awareness within the toy industry. New requirements will make 
Chinese firms feel like victims of trade protectionism, she 
continued, specifically targeted by new U.S. legislation, while U.S. 
importer wh overlooked toy safety for profit are let of the hook. 
Stricter inspections on the import and distribution side, she added, 
could help correct this "unfair treatment." 
 
¶6. (U) Atendees acknowledged that third party testing ha already 
become a reality, but they opposed other elements of TSCI because 
they fear they will increase the costs of doing business. They 
called auditing and product sampling redundant processes, since 
AQSIQ already audits and samples, and expressed fear that mandatory 
audits could expose trade secrets. Obscuring the point of the TSCI 
proposal, attendees also said that U.S. consumers are more 
price-driven than safety-driven and will not support price increases 
to pay for the new plan. Moreover, since the safety of toy exports 
can never be 100% guaranteed, they argued, the TSCI's additional 
measures are not justifiable. These comments underscore a fear about 
the costs, redundancies, and invasiveness of the TSCI proposal. More 
generally, these comments also reveal a persistent perception among 
AQSIQ officials and manufacturers that the United States, whether 
through public policy or industry actions, still treats toy safety 
like a trade issue -- an idea initially touted by Chinese leaders 
during the U.S. recall zenith in 2007 (Ref. A). 
 
CTA, AQSIQ MISSING 
THE TECHNOLOGY TRAIN 
-------------------- 
 
¶7. (U) While the China Toy Association and AQSIQ have reached out to 
toy companies through seminars and training sessions in major export 
centers, their ability to create a sustainable impact on toy safety 
is limited by organizational weaknesses and a lack of innovation. 
CTA is a small, politically weak organization established under the 
auspices of China's State-owned Assets Supervision and 
Administration Commission (SASAC) and it supports all aspects of the 
toy trade. Although toy safety figures prominently in their mission 
statement, they have limited actionable toy safety resources 
 
BEIJING 00001492  003 OF 003 
 
 
available for their membership. Neither CTA nor AQSIQ utilize email 
or other electronic systems to disseminate information on the latest 
toy standard changes to toy manufacturers, nor do they have any 
plans to create such a system. Firms must instead sign up for 
fee-based services from international standards organizations, such 
as ASTM. While U.S. importers can and do relay information on 
standards to Chinese manufacturers, the lack of a timely, 
industry-wide notification mechanism could leave some smaller to 
medium-sized manufacturers unaware of standards developments, 
particularly at firms that do not have dedicated compliance 
officers. 
 
¶8. (SBU) Econoff has suggested to AQSIQ and CTA that they 
incorporate email technology into their communications, similar to 
what CPSC uses to announce product recalls, so Chinese manufacturers 
can learn about and react more quickly to changes in global 
standards or other developments. However, such technology would 
require a commitment from regulators for greater transparency and 
responsiveness. Having spent eight months defending the "Made in 
China" brand, AQSIQ and other regulators like MOFCOM are unlikely to 
make substantial, voluntary changes outside the scope of existing 
toy safety directives unless instructed to do so by a higher 
authority like the State Council. Filling this innovation void, 
United States standards and industry organizations have played a 
significant role in encouraging their Chinese counterparts to become 
better organized and more engaged with China's toy industry. 
 
COMMENT 
------- 
 
¶9. (SBU) The absence of Chinese counterproposals to the TSCI shows 
that the Chinese toy industry is not only confident about the 
current export quality control regime, but they are also unwilling 
to recommend fundamental policy changes to a toy safety system they 
view as unflawed.  Industry and regulators support education and 
training initiatives as keys to quality improvement, while 
regulators rely on broad State Council directives and "campaigns" to 
empower provincial quality control officials to enforce the law. 
This approach is effective at raising awareness and increasing 
compliance, but its sustainability without a deeper, more innovative 
commitment to production quality is questionable. Standards experts 
and industry observers agree that quality must be viewed as a 
process, not a one-time goal (Ref. B). 
 
¶10. (SBU) Under the current inspection system, AQSIQ and 
manufacturers have a cozy relationship: manufacturers have invested 
their time and money in the existing AQSIQ system and have 
cultivated useful connections with regulatory officials, while AQSIQ 
has a powerful role as export gateway and earns fees from the 
provision of testing service to manufacturers.  Comprehensive U.S. 
toy saety legislation that imposes change on these entrenched 
interests will likely be seen as a challenge to AQSIQ's authority, 
and it may also aggravate AQSIQ's sense of humiliation over last 
summer's recalls. Even more, Chinese regulators could view U.S. 
legislation as circumventing traditional government-to-government 
channels, which they prefer over industry-developed initiatives that 
they do not control. 
 
PICCUTA