VZCZCXRO8635
OO RUEHCN RUEHGH RUEHVC
DE RUEHBJ #4307 3300121
ZNR UUUUU ZZH
O 250121Z NOV 08
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC IMMEDIATE 1022
RUCPDOC/DEPT OF COMMERCE WASHDC IMMEDIATE
RUEATRS/DEPT OF TREASURY WASHDC IMMEDIATE
INFO RUEHOO/CHINA POSTS COLLECTIVE IMMEDIATE

UNCLAS BEIJING 004307 
 
SENSITIVE 
SIPDIS 
 
STATE PASS USTR FOR STRATFORD AND KEMP 
DEPT OF COMMERCE FOR DAVID SPOONER, RONALD LORENTZEN AND MATTHEW 
PRIEST 
 
E.O. 12958:  N/A 
TAGS: EMIN ETRD EIND CH
SUBJECT: CHINA RESPONDS TO U.S. TRADE CONCERNS OVER STEEL AND YELLOW 
PHOSPOROUS 
 
REF: BEIJING 4304 
 
1.(SBU) SUMMARY:  Chinese Ministry of Commerce Director General of 
Foreign Trade Wang Shouwen responded to U.S. concerns regarding 
steel and yellow phosphorous.  DG Wang's response suggested that 
China would review the high export tariff for yellow phosphorous, 
but he firmly reiterated China's policy stance on steel product 
export duties and VAT rebates.  END SUMMARY. 
 
¶2. (SBU) At a November 18, 2008, meeting requested by Director 
General Wang Shouwen of the Department of Foreign Trade at the 
Chinese Ministry of Commerce (MOFCOM) to discuss the U.S.-China 
Memorandum of Understanding on Textile and Apparel Products 
(reftel), Minister Counselor for Trade Affairs Christopher Adams 
raised two issues of concern to the U.S. side regarding trade in 
steel products and yellow phosphorus. 
 
Change Unlikely in Steel Policy 
------------------------------- 
 
¶3. (SBU) MC Adams addressed China's recent decision to remove export 
duties and increase VAT export rebates on steel products.  He 
reiterated the U.S. side's concern that the Chinese government seems 
to implement such policies in a selective manner, resulting in 
increased exports of downstream steel products.  MC Adams cited the 
U.S. industry presentation during the U.S.-China Steel Dialogue in 
October, as well as follow-up information, which explained the 
imbalance created by the Chinese government's policy of taxing 
exports of wire rod but giving a VAT export rebate for downstream 
wire rod products.  MC Adams emphasized that U.S. wire producers may 
pursue litigation if the matter is not resolved. 
 
¶4. (SBU) DG Wang responded that following the Steel Dialogue, the 
Chinese government considered they had two options:  to either 
retain the VAT export rebate for all wire/wire products, although 
the U.S. side would not approve of such action, or to take the 
recent actions of lowering/removing export tariffs and increasing 
the VAT export rebates.  However, DG Wang said he would further 
discuss the matter with other ministries that comprise the State 
Council's Tariff Committee. 
 
Possible Action on Yellow Phosphorus 
------------------------------------ 
 
¶5. (SBU) Regarding yellow phosphorus, MC Adams acknowledged China's 
decrease of the recent "special" export duty from 100 percent to 75 
percent, but pointed out that the total duty on this product remains 
at 95 percent, which is extremely high, hurting American users.  He 
pointed out that yellow phosphorus is not used in the production of 
phosphate fertilizers, an explanation the Chinese had earlier tried 
to use to justify the sudden duty imposition.  Therefore the Chinese 
government's tax will not be effective in ensuring China's supply of 
fertilizer, particularly because there is no tax on downstream 
products. 
 
¶6. (SBU) DG Wang explained that although yellow phosphorus is not 
used to produce fertilizer, phosphorus rock is used for production 
of both phosphate fertilizer and yellow phosphorus.  He said the 
portion used for production of yellow phosphorous is very small 
compared to that used in fertilizer production.  MC Adams noted that 
this suggested there was no need to restrict exports of yellow 
phosphorous in order to ensure fertilizer supply.  DG Wang 
acknowledged that other countries have also raised concerns 
regarding this policy and said the Chinese government would consider 
whether further action was warranted. 
 
¶7. (SBU) COMMENT:  DG Wang's remarks suggested that the Chinese side 
would stand firm regarding current export tariff/VAT export rebate 
policy on steel products, including for wire products.  However, DG 
Wang appeared to suggest that a change in policy on yellow 
phosphorus was possible.  END COMMENT. 
 
RANDT