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RR RUEHCN RUEHGH RUEHVC
DE RUEHHK #0393/01 0630821
ZNR UUUUU ZZH
R 040821Z MAR 09
FM AMCONSUL HONG KONG
TO RUEHC/SECSTATE WASHDC 7033
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 HONG KONG 000393 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/CM 
STATE FOR H 
 
E.O. 12958: N/A 
TAGS: ECON ETRD OREP PREL EINV HK
SUBJECT: SENATE FINANCE COMMITTEE STAFFERS VISIT HONG KONG 
 
REF: A. HONG KONG 00333 
     ¶B. 07 HONG KONG 00218 
 
¶1. (SBU) Summary: Eleven U.S. Senate Finance Committee staff 
members, led by International Trade Counsel Amber Cottle, 
visited Hong Kong February 18-20.  Their visit focused on 
trade facilitation, trade security, and customs enforcement 
with Hong Kong Government (HKG) and private sector 
representatives.  Local interlocutors voiced concerns over 
U.S. consumer product safety and customs legislation, 
particularly the lack of "transparency" and too-quick 
implementation; they cautioned about possible repercussions 
if trading partners viewed these as protectionist measures. 
HKG interlocutors sought U.S. Government (USG) direction on 
the future of the Secure Freight Initiative (detailed in Ref 
A).  The American Chamber of Commerce in Hong Kong (AmCham) 
delivered a message to the StaffDel in support of free trade. 
 The AmCham also noted that the current U. S. foreign income 
tax regulations impose a competitive disadvantage on 
Americans participating in the international labor market. 
On IPR, the HKG explained its reluctance to participate in 
the Anti-Counterfeiting Trade Agreement (ACTA), despite 
meeting its standards (Ref B).  End Summary. 
 
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CPSIA: Lack of Transparency Equals Business Reluctance 
--------------------------------------------- --------- 
 
¶2. (SBU) Vivian Lau, Deputy Director General for the Hong 
Kong Trade and Industry Department (HKTID) raised concerns 
over the U.S. Consumer Product Safety Improvement Act (CPSIA) 
with the StaffDel.  Lau indicated that Hong Kong/China 
garment makers and small-to-medium-size manufacturers, 
concerned with "ever-evolving" U.S. product safety rules and 
lack of transparency, have recently opted to decline orders 
from U.S. importers.  The manufacturing trade seeks 
guarantees that U.S.-bound products will not be rejected as a 
result of new product safety laws.  She cited the recent U.S. 
District Court of New York ruling that applied restrictions 
on phthalates content to all inventories, regardless of 
manufacturing date.  Lau also explained the CPSIA 
requirements for "final product testing" make manufacturing 
of certain goods inefficient and unprofitable.  As an 
example, Lau cited inputs that may go into producing a 
child's organic cotton cloth jacket.  The law requires 
testing of the final item (i.e., the child's jacket) for 
which only the buttons may contain small traces of the 
restricted chemicals.  This results in lab testing fees for a 
completed product that provide no more information than would 
testing of individual product components, she said.  If 
components were targeted and tested separately, the lab 
testing fees and costs of goods could be reduced 
tremendously, she added.  When the StaffDel informed Lau that 
the CPSIA only aligned U.S. legislation with European Union 
(EU) standards, Lau indicated rapid CPSIA implementation and 
uncertainty differentiated these regulations. 
 
--------------------------------------------- --- 
Expats Call for Continued Support for Free Trade 
--------------------------------------------- --- 
 
¶3. (SBU) The American Chamber of Commerce in Hong Kong 
(AmCham) called for continued USG support for free trade.  On 
recent trade security initiatives (e.g. Container Security 
Initiative, Secure Freight Initiative, Security Filing 10 2, 
Customs-Trade Partnership Against Terrorism) and product 
safety rules, AmCham cautioned that the "draconian" 
interpretation of the rules and the lack of communication and 
transparency could be viewed by trading partners as 
protectionist measures.  Trading partners could impose 
similar security and safety rulings to U.S. exports and 
disrupt trade flow.  AmCham recognized that trade security 
and product safety "have important and noble goals," but one 
member remarked that "hastily implemented legislation seems 
to lack practicality and reason."  In order for the industry 
to adjust, reasonable timing for implementation and clear 
interpretation of the rules is needed, AmCham stressed. 
 
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Foreign Income Tax: A Self-Imposed Competitive Disadvantage 
--------------------------------------------- -------------- 
 
¶4. (SBU) AmCham members raised concerns about the current 
U.S. tax burdens on Americans who work and reside abroad.  As 
no other developed nation taxes the foreign-earned income of 
its citizens, this additional layer of cost and complexity is 
a disadvantage for American expatriates and U.S. companies, 
they said.  To attract American employees to work overseas, 
 
HONG KONG 00000393  002 OF 002 
 
 
corporations have to include "tax equalization agreements" in 
remuneration packages.  Under these agreements, companies 
bear the U.S. income and Medicare tax burden for their 
American employees, raising the cost of U.S. labor.  When 
these organizations contemplate cutting labor costs, U.S. 
workers are usually the first dismissed, given their 
disproportionate entitlements, the Chamber business 
representatives said.  AmCham members noted how the current 
financial crisis has forced many U.S.-based companies 
operating abroad to hire cheaper non-American management. 
This further hurts U.S. exports because American managers 
tend to source items from familiar U.S. brands, while foreign 
managers will tend to source from their home country. 
Similarly, international schools that educate the U.S. 
expatriate community offspring have undergone large faculty 
turnovers.  American teaching professionals are being 
replaced by "more affordable" non-Americans; U.S. teachers 
return home and compete in an already competitive domestic 
labor market.  AmCham members stressed U.S. tax laws should 
be revised to eliminate the competitive disadvatage faced by 
American citizens working abroad. 
 
--------------------------------------------- 
Intellectual Property Rights (IPR) Protection 
--------------------------------------------- 
 
¶5. (SBU) The StaffDel met with officials from the Hong Kong 
Intellectual Property Department (IPD), HKG's policy and 
educational body on IPR, and with officers from Hong Kong 
Customs and Excise Department (HKCE) to discuss local IPR 
enforcement matters.  While acknowledging challenges posed by 
low-level syndicates of counterfeit goods sellers, IPD 
Director Stephen Selby lauded successes by HKCE in combating 
IPR infringement.  He explained this was the result of 
intelligence sharing among foreign and local law enforcement 
agencies and the private sector.  Selby was specifically 
appreciative for training provided by the USG to local law 
enforcement.  On the question of HKG's reluctance to join the 
Anti-Counterfeiting Trade Agreement (ACTA), Selby told 
StaffDel that ACTA is for the "big boys" while Hong Kong is 
only a small city.  Note: Ref B previously reported Selby's 
concerns over possible mainland Chinese reaction to ACTA, 
particularly if the trade agreement ever expanded to include 
Taiwan.  At the time, the HKG asked to be kept informed of 
the progress of ACTA, but opted to delay entering into any 
formal discussions despite meeting ACTA standards.  End note. 
 
¶6. (SBU) The StaffDel did not have a chance to clear this 
cable. 
DONOVAN