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UNCLAS SECTION 01 OF 02 BEIJING 002656 
 
C O R R E C T E D C O P Y//PARA MARKING// 
 
SIPDIS 
 
STATE FOR E, EAP, EAP/CM 
STATE FOR EEB/TPP WCRAFT, CLAYTON HAYS, HHELM 
STATE FOR H/BETSY FITZGERALD, EAP/CM SHAWN FLATT,SCA/RA 
JOHN SIPLSBURY 
STATE PASS USTR FOR DMARANTIS, TREIF, TIM STRATFORD, ANN 
MAIN, JEAN GRIER 
DOC FOR IRA KASOFF, NICOLE MELCHER (5130), MAC (4420) 
TREASURY FOR OASIA/DOHNER/WINSHIP 
GENEVA PASS USTR 
NSC FOR JLOI,DBELL 
 
E.O. 12958: N/A 
TAGS: ETRD EFIN ECON PREL WTRO CH
SUBJECT: EU ON TIRES CASE; CHINESE REACTIONS DAY TWO 
 
REF: A. BEIJING 2630 
     ¶B. BEIJING 2626 
     ¶C. BEIJING 2525 
     ¶D. BEIJING 02441 
     ¶E. BEIJING 2299 
     ¶F. STATE 85673 
     ¶G. BEIJING 2439 
 
BEIJING 00002656  001.2 OF 002 
 
 
THIS MESSAGE SENSITIVE BUT UNCLASSIFIED. 
 
¶1. (SBU) SUMMARY:  EU Commission officials told Econ M/C September 
16 their Chinese interlocutors on trade had not raised the 
tires issue in meetings earlier this week, though PRC 
Commerce Minister Chen Deming had been very tough on the 
subject when he met EU Commissioner Ashton in New Delhi two 
weeks prior.  The EU representatives saw a new pattern 
emerging in China,s two-pronged approach to trade-related 
retaliation: simultaneous pursuit of a) WTO consultations, 
and b) anti-dumping and countervailing duty investigations. 
They forecast that President Hu would "launch a new offensive 
at the Pittsburgh Summit" taking the high road on trade and 
protectionism. While they jokingly welcomed the U.S. decision 
for making the EU "good guys" again, they acknowledged that 
consultations with European industry had already began over 
concerns Chinese tire exports might be diverted to European 
markets.  Press coverage of the case remained heavy today, 
with several commentators noting positively the restrained 
reaction of the PRC to date. To date, MOFCOM has declined to 
provide Embassy with petitions for either the auto parts or 
the chicken cases it announced on September 13.  END SUMMARY. 
 
PRC,S DUAL-PRONGED AD/CVD AND WTO STRATEGY EMERGES 
 
¶2. (SBU) EU Minister-Counselor for Trade Miguel Ceballos and two 
EU Commission trade remedy officials (Dr. Wolfgang Muller and 
Carlo Pinto) visiting China called on the Econ M/C today to 
talk tires and other trade issues.  Our interlocutors 
observed that in the tires case, and in the EU,s own 
experience, the PRC,s overriding concern has been the 
mechanism i.e. use of the WTO-agreed transitional 
product-specific safeguard mechanism, rather than the remedy 
itself.  They noted that "some time ago" the EU had 
considered implementing a product-specific safeguard measure 
against Chinese imported mandarin oranges, but after the PRC 
"went ballistic", the EU applied a general safeguard instead 
of the WTO-linked bilateral one. (Note: Despite MOFCOM,s 
repeated assertion that the WTO,s TPSSM has never been used, 
Turkey, India and Colombia have all instituted tariffs 
against Chinese products under the TPSSM. End Note.) 
 
¶3. (SBU) The EU team said their interlocutors on trade had not 
raised the U.S. decision in pre-scheduled meetings on 
September 14.  However, at the WTO Ministerial in New Delhi 
two weeks ago, MOFCOM Minister Chen Deming had told EU 
Commissioner for Trade Ashton "quite firmly" that the Chinese 
would take all necessary measures to prevent the U.S. from 
implementing a special safeguard measure on tires. Ceballos 
admitted with some relief that the U.S. remedies had in fact 
made the U.S. "bad guys" and the EU "good guys" on China 
trade again -- a position the EU feared it was losing after 
the "very good discussions" at the first S&ED last July. 
 
¶4. (SBU) The EU team did not anticipate they would rapidly follow 
suit with their own special safeguard measure on China.  In 
fact, although they initially expressed concern that 
newly-excess Chinese tire supplies might be diverted to the 
European market, consultations with European industry set 
those fears at bay for the time being.  European industry 
told them that EU security standards for passenger tires were 
higher than those in the U.S. or China, keeping Chinese tire 
exports to Europe low.  Caballos said that overall tire 
imports account for 20 percent of the EU market, with China 
accounting for just under half of that, or just less than 10 
percent of the European tire market. He said European 
industry predicted that the Chinese tires would continue to 
flow into the U.S. and that any diversion of Chinese tires 
would go to Asia or other emerging markets.  Our 
interlocutors did note that the EU,s implementing mechanism 
of the WTO transitional product-specific safeguard mechanism 
(TPSSM) was harder to deploy than the U.S. Section 421. 
 
BEIJING 00002656  002.3 OF 002 
 
 
First, labor unions do not have the legal right to file 
complaints under the European TPSSM mechanism.  Second, to 
impose the TPSSM, a difficult-to-achieve "qualified majority" 
of EU Council members must agree.  They noted the EU steel 
industry had been the most vocal sector over Chinese product 
flows, and estimated that current Chinese steel production 
overcapacity has reached 150 million tons/year (50 million of 
which is due to the PRC,s stimulus plan). 
 
¶5. (SBU) Muller observed that the PRC seems to be implementing a 
consistent two-pronged "retaliation" strategy in trade 
disputes.  First, they initiate anti-dumping and/or 
countervailing duty investigations (often not well-founded, 
in the EU experience).  Second, they request WTO 
consultations.  The U.S. was now facing such a Chinese 
strategy, as had the EU in the two 2009 instances it 
experienced Chinese retaliation over EU trade remedies: steel 
fasteners (winter 2009), and security scanners (Nuctech this 
August/September).  Noting that "nothing happens by accident" 
in China, the EU team related with some amusement that only 
one hour after Commissioner Ashton finished a meeting with 
PRC Vice Premier Wang Qishan, China announced its own 
investigation into European-manufactured scanners.  Wang had 
not said a word to Ashton on the issue. 
 
ANTI-DUMPING AND COUNTERVAILING DUTIES TIMELINE 
 
¶6. (SBU) Based on China,s past practice, the cases likely will not 
proceed until the USG is notified of the petitions.  Although 
MOFCOM,s AD/CVD practices are less than transparent, they 
have roughly followed a pattern similar that of the U.S. 
system, with three general phases: 1) the petition: the PRC, 
either MOFCOM or industry, would initiate a petition; 2) 
consultations: MOFCOM then affords the potential responding 
government (in this case, the USG) a consultation 
opportunity, during which the USG could submit to MOFCOM 
evidence for the record arguing against moving forward on the 
petition; 3) the investigation: if MOFCOM chooses to proceed, 
it will initiate a formal CVD investigation.  The CVD 
investigation would start with MOFCOM presenting a 
questionnaire to the USG, local governments and to U.S. 
industry, with the goal of exposing financial, policy, 
practice and other details that could prove a subsidy to U.S. 
industry.  After a few rounds of questionnaires and 
responses, MOFCOM would issue a preliminary determination. 
Anti-dumping cases, on the other hand, would be based on two 
criteria: that dumping occurred (in this case, U.S. producers 
were selling for less on the export market than on the 
domestic market) and then show injury to the Chinese market. 
 
OFFICIAL AND PRESS REACTIONS CONTINUED 
 
¶7. (SBU) On the local scene Tuesday, the only official comment on 
the tire issue came from MOFCOM spokesperson Yan Jian, who 
announced publicly China,s request for WTO consultations on 
this case.  Commentary on Chinese retaliatory measures 
against imports of U.S. auto parts and chicken dominated 
Chinese press September 15, but, unlike yesterday, left room 
for other headlines.  Several outlets predicted that the 
Chinese retaliatory measures would roughly equal the value of 
the Chinese losses due to U.S. tariffs.  Otherwise, opinion 
swung from calls for China to "stand strong in the face of 
protectionism" in order to prevent its spread, to recognition 
that both the U.S. and PRC were measured in their responses 
to this trade dispute and a trade war would only hurt both 
countries.  Of note, one outlet underscored that the PRC did 
not target soybeans, the "ultimate weapon to safeguard its 
trade interests, which shows that the Ministry of Commerce is 
still focused on ... a balanced and controllable situation." 
Another story observed that China and the U.S., as well as 
China and the EU, are inseparable trading partners. 
HUNTSMAN