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Cablegate: Hong Kong Is Working to Improve China Product

VZCZCXRO4100
PP RUEHCN RUEHGH
DE RUEHHK #2466/01 2641016
ZNR UUUUU ZZH
P 211016Z SEP 07
FM AMCONSUL HONG KONG
TO RUEHC/SECSTATE WASHDC PRIORITY 2997
INFO RUEHBJ/AMEMBASSY BEIJING PRIORITY 1469
RUEHCN/AMCONSUL CHENGDU PRIORITY 1192
RUEHGZ/AMCONSUL GUANGZHOU PRIORITY 0875
RUEHGH/AMCONSUL SHANGHAI PRIORITY
RUEHSH/AMCONSUL SHENYANG PRIORITY 3644
RUEHIN/AIT TAIPEI PRIORITY 4687
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEHRC/DEPT OF AGRICULTURE WASHDC PRIORITY
RUEAUSA/DEPT OF HHS WASHINGTON DC PRIORITY
RHMFIUU/DEPT OF HOMELAND SECURITY WASHINGTON DC PRIORITY
RUEAORC/US CUSTOMS AND BORDER PROTECTION WASHINGTON DC PRIORITY

UNCLAS SECTION 01 OF 03 HONG KONG 002466

SIPDIS

SENSITIVE
SIPDIS

PASS TO EAP/CM AND EEB/TPP/ABT PAUL SAXTON
STATE PASS TO USTR CHINA OFFICE/TIM WINELAND
STATE PASS TO CPSC LAURIE HOPKINS/INTL PROGRAMS

E.O. 12958: N/A
TAGS: EAGR ECON ETRD PREL TBIO HK CH
SUBJECT: HONG KONG IS WORKING TO IMPROVE CHINA PRODUCT
SAFETY

REF: A. STATE 114788
B. HONG KONG 2217
C. HONG KONG 2414

1. (SBU) Summary: A series of recalls of potentially
dangerous "Made in China" toys and defective consumer goods
has resulted in intense international scrutiny of Hong
Kong-invested China industries. Hong Kong companies operate
some 80,000 production facilities in mainland China,
employing approximately 10 million Chinese. Hong Kong toy
companies are acutely aware of customer concerns and media
reports regarding China's product safety record. Toy
association leaders have publicly affirmed their commitment
to "full compliance" with international toy manufacturing
standards, are urging their members to "double-triple" check
each of their manufacturing steps, and to add quality
inspection manpower and more stringent control systems to
cover all aspects of their operations, particularly
subcontracting (reftel B/C). They also have highlighted the
toy industry's close coordination with the Hong Kong and
mainland China governments, and their cooperation with
industry associations in Europe and the U.S. The Hong Kong's
Consumer Council reviewed existing product safety legislation
and determined it adequate, and is working with the Customs
and Excise Bureau to enforce product safety regulations. The
Hong Kong Trade Development Council (TDC) is working locally
to emphasize the need for Hong Kong industries to comply with
international product safety standards and internationally to
assure trade partners that Hong Kong industries can and will
play a positive role in improving compliance with product
safety standards.

2. (SBU) On September 18, TDC and Hong Kong's Toy
Manufacturing Associations sponsored a Product Safety
Conference attended by approximately 1000 Hong Kong and
mainland China business representatives. During the
conference, Hong Kong toy manufacturers stressed that they
are committed, in both public relations and practice, to
producing toys in compliance with international standards.
They will implement expanded testing and certification
requirements to ensure product safety; they reminded buyers,
however, that this will entail higher costs. Hong Kong and
Chinese manufacturers advocate "shared responsibility"
throughout the production chain, but are skeptical that they
will be met half-way by U.S. brands and retailers, buyers who
have been historically unyielding on price. End Summary.

Hong Kong Government
--------------------

3. (U) Hong Kong Consumer Council Officials told Econoffs
that Hong Kong has two ordinances related to consumer product
safety: 1) the Consumer Goods Safety Ordinance 2) the Toys
and Children Protection Safety Ordinance. These ordinances
require that Hong Kong manufacturers and importers must
comply with internationally accepted product safety standards
in order to bring their goods into the Hong Kong market. In
light of the recent series of product recalls, the Consumer
Council reviewed these two pieces of legislation and
determined that they are in line with international practices
and provide adequate enforcement powers. The Consumer
Council receives public complaints and queries, conducts
research and educates the public on product safety issues.
It also works with Hong Kong Customs, which has the authority
to investigate suppliers and retailers and conduct tests of
products, to ensure consumer product safety standards are
met. If consumer goods are deemed unsafe, the Consumer
Council and Hong Kong Customs will demand a product recall.

4. (SBU) Hong Kong Trade Development Council (TDC) is
actively promoting the positive role that Hong Kong
industries can and do play in ensuring that products made in
mainland China meet international standards and are safe. A
high-level TDC delegation will travel to the United States at
the end of September, visiting numerous cities including San
Francisco, Chicago, New York and Washington, and would make

HONG KONG 00002466 002 OF 003


it a point to discuss product safety issues with U.S.
business and government officials. Hong Kong TDC has also
organized meetings between USG officials and Hong Kong
manufacturers (reftel C) as well as sponsored conferences in
Hong Kong to strongly urge Hong Kong businesses to comply
with international standards and to focus on quality
assurance.

Product Safety Conference
--------------------------

5. (SBU) On September 18, TDC hosted a Product Safety
Conference and brought in Brenda Jacobs, trade attorney at
Sidley Austin and former trade agreement counsel at the U.S.
Department of Commerce, and Alan Schoen, risk consultant at
Marsh and former Director of Compliance for the Consumer
Product Safety Commission (CPSC) to explain the U.S. import
safety environment, including actions resulting from the
White House Import Safety Working Group and the U.S.-Sino
Product Safety Summit. Jacobs and Schoen explained the
likelihood of new legislation which could ban certain
products, require third-party inspection, and increase civil
and criminal penalties for violations. They predicted
expanding U.S. certification requirements, and increasing
buyer demands, from detailed purchase orders to
indemnification provisions in contracts. Jacobs proposed
that manufacturers "turn the negative news into positive
action" by conducting an internal review of quality systems,
drafting a written compliance manual, expanding in-house
training and using third-party inspection reports as a
marketing tool. She also said, "now is the time to push back
on U.S. retailers" on price, citing a recent Associated Press
survey indicating that a majority of Americans acknowledge
that their own consumer demand for the lowest price is part
of the problem. "Now is the time to have these discussions,
as the environment is right," said Jacobs. Schoen also
predicted that the CPSC will get an increase in resources,
funds and staff, which will be accompanied by strengthening
of outdated safety standards.

6. (SBU) Carter Keithley, President of the Toy Industry
Association, USA (TIA) addressed the conference via video and
described the "perfect storm" created by consumer product
quality issues, U.S. presidential election politics, and a
focus on an under-funded and under-staffed CPSC. TIA's
analysis of events, in consultation with its members,
concluded that the industry's toy safety standards were
excellent, but the toy inspection process had "failed the
industry." TIA implemented a program to repair the
inspection process in the near term and strengthen the
inspection framework over the long term. To get through the
holiday season, the industry is conducting exhaustive testing
on products to reassure compliance, coupled with extensive
outreach to reassure the public. Looking toward 2008, TIA is
developing standardized testing procedures, establishing lab
testing criteria, and encouraging the USG to require
inspection of all toys in the U.S. (Note: This message was
well-received by the conference participants, as they sensed
they had an advocate in the U.S. looking out for the
industry's interests. End note.)

7. (SBU) An industry panel featuring four key toy company
executives (TS Wong, Honorary President of The Hong Kong Toys
Council and The Hong Kong Manufacturers' Association;
Lawrence Chan, Chairman, The Hong Kong Toys Council; CK
Yeung, Executive Vice President, The Hong Kong Toy
Manufacturers' Association; and Vincent Tam, Executive
Committee Member) focused on actions taken to date in
response to global product safety concerns. The group
highlighted the industry's close contact and communication
with the Hong Kong and mainland China governments, and their
coordination with industry associations in Europe and the
U.S. Each emphasized that the industry was very clear about
the problem, and is taking measures to increase quality
control and testing to address that problem. As industry
associations, their primary role has been information

HONG KONG 00002466 003 OF 003


dissemination and member training, both critical in
addressing the constant changes in regulations and processes
by governments worldwide. The group told their peers that
they should take quality control very seriously.

8. (SBU) Open discussion between presenters and the audience
included topics such as:
--What manufacturers must do to improve the "Made in China"
label;
--What to tell U.S. retailers, product brands and buyers
about price increases associated with increased testing and
quality assurance practices;
--Is the USG also lecturing U.S. importers and retailers
about product safety (Note: this question was asked in
impassioned Cantonese with much encouragement from fellow
attendees. End note.);
--How can manufacturers handle unsafe product designs;
--How can manufacturers eliminate problems in the supply
chain.
The presenters' responses centered around performing due
diligence on suppliers, focusing on quality, meeting
international standards and increasing testing. The audience
generally agreed that these solutions would cost money.

Third-Party Testing In Hong Kong - A Growth Industry
--------------------------------------------- -------

9. (U) Intertek, A Hong Kong-based product testing company,
briefed us on the year-to-date in toy safety -- 247 recalls
in the U.S., with 154 (62 percent) involving products
imported from mainland China, totaling 33.6 million units.
Intertek advocates conducting regular checks and audits on
suppliers, examining documentation to ensure validity,
randomly selectly and testing raw materials, initiating both
pre-production and pre-shipment testing and performing due
diligence on finished products. Companies like Intertek can
provide these services for a fee. The company is hosting
many training seminars in mainland China (Shenzhen and
Shanghai).

10. (SBU) Modern Testing Services (MTS), invited Econoff to
tour their Hong Kong testing laboratory. MTS is a global
technical services company, specializing in laboratory
testing, product inspections, facility assessment, and
training. The $18 million, 300-person company provides these
services to a broad range of companies and industries,
including apparel, textile and toys. X-ray and wet chemical
testing is available to toy manufacturers (for a fee) to
verify product composition and compliance as well as the more
traditional torque-tension, flammability, and strength tests
are performed. MTS is experiencing growth in the consulting
side of its business, where it visits factories i China to
conduct quality control audits and traning sessions.

Cunningham

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