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Cablegate: Toy Safety Improves, but Officials Wary of Imposed Change

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

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