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Cablegate: China Concerned Over Future Textile Protectionism,

VZCZCXRO8590
OO RUEHCN RUEHGH RUEHVC
DE RUEHBJ #4304/01 3292341
ZNR UUUUU ZZH
O 242341Z NOV 08
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC IMMEDIATE 1008
RUCPDOC/DEPT OF COMMERCE WASHDC IMMEDIATE
RUEATRS/DEPT OF TREASURY WASHDC IMMEDIATE
INFO RUEHOO/CHINA POSTS COLLECTIVE IMMEDIATE

UNCLAS SECTION 01 OF 02 BEIJING 004304

SENSITIVE
SIPDIS

STATE PASS USTR FOR STRATFORD
DEPT OF COMMERCE PASS TO DAVID SPOONER, RONALD LORENTZEN AND MATTHEW
PRIEST

E.O. 12958: N/A
TAGS: ETRD KTEX EIND CH
SUBJECT: CHINA CONCERNED OVER FUTURE TEXTILE PROTECTIONISM,
EXPIRATION OF TEXTILE AGREEMENT

1.(SBU) SUMMARY: MOFCOM Director General for Foreign Trade Wang
Shouwen met with U.S. Embassy officials to express concern over
possible U.S. actions when the current Memorandum of Understanding
(MOU) on Textile and Apparel Products expires at year's end. He
expressed concern that comments by President-elect Obama could be
interpreted as protectionist, particularly in relation to textiles.
DG Wang stated that China's textile and clothing industry had
fundamentally changed: diversifying export markets, decreasing
fixed investment, and laying off workers. He argued that China
posed no threat to the U.S. textiles industry, and actions such as a
421 safeguard request for textiles would only harm U.S. interests
and the broader economic relationship. DG Wang suggested renewed
dialogue through the JCCT Textiles Working Group was the best way to
resolve differences. END SUMMARY.

2. (SBU) On November 18, 2008, responding to a request from the
Chinese side, Minister Counselor for Trade Affairs Christopher Adams
and Senior Import Administration Officer Sarah Ellerman, met with
Director General Wang Shouwen of the Department of Foreign Trade at
the Chinese Ministry of Commerce (MOFCOM).

Concerns about New Administration
---------------------------------

3. (SBU) DG Wang explained that the Chinese government and Chinese
industry was very satisfied with the administration of the MOU on
Textile and Apparel Products. The Chinese textile industry is
looking forward to the Dec. 31, 2008, expiration of the MOU and an
era of free and open trade, ending the past "discriminatory"
treatment of Chinese textiles via multifiber agreement quotas and
later EU and U.S. restraints.

4. (SBU) However, DG Wang said the Chinese government and industry
are very concerned over the possible future policies of incoming
President-elect Obama. DG Wang referenced a letter written by
Senator Obama to the National Council of Textile Organizations on
October 24, 2008, in which the Senator stated that he would make
decisions regarding 421 cases and other trade remedy matters on
their merits and not in accordance with any sort of trade ideology.
DG Wang said the Chinese were also concerned about the recent
instruction by House of Representatives Ways and Means Committee
Chairman Rangel to the International Trade Commission to monitor
imports of textiles categories covered by the current MOU.

Chinese Textiles Not a Threat
-----------------------------

5. (SBU) DG Wang argued that exports from China do not pose a threat
to the United States. He claimed that, according to statistics from
both sides, for the 21 textile categories subject to the quota,
imports from China make up only 20 percent of the total imports into
the United States. He also pointed out that thus far in 2008, the
average utilization rate for all quota categories is 52.9 percent.
Although we still have 1.5 months to go, this year's utilization
rate is lower than last year.

6. (SBU) DG Wang asserted that the textile and clothing industry in
China is in a different position than it was a few years ago. He
claimed that the industry has improved IPR awareness and increased
attention to corporate social responsibility. The large exporters
are mindful of potential problems if imports into the United States
surge, so they are trying to diversify their sales. Responding to
MC Adams' observation that in 2005 when multi-fiber agreement quotas
were lifted, imports had surged 600 percent, DG Wang said that in
2004 the quota fill rate was very high. Now he said it is about 53
percent. Neither importers nor exporters want a "rollercoaster"
market, so the Chinese exporters no longer focus only on the U.S.
market. He also noted that factories had unrealistic expectations
in 2004. Now they are decreasing their investments in fixed assets
and are more realistic. He claimed that since the MOU with the
European Union (EU) expired at the end of 2007, the EU has not
experienced import surges.

China Might "Take Action"
-------------------------

7. (SBU) DG Wang asserted imports from China would not flood the
U.S. market. He said that companies' investment in fixed assets has
decreased; that of the 23 million employees in the textile industry,
the Chinese industry has laid off 400,000 workers; and that some
factories have closed. (Note: DG Wang acknowledged that the layoff
statistic was based on incomplete data.) He expressed concern that
if the new U.S. administration employs protectionist trade measures,
it could produce difficulties for China, and the Chinese side might
have to "take action." Layoffs of rural migrant workers threatened

BEIJING 00004304 002 OF 002


to undermine stability in urban/rural areas, he said.

8. (SBU) DG Wang said imposing 421 safeguards would not help the
U.S. textile industry. He claimed U.S. importers need to source
textile products internationally, so imports from other countries
would likely fill any decrease in Chinese exports. DG Wang noted
that Chinese companies were the largest purchasers of U.S. cotton
and that last year one-half of China's cotton imports were from the
United States. With the U.S. economy in a downturn, American
families would likely want cheaper textiles from China. He also
pointed out that China buys large quantities of U.S. soybeans and is
increasing its purchases of U.S. pork.

Request for Dialogue
--------------------

9. (SBU) DG Wang noted that China and the United States both have a
much broader economic situation to manage. He read the excerpt from
President Bush's G20 Summit speech pledging to refrain from raising
new barriers to investment and trade. DG Wang said the Chinese side
would like to resume meetings of the JCCT Textiles Working Group as
a means to resolve differences, and recommended using the Steel
Dialogue as a model for future meetings.

10. (SBU) COMMENT: While there are substantiated reports of textile
and apparel sector layoffs, we are unable to confirm DG Wang's
informal estimate of over 400,000 laid off workers. Given China
conscious effort to transition away from lower-end manufacturing,
this number seems plausible, although there is no indication yet
that these laid-off workers were unable to find alternative
employment in other encouraged sectors. Beijing's concern is that,
with China's domestic demand now slowing and the drop off in foreign
demand expected to accelerate, it will lead to a decline in
employment opportunities for low-skilled laborers across the
economy. The government has stated that it fears such large-scale
unemployment could lead to social instability. In this environment,
the Chinese side is closely watching the new Administration for any
indications that it might be more protectionist than its
predecessors. END COMMENT.

RANDT

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