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Cablegate: Staffdel Nelson Pursues Food/Toy Safety and Trade

VZCZCXRO8818
PP RUEHCN RUEHGH
DE RUEHHK #2414/01 2600129
ZNR UUUUU ZZH
P 170129Z SEP 07
FM AMCONSUL HONG KONG
TO RUEHBJ/AMEMBASSY BEIJING PRIORITY 1439
RUEHCN/AMCONSUL CHENGDU PRIORITY 1180
RUEHGZ/AMCONSUL GUANGZHOU PRIORITY 0858
RUEHGH/AMCONSUL SHANGHAI PRIORITY
RUEHSH/AMCONSUL SHENYANG PRIORITY 3633
RUEHRC/DEPT OF AGRICULTURE WASHDC PRIORITY
RUEHIN/AIT TAIPEI PRIORITY 4675
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEHC/SECSTATE WASHDC PRIORITY 2938
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RHMFIUU/DEPT OF HOMELAND SECURITY WASHINGTON DC PRIORITY
INFO RUEHOT/AMEMBASSY OTTAWA PRIORITY 5116
RUEHFR/AMEMBASSY PARIS PRIORITY 0303
RUEHKO/AMEMBASSY TOKYO PRIORITY 4747
RUEHWL/AMEMBASSY WELLINGTON PRIORITY 0262

UNCLAS SECTION 01 OF 04 HONG KONG 002414

SIPDIS

SENSITIVE
SIPDIS

PASS TO EEB/TPP/ABT PAUL SAXTON
STATE PASS TO USTR CHINA OFFICE/TIM WINELAND
STATE PASS TO CONSUMER PRODUCTS SAFETY COMMISSION LAURIE
HOPKINS/INTL PROGRAMS

E.O. 12958: N/A
TAGS: EAGR ECON ETRD PREL TBIO HK CH
SUBJECT: STAFFDEL NELSON PURSUES FOOD/TOY SAFETY AND TRADE
ISSUES IN HONG KONG

REF: A. HONG KONG 2217
B. WELLINGTON 0845
C. STATE 114788

1. (SBU) Summary: House Energy and Commerce Committee Staff
Delegation Nelson visited Hong Kong and Macau at the end of
August to investigate import food and product safety,
intellectual property rights and unfair trade practices.
Meetings with Hong Kong and Macau government officials and
private sector representatives revealed that Hong Kong and
Macau continue to improve their import safety regimes by
adding testing facilities, providing training for
manufacturers, and drafting new food safety legislation. Food
and product safety problems linked to mainland China's
production facilities, once reported to Beijing officials,
are often quickly and severely addressed, according to
western journalists, industry and government sources.
Challenges remain, however, including compliance with
internationally accepted standards; frequently shoddy supply
and production practices; importing companies moving quality
control responsibilities from audit teams to manufacturers;
increasing mainland production and labor costs; and unceasing
demand for "the best deal" by importers. Increased labor and
safety compliance costs will push prices of Chinese goods up
ten-percent next year, said Hong Kong manufacturers. All
interlocutors in Hong Kong expressed a clear recognition of
the seriousness and urgency of the product safety issue. End
Summary.

2. (SBU) The Consul General and staff briefed the staffdel on
Hong Kong and Macau economic growth, ongoing trade security
initiatives such as the Secure Freight Initiative (SFI), and
Hong Kong and Macau efforts to protect intellectual property
(the Hong Kong government passed a new copyright amendment in
June). DHS/ICE Assistant Attache highlighted successful
partnerships with Hong Kong and Macau Customs regarding
secure trade and enforcement of intellectual property rights.
USDA Foreign Agricultural Service (FAS) Attache shared key
elements of food and product safety, including a hands-on
tour at a local supermarket to discuss food labeling and
inspection practices.

Hong Kong Consular Corps on Product Safety
-------------------------------------------

3. (SBU) Consular corps representatives from Canada, France
and New Zealand discussed their import safety concerns, which
they see as a global problem. The discussion touched upon
the August product recall in New Zealand involving
formaldehyde found on imported Chinese-made blankets, the New
Zealand government's ongoing imported and domestic food
safety review, and unfolding developments in the U.S.
Consular corps members and the staffdel agreed to ongoing
information sharing on the import safety issue, and expressed
a desire to understand more about the Japanese import safety
regime, touted to be among the best in the world,
specifically regarding food imports from mainland China.

AmCham and Industry on Product Safety
--------------------------------------

4. (SBU) The American Chamber Board of Governors and key
committee chairs expressed interest in the effects of new
U.S. legislation on user fees, product liability, and trade.
Noting the negative impact of recent food and product recalls
on "Made in China" products, the Amcham officials recounted
that U.S. companies instruct import traders to get "the best
deal," with sourcing decisions being made over one year in
advance. This can lead to decisions based primarily on cost
as opposed to product safety. To further cut costs, many
global firms no longer have audit teams in Asia, as this role

HONG KONG 00002414 002 OF 004


has been shifted to manufacturers. Members conveyed
first-hand knowledge of processing facilities moving to
Vietnam and Cambodia to avoid the political baggage of the
"Made in China" label. While this may solve negative public
relations aspects of the product safety issue, it does not
necessarily mean the products will be safer, they noted.

5. (SBU) The Hong Kong Trade Development Council (TDC), The
Hong Kong Toys Council, and Hong Kong Toy Manufacturers'
Association also briefed the staffdel. TDC stressed the
important trade relationship between Hong Kong and the U.S.,
pointing out the link to Southern China, where a vast
majority of the "Made in China" manufacturers are Hong Kong
or foreign-invested enterprises. TDC and the toy
associations believe that recent mainland China government
product safety regulatory changes will result "in fewer
mainland suppliers, but better and higher quality and safer
products...at a higher price." Hong Kong manufacturers also
anticipate a ten-percent increase in prices next year, as
rises in the mainland's minimum wage, and increased product
testing and compliance costs are passed along to buyers.
This would conflict with U.S. importers' desire for the
lowest possible price, they added.

6. (SBU) The toy company associations reiterated their
ongoing commitment to product safety and to human rights
(reftel A). Following the August recalls, toy manufacturers
are investing in equipment for self-testing, and checking
every batch of paint used in production. In turn, they are
emphasizing training and education for manufacturers and
subcontractors, with a TDC-sponsored product safety seminar
for all manufacturers scheduled for September 18 in Hong
Kong. When asked about two of the companies who produced
toys caught up in the Mattel recalls, Foshan Lee Der and
Early Light, they said: "Lee Der violated the law by
producing and exporting goods that did not meet international
standards. Thus, the mainland authorities revoked the
company's export license." They were unable to provide
comment regarding Early Light's situation because "the
investigation is ongoing."

Hong Kong Government on Product Safety
---------------------------------------

7. (SBU) The Hong Kong Food and Environmental Hygiene
Department (FEHD) and Centre for Food Safety provided the
staffdel with details on Hong Kong's food safety best
practices. Highlights included details of FEHD's "farm to
fork" approach to import safety; discussion of their good
relationship with the mainland China and Guangdong Province
food safety officials; development of Hong Kong's new food
safety legislation; and management of import testing and
surveillance programs. FEHD told the staffdel that of the
64,000 food samples collected and tested in 2006, a majority
imported from the mainland, there was a failure rate of only
0.3%, or 192 samples, which supports FEHD's claim that the
vast majority of Hong Kong's food imports are safe.

WSJ and NYT on Product Safety
------------------------------

8. (SBU) The Wall Street Journal (WSJ) and New York Times
(NYT) reporters based in Hong Kong confirmed that
accountability within the supply/production chain is
difficult to guarantee for "Made in China" products exported
to the U.S. The WSJ reporter indicated that, "there exists
little incentive for local and provincial level enforcement
officials to find problems" in their processing industries.
However, once a problem is identified to Beijing, General
Administration of Quality Supervision, Inspection, and
Quarantine (AQSIQ) enforcement is quick and harsh, said the

HONG KONG 00002414 003 OF 004


journalists. When asked about the ability of PRC Vice
Premier Wu Yi to lead the mainland's food supervision and
enforcement efforts, the reporters said that she was the
expected person to head such a campaign, given her history as
the "Iron Lady", but with the new Party Congress set to
convene in October, NYT said it was unclear whether she would
continue to carry the food safety mantle.

Macau Government on Product Safety
-----------------------------------

9. (SBU) Macau SAR imports 90 percent of its consumer
products from mainland China. Consumer product safety is
divided among four departments:
-Macau Civil and Municipal Affairs Bureau (IACM) handles
fresh food and livestock;
-Economic Services monitors processed foods and imported
goods;
-Customs and Excise monitors and seizes products at the
border; and
-The Health Department oversees markets, restaurants and
hospitals.
Macau also has a Consumer Council which is the recipient of
individual customer calls, and would issue a recall should
one be required.

10. (SBU) IACM and Customs inspect and test high volumes of
mainland imported food products, with inconsistencies in
these products being directly reported to the AQSIQ in
Beijing. For example, IACM takes random samples from
approximately one-third of trucks hauling fresh produce
originating from mainland farms licensed to export products
to Macau. Should a residue of pesticide be found, even if
not at an officially unacceptable level, notice of the
finding is sent to Beijing. IACM officials indicated that
once such a report is filed, the offending farm's export
license is immediately revoked and they are no longer able to
export to Macau,"they just disappear." This message was
reiterated by Economic Services regarding processed food and
consumer products as well.

11. (SBU) Macau established a Food Safety Subcommittee in
2004, as part of an effort to be designated a WHO "Healthy
City in Asia," which recognizes communities for meeting
criteria regarding healthy citizens and a health-conscious
environment. In addition, the Economic Services Department
is currently drafting a consumer product safety regulation
that directs companies to abide by international standards,
and place liability at all levels: importer, manufacturer and
retailer. The draft is expected to be available before the
end of the year, and Economic Services staff committed to
sharing the document.

Hong Kong and Macau: Intellectual Property Rights
-----------------------------

12. (SBU) The staffdel met with Hong Kong private sector
firms (Pfizer, Eli Lilly, Microsoft and others), industry
organizations (Motion Picture Association/International
Federation Against Copyright Theft-Great China and Business
Software Alliance) and the Hong Kong Customs and Excise
Department regarding intellectual property rights in the
region. The groups were able to provide the staffdel
numerous case studies demonstrating successful and
unsuccessful enforcement actions, both in Hong Kong and
mainland China.

13. (SBU) Staffdel Nelson also met with Macau government
officials at the Economic Services and Customs Bureaus to
review IPR protection. Customs officials confirmed their
success in virtually eliminating optical disk fraud in the

HONG KONG 00002414 004 OF 004


last several years, and have turned their attention to other
products, particularly pharmaceuticals. Two pieces of
legislation (55 and 99), aid in the prosecution and
penalizing of retailers (10 cases in 2006). Both Macau
agencies indicated that they had strong working relationships
with their counterparts in Hong Kong and mainland China.
Cunningham

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