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Cablegate: Eu On Tires Case; Chinese Reactions Day Two

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OO RUEHCN RUEHGH RUEHVC
DE RUEHBJ #2656/01 2590910
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O 160910Z SEP 09 ZDS
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TO RUEHC/SECSTATE WASHDC IMMEDIATE 6092
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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

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