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### Viewing cable 07BEIJING5248, CHINA CONTINUES FTA EXPANSION IN 2007

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
07BEIJING5248 | 2007-08-10 06:07 | 2011-08-23 00:00 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Embassy Beijing

`

    VZCZCXRO6724
    PP RUEHCN RUEHGH RUEHVC
    DE RUEHBJ #5248/01 2220607
    ZNR UUUUU ZZH
    P 100607Z AUG 07
    FM AMEMBASSY BEIJING
    TO RUEHC/SECSTATE WASHDC PRIORITY 0650
    RUCPDOC/USDOC WASHDC PRIORITY
    INFO RUEHOO/CHINA POSTS COLLECTIVE
    RUEHGV/USMISSION GENEVA 1917
    RHEHNSC/NSC WASHDC
    RUEHJA/AMEMBASSY JAKARTA 1887
    RUEHKL/AMEMBASSY KUALA LUMPUR 2506
    RUEHGP/AMEMBASSY SINGAPORE 9159
    RUEHBK/AMEMBASSY BANGKOK 5483
    RUEHML/AMEMBASSY MANILA 9003
    RUEHPF/AMEMBASSY PHNOM PENH 0927
    RUEHGO/AMEMBASSY RANGOON 4592
    RUEHHI/AMEMBASSY HANOI 3632
    RUEHBD/AMEMBASSY BANDAR SERI BEGAWAN 0493
    RUEHWL/AMEMBASSY WELLINGTON 0596
    RUEHBY/AMEMBASSY CANBERRA 9516
    RUEHUL/AMEMBASSY SEOUL 0276
    RUEHSG/AMEMBASSY SANTIAGO 0260
    RUEHQT/AMEMBASSY QUITO 0337
    RUEHPE/AMEMBASSY LIMA 0492
    RUEHAC/AMEMBASSY ASUNCION 0031
    RUEHME/AMEMBASSY MEXICO 0459
    RUEHIL/AMEMBASSY ISLAMABAD 6577
    RUEHNE/AMEMBASSY NEW DELHI 4390
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    RUEHMR/AMEMBASSY MASERU 0006
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    RUEHMK/AMEMBASSY MANAMA 0215
    RUEHMS/AMEMBASSY MUSCAT 0025
    RUEHDO/AMEMBASSY DOHA 0193

` `

    UNCLAS SECTION 01 OF 06 BEIJING 005248

    SIPDIS

    SENSITIVE

    SIPDIS

    USDOC FOR DAS KASOFF AND ITA/MAC/AP/MCQUEEN
    STATE PASS USTR STRATFORD, WINTER, ALTBACH
    GENEVA PASS USTR

    E.O. 12958: N/A
    TAGS: ETRD WTRO ECON CH

    SUBJECT: CHINA CONTINUES FTA EXPANSION IN 2007

    REFS: A) BEIJING 0609 B) BEIJING 09501(06)

    BEIJING 00005248  001.2 OF 006

    ¶1. (SBU)  Summary: While consistently professing support
    for the Doha Round of WTO negotiations China is moving
    forward on an ever increasing number of Free Trade
    Agreements (FTAs) in 2007, according to MOFCOM Director Zhu
    Guangyao.  Previously concluded Trade in Goods Agreements
    are being followed by Services and Investent negotiations
    with ASEAN, Chile and Pakistn.  In order to gain
    experience with Europ, China is exploring FTAs with Norway,
    Icelan, and Switzerland.  Difficulties in negotiating
    trade agreements remain and the larger and more complicated
    FTA with Australia, combining goods and services, appears
    stalled with estimates for completion now ranging from 2-3
    years.  China has launched a FTA feasibility study with
    Costa Rica and has accelerated the FTA process with South
    Korea.  It has made approaches to Egypt and the South
    Africa Customs Union (SACU), but the response has been
    tepid.  Talks with India and the Gulf Cooperation Council
    are proceeding slowly. Paragraphs 6-17 summarize the
    individual status of China's FTAs.  End Summary.

    Foreign Interest in FTAs with China Is Strong
    ---------------------------------------------

    ¶2. (SBU)  When Prime Minister Wen Jiabao and other senior
    leaders travel abroad, the possibility of concluding an FTA
    is often the first topic their foreign interlocutors raise,
    Zhu said.    Leadership understands how important the issue
    is to other countries.  After the 17th Party Congress,
    there will be "some adjustment of the economic ministries."
    Zhu indicated that some had advocated creation of a
    specialized trade organization along the lines of the
    United States Trade Representative, but said such a major
    initiative would have to come from the State Council.

    Assessing the Economic Impact of FTAs on China
    --------------------------------------------- -

    ¶3. (SBU)  Due to staffing shortages, MOFCOM has not
    completed any comprehensive studies on the
    economic/commercial impact of FTAs.  China's trade with
    Chile, however, increased 80 percent in the three months
    since their FTA was completed, according to Zhu.  Chinese

    BEIJING 00005248  002.2 OF 006

    small- and medium- enterprises do not feel particularly
    threatened by FTA's, Zhu stated.  ASEAN businesses are
    benefiting more than Chinese companies as the inland
    provinces of Yunnan and Guangxi are not applying for trade
    certificates.  Zhu said MOFCOM will seek to publicize the
    value of the FTAs in China.  Meanwhile MOFCOM Division Five
    is conducting a study on the potential impact of a China-
    Korea FTA.

    The Two Red Lines: Market Economy Status and One China
    --------------------------------------------- ---------

    ¶4. (SBU)  Zhu was clear that the two non-negotiable
    preconditions for an FTA are diplomatic relations with the
    PRC and recognition of China's status as a Market Economy.
    Zhu noted the Swaziland is still "under the hand" of Taiwan
    and "diplomatic difficulties" exist with Paraguay.  Zhu
    said Costa Rica insisted on China's agreeing to begin FTA
    negotiations in return for switching recognition from
    Taiwan to the PRC.  At the time of the switch, Taiwan was
    already trying to negotiate an FTA with Costa Rica, Zhu
    noted.

    Other Criteria - Larger the better, but all welcome
    --------------------------------------------- ------

    ¶5. (SBU)  China prefers FTA partners that are large with
    economic and trade structures that complement China's, Zhu
    said.  China prefers to negotiate with smaller economies as
    a group (e.g., ASEAN). While some countries prefer Partial
    Trade Agreements (PTAs) they are not a good option for
    China since they have limited tariff line reductions and
    focus only on goods.  (Embassy Comment:  In practice,
    however, China has been flexible.  We are unaware of an
    example of China's refusing to negotiate an FTA with a
    country because its economy is too small.  End Comment.)

    East and Southeast Asia
    -----------------------

    ¶6. (SBU)  ASEAN - The FTA in Services will enter into force
    in July 2007.  China will open up new markets to ASEAN
    countries in 26 branches of 5 service areas which include
    construction, environmental protection, transportation,

    BEIJING 00005248  003.2 OF 006

    sports and commerce.  ASEAN agreed to open their markets to
    China in finance, telecommunication, education, tourism,
    construction and medical treatment, according to a MOFCOM
    press release.  The Trade in Services Agreement marks the
    second phase of China-ASEAN trade negotiations.  In 2004 a
    Trade in Goods Agreement was completed covering 7,000
    products which was implemented in 2005.  Full FTA
    implementation is expected by 2010 (Reftel B).

    ¶7. (SBU)  South Korea - MOFCOM Deputy Director Ms. Wang
    confirmed to Econoffs that China and South Korea have
    agreed  to "speed up" the research phase of FTA talks. Ms.
    Wang said that this decision was spurred by news of the
    conclusion of United States - South Korea FTA negotiations.
    Wang pointed out that China's FTA negotiations with South
    Korea are being handled by a DG, which indicates the
    importance MOFCOM attaches to this economic relationship.

    ¶8. (SBU)  Australia - Zhu characterized this FTA as the
    hardest to negotiate.  Big differences still exist
    regarding agriculture, textiles and electrical machinery.
    Both sides keep in touch but no new recent concessions have
    been made, Zhu commented.  The last round was held in May
    while they are supposed to have one round every two months.
    China is facing a great challenge from the Ministry of
    Agriculture which is trying to protect Chinese farmers (e.g.
    rice in the east and central regions, dairy, wheat, beef
    and mutton in the north.)  Australia's competitive
    advantage is in agriculture, he emphasized.

    ¶9. (SBU)  New Zealand - According to the New Zealand
    Embassy in Beijing, talks are ongoing but agricultural
    issues have been hard to resolve.  (Note: New Zealand is
    also seeking a comprehensive FTA which includes both goods
    and services. End note.)  New Zealand lacks the negotiating
    leverage of larger economies and will conclude a deal at
    some point, the Embassy contact said.

    Latin America
    -------------

    ¶10. (SBU)  Costa Rica and China will conduct a feasibility
    study this year.  Mexico has proposed a Preferred Trading
    Agreement (PTA) but China is only interested in an FTA.  No

    BEIJING 00005248  004.2 OF 006

    consensus between the two has been reached.  Paraguay still
    has diplomatic relations with Taiwan so there are
    "diplomatic difficulties", Zhu noted.  China and Peru have
    initiated a joint feasibility study.

    ¶11. (SBU)  The first round of services talks with Chile
    were held in January, 2007 and began only four months after
    the goods agreement was implemented.  It included
    discussion on banking, overseas labor, education,
    construction, tourism, water transportation, health,
    telecommunication, Chinese medicine and energy resources.
    Both parties also discussed current laws and regulations on
    investment.  MOFCOM Director Zhu noted that there have been
    many complaints from Chile regarding tropical fruits.  He
    did not elaborate.

    South Asia - Pakistan On, India Stalled?
    ----------------------------------------

    ¶12. (SBU)  Pakistan -  Discussions on Trade in Services and
    Investment is ongoing according to Zhu.  A Free Trade
    Agreement on Goods was signed in November, 2006.  All
    tariff reductions from the early harvest agreement remain
    in place.  The Phase I agreement, which remains in force
    for five years, eliminates customs duties on 35.5 percent
    of Chinese goods and 35.6 percent of Pakistani goods at the
    eight digit tariff code level over three years.  Both
    countries made no concessions on 15 percent of goods for
    Phase I.  Phase II of the agreement seeks to "eliminate the
    tariffs of no less than 90% of products, both in terms of
    tariff lines and trade volume within a reasonabl period of
    time on the basis of friendly cnsultation and
    accommodation of the concerns f both Parties."

    ¶13. (SBU)  India - MOFCOM idicated that a joint study is
    ongoing.  The Idian Embassy in Beijing indicated at one
    pointthat an FTA was highly unlikely due to the overlap in
    competitive industries in both countries.

    Gulf Cooperation Council (GCC) - Slow Going
    -------------------------------------------

    ¶14. (SBU)  Director Zhu said that four rounds have been
    completed but are proving difficult.  The main GCC

    BEIJING 00005248  005.2 OF 006

    interlocutor is the Director General from the GCC
    Secretariat which is usually a Saudi.  The Saudis, Zhu

    SIPDIS
    lamented, have many holidays and only work four hours per
    day.  Each round of negotiations is one to two days.

    Europe - Small Steps First
    --------------------------

    ¶15. (SBU)  By negotiating with smaller European countries
    such as Iceland, China hopes to gain experience and
    insights that will help with larger European economies, Zhu
    said.  The China-Iceland joint feasibility study has been
    completed, and FTA negotiations have formally begun with
    Norway, Switzerland and Iceland which seem to be competing
    with each other, he noted. Iceland is expected to finish
    negotiations by the end of 2007 according to the Norwegian
    Minister Counselor for Economic Affairs.

    ¶16. (SBU)  A China-Norway feasibility study is expected to
    be finished by the end of 2007, with the conclusion of FTA
    negotiations one year later.  The Norwegian Minister
    Counselor observed that China wants to start with a
    bilateral agreement.  He said China seems uncomfortable
    with the process and would rather take a step by step
    approach while Norway wants a comprehensive agreement.
    Norway's main interest is in fishery products with their
    main competition being Chile which, due to the China/Chile
    FTA, now has a 10 percent price advantage.  The volume of
    Norwegian fish products is not large at the moment and
    mainly consists of salmon exports to China.  Of the
    approximately USD 2 billion in total exports, 25 percent
    are fishery products.  Energy is not a main interest
    because Norway sells its oil and gas on the spot market and
    has no need for long-term contracts, he added.  Services
    interests include shipping, insurance and telecom.  China's
    main interests are access to the Norwegian market for
    agricultural products, building China's trade reputation,
    and financial access, the Norwegian Minister Counselor said.

    Africa - SACU, Egypt, Nigeria
    -----------------------------

    ¶17. (SBU)  Zhu said China had proposed an FTA with the
    Southern African Customs Union (SACU -- South Africa,

    BEIJING 00005248  006.2 OF 006

    Botswana, Lesotho, Namibia and Swaziland), but SACU has not
    replied yet and seems hesitant.  Zhu noted that Swaziland
    is still "under the hand" of Taiwan.  At one time, Egypt
    had proposed FTA tlks, but then backed down when domestic
    businsses expressed reservations.  Nigeria prefers a TA,
    Zhu added.

    Comment
    -------

    ¶18. (SBU)  In practice, China seems willing to consider FTA
    negotiations with any country that recognizes its WTO
    status as a Market Economy and does not recognize Taiwan.
    On that basis, it has made progress over the past year in
    enlisting FTA partners among the world's small and medium-
    sized economies.  To expand the FTAs to encompass larger
    economies like Australia and South Korea it will have to
    revamp staffing at MOFCOM and confront concerted opposition
    from domestic economic interests. End Comment.

    RANDT

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