US embassy cable - 05BEIJING10421

C O N F I D E N T I A L  BEIJING 010421 
 
 
PASS USTR FOR SHINER/FREEMAN 
 
E.O. 12958: DECL: 06/27/2015 
TAGS: ECON, ETRD, PREL, KIPR, CH 
SUBJECT: USTR/DOC DELEGATION MEETING WITH VFM YANG JIECHI 
 
Classified By: Economic Minister Counselor Robert Wang.  Reasons 1.4 (b 
/d). 
 
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Summary 
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1. (C) During a June 23 meeting with Vice Foreign Minister 
Yang Jiechi, Deputy USTR Josette Shiner and Acting 
Undersecretary of Commerce Tim Hauser stressed U.S. desire to 
address the trade deficit and intellectual property rights 
(IPR) though cooperation.  They emphasized that the United 
States must now demonstrate considerable progress with 
respect to IPR and the ability to increase U.S. exports to 
China in order to ensure a successful Joint Commission on 
Commerce and Trade (JCCT) meeting, and indeed holding a JCCT 
that did not demonstrate such results would be difficult to 
justify.  Yang said China is committed to buy American 
products in order to help lower the U.S. trade deficit. 
China is also committed to IPR enforcement but needs time. 
DUSTR Shiner said the JCCT talks will primarily focus on 
trade and IPR, with the intention of getting a good "package" 
that can persuade a skeptical U.S. Congress that the 
U.S.-China trade relationship is manageable.  DUSTR Shiner 
suggested the PRC Embassy in Washington should have an IPR 
representative to help small- and medium-sized enterprises 
address their concerns.  End summary. 
 
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Cooperation Is the Best Overall Strategy 
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2. (C) Deputy USTR Josette Shiner and Acting Undersecretary 
of Commerce Tim Hauser, accompanied by Charge, met June 23 
with Vice Foreign Minister Yang Jiechi.  DUSTR Shiner said 
the preliminary meetings leading up to the next Joint 
Commission on Commerce and Trade (JCCT) are coming at a 
crucial time for the United States.  The United States is 
convinced that maintaining our commitment to a strategy of 
cooperation rather than confrontation with China is the best 
approach to resolve disagreements on trade.  DUSTR Shiner 
told VFM Yang that the United States has decided that the 
best way to deal with the bilateral trade deficit is to 
increase U.S. exports to China rather than apply sanctions. 
She noted the Administration's rejection of a number of 301 
trade petitions to illustrate this point.  The United States 
has also improved the visa regime, increasing the number of 
issuances and now granting multiple entry visas.  DUSTR 
Shiner also cited progress in the area of export controls and 
end-user inspections as well. 
 
3. (C) DUSTR Shiner stressed that the United States must now 
demonstrate considerable progress with respect to 
intellectual property rights (IPR) and the ability to 
increase U.S. exports to China because there is strong 
Congressional pressure to take action against Beijing.  If 
this round of talks cannot produce a good "package," she 
warned that it would be better to postpone the JCCT rather 
than have it proceed without prospects for credible results. 
U/S Hauser added that a successful JCCT should be able to 
yield eight substantial points in IPR and ten on market 
access to demonstrate the kind of progress that Congress 
seeks. 
 
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China Committed to Buy American, Lower Trade Deficit 
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4. (C) Yang commended the United States for its desire to 
work cooperatively with China.  He said the relationship 
between the United States and China is extremely important 
and will continue to improve because such progress is in both 
sides' best interests.  He thanked the United States for 
rejecting the 301 petitions and for facilitating visa 
issuances, both of which help further mutual economic 
exchange. 
 
5. (C) Yang said China has a considerable trade surplus with 
the United States now and emphasized that China will make a 
concerted effort to buy as much from the United States as it 
can to help minimize that surplus.  Noting China's purchases 
of Boeing aircraft as well as soybeans, Yang said China has a 
market economy, so market demand would determine the kinds of 
goods that China buys.  If the United States would lift its 
restrictions on hi-tech products to China, this could 
certainly help expand the range of potential U.S. imports to 
China and help lower the U.S. trade deficit, he argued. 
 
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China Committed to IPR Enforcement, But Needs Time 
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6. (C) Yang said Beijing is committed to addressing IPR 
violations in China.  Yang noted that China already has 
extensive laws in place but also acknowledged that 
enforcement is still lacking.  China is trying to do its 
best, he said, hoping the United States would appreciate PRC 
efforts.  IPR enforcement is an ongoing process that requires 
time and a sustained commitment, Yang insisted.  Adding that 
it is in China's interests to tap into its people's 
creativity and create incentives to produce, Yang cited a 
recent People's Daily article that scathingly attacked 
counterfeiting and urged people not to violate IPR, noting 
the U.S. side should pay special attention to this piece. 
 
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JCCT Talks Will Focus on Trade and IPR 
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7. (C) DUSTR Shiner said that there is a national affinity 
between the United States and China, with Chinese exchange 
students winning honors in U.S. history studies, Chinese 
companies such as Lenovo and Haier purchasing U.S. 
enterprises such as IBM's PC division and Maytag and general 
U.S. appreciation for Chinese goods.  However, she stressed 
that this is not enough to overcome growing concerns about 
the trade deficit.  DUSTR Shiner emphasized the importance of 
showing that the trade deficit is not the result of hostile 
actions directed against U.S. companies. 
 
8. (C) DUSTR Shiner said recent PRC actions appear to limit 
U.S. imports in areas where the United States should have an 
advantage, such as software, films, and auto parts.  The 
United States also has concerns about U.S. companies' 
distribution rights and direct sales, insisting that U.S. 
products should be able to move easily onto store shelves. 
IPR continues to be a pressing concern, stated DUSTR Shiner, 
even though China has demonstrated its increasing commitment 
and changing attitudes.  She told Yang that the U.S. 
challenge is to find demonstrable cases where China has 
reslved IPR problems. 
 
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Suggests China Embassy Shoul Have IPR Rep 
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9. (C) Shiner said small- and meium-sized enterprises (SMEs) 
have registered their rights in China but lack resources to 
have a permanent office in China and follow through on 
protecting those rights.  She said China could signal its 
commitment to IPR by placing an IPR representative in its 
Embassy in Washington, giving SMEs a person to help them 
address their concerns.  Such a representative could also 
meet with congressional and business leaders to alleviate 
their concerns about IPR in China.  The U.S. Embassy in 
Beijing now has its own IPR attache, she commented.  Shiner 
acknowledged that China has done much in setting up the 
necessary legal framework for IPR enforcement.  What the 
United States needs now is hard data showing an increase in 
the number of convictions and prosecutions that can help 
persuade skeptics that China is seriously committed to IPR 
enforcement. 
 
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China Sees Trade As Complementary 
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10. (C) Yang said the current U.S.-China trade relationship 
is complementary rather than competitive, with 50 percent of 
China's exports coming from foreign joint ventures set up in 
China.  China's overall trade situation reveals huge trade 
deficits with East Asian countries.  He once again expressed 
China's great willingness to buy as much as possible from the 
United States and hoped that the United States would do its 
part to lessen its restrictions on hi-tech products to China. 
 He acknowledged that many blame China for U.S. unemployment, 
but suggested that China should not be a scapegoat for 
natural trends in technology.  China has lost tens of 
millions of factory jobs and is doing its best to absorb 
these laid-off workers into the economy. 
 
11. (C) Yang noted that the MFA is using U.S. software and he 
believed the United States will continue to find a market in 
areas where it has an advantage.  He said China is sending 
more people to jail now for IPR violations and claimed that 
China's increased enforcement is felt on the street.  He 
agreed that an IPR representative at China's embassy in 
Washington deserved serious consideration and noted that he 
had discussions with MOFCOM on this subject.  He hoped in the 
end that the U.S.-China talks did not leave the impression of 
a pending trade war, and he urged the United States to 
declare China a market economy. 
 
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Participants 
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12. (U) Participants: 
 
USG 
 
Josette Shiner, Deputy USTR and Ambassador 
Tim Hauser, Acting Undersecretary of Commerce 
David Sedney, Charge d'Affairs 
Charles Freeman, Assistant USTR for China 
Robert Wang, Minister-Counselor for Economic Affairs 
Craig Allen, Minister Counselor for Commercial Affairs 
Henry Levine, Deputy Assistant Secretary of Commerce 
Christopher Moore, Special Assistant to DUSTR Shiner 
Bruce Blakeman, Special Advisor to the Secretary of Commerce 
Lois Boland, Director, Office of International Relations, 
U.S. Patent and Trademark Office 
Amy Celico, Acting Director, Trade Facilitation Office 
Jim Loi, Senior Trade Policy Officer 
Notetaker 
 
China 
 
Yang Jiechi, Vice Minister, Ministry of Foreign Affairs 
Xie Feng, Deputy Director General, MFA Department of North 
America and Oceania Affairs 
Ouyang Yongfu, Deputy Director, MFA Division of North America 
and Oceania Affairs 
You Weijun, First Secretary, MFA Division of North America 
and Oceania Affairs 
Shi Yuanqiang, MFA Division of North America and Oceania 
Affairs 
 
13. (U) AUSTR Freeman and Acting U/S Hauser cleared this 
cable. 
 
 
SEDNEY