VZCZCXRO1439
RR RUEHCHI RUEHCN RUEHDT RUEHGH RUEHHM RUEHVC
DE RUEHHK #2211/01 3440052
ZNY CCCCC ZZH
R 090052Z DEC 08
FM AMCONSUL HONG KONG
TO RUEHC/SECSTATE WASHDC 6408
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUEHOO/CHINA POSTS COLLECTIVE
RUEHNE/AMEMBASSY NEW DELHI 1374
RUEHKO/AMEMBASSY TOKYO 5045
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHC/DEPT OF AGRICULTURE WASHDC C O N F I D E N T I A L SECTION 01 OF 02 HONG KONG 002211 
 
SIPDIS 
 
STATE FOR EAP/CM, STATE PASS CPSC RICHARD O'BRIEN 
 
E.O. 12958: DECL: 12/05/2018 
TAGS:          
SUBJECT: U.S. PRODUCT SAFETY COMPLIANCE: BEARABLE FOR THE 
BIG, SQUEEZING THE SMALL 
 
REF: HONG KONG 1989 
 
Classified By: Consul General Joseph Donovan for reasons 1.4 (b) and (d 
) 
 
 1. (C) Summary: In discussions with a Congressional Staff 
Delegation to Hong Kong, Wal-Mart executives promised timely 
compliance with all regulatory requirements under the U.S. 
Consumer Product Safety Improvement Act (CPSIA) of 2008. 
They assured the Staffdel that all food products on the 
company's shelves are free from melamine.  Smaller U.S. and 
Hong Kong-based companies, however, are less sanguine about 
their ability to fully comply with all CPSIA regulations. 
While those firms support the education and outreach efforts 
by the U.S. Consumer Products Safety Commission (CPSC), they 
said a CPSC official should be posted in Hong Kong full-time 
to assist CPSIA compliance efforts of firms operating in the 
Pearl River Delta (PRD) region.  End summary. 
 
 2. (C) Comment: Our recent conversations with manufacturers, 
retailers and importers indicate a strong correlation between 
a company's size and the intensity of its complaints about 
the CPSIA's requirements.  Smaller companies - especially 
those with no operations in the United States - face greater 
compliance difficulties and have been the most vocal critics 
of the CPSC's regulatory requirements.  Their product safety 
procedures and regulatory compliance personnel are less 
sophisticated than those of larger firms, and their costs 
related to implementation of the CPSC's new regulations are 
spread over a smaller revenue base.  Enactment of the CPSIA 
has therefore inadvertently provided the largest firms 
operating in Southeast China (e.g. Wal-Mart) with a 
competitive advantage.  This will continue to be a 
contributing factor in the manufacturing consolidation 
process underway in the PRD (reftel).  End comment. 
 
Wal-Mart Confident About Its Food and Consumer Products 
--------------------------------------------- ---------- 
 
 3. (C) During a December 4 meeting with U.S. House of 
Representatives Committee on Energy and Commerce senior 
investigators David Nelson and Krista Rosenthall, Wal-Mart 
procurement officials described the company's efforts in 
China to ensure food safety and compliance with the U.S. 
Consumer Product Safety Improvement Act (CPSIA) of 2008. 
Wal-Mart's Chief Operating Officer in Asia, Edwin Keh 
(protect), said the company "focused intensely" on the 
potential hazards of melamine in Chinese-produced food 
products, immediately after becoming aware of the issue in 
September 2008.  He said, "We now test each shipment of food 
and food products with a dairy component that is on its way 
to America from China.  We've also tested all the potentially 
affected products on our shelves that were shipped before the 
story broke."  Keh expressed confidence that Wal-Mart's 
stores in the U.S. and China now contain no food products 
with melamine. (Note: Wal-Mart currently owns 107 stores in 
mainland China, including three Sam's Clubs outlets.  In 
addition, the company owns approximately 35 percent of a 
Taiwan-based superstore retailer (Trust-Mart) that operates 
over 100 outlets in China.  Market analysts expect Wal-Mart 
to assume majority ownership of Trust-Mart by 2010 year-end. 
End note.) 
 
 4. (C) Wal-Mart's Shenzhen-based Vice President of Quality 
Assurance, Tony Judge (protect), told the StaffDel that 
Wal-Mart intends to ensure timely compliance with all 
regulations under the new CPSIA.  He said Wal-Mart uses 
third-party laboratories for all its product safety testing, 
coupled with a large-scale physical inspection process that 
uses third-party examiners.  Judge said his company will 
order more than 100 thousand individual inspections in 2008 
of manufacturing operations owned by its mainland China-based 
suppliers.  He said, "Our testing and inspection costs have 
risen dramatically this year.  These are real and are truly 
resulting in price increases to all large retailers in 
America."  Judge confirmed that Wal-Mart expects to achieve 
full compliance with all CPSIA regulations thus far 
promulgated by the U.S. Consumer Products Safety Commission 
(CPSC).  He said, "We began gearing up for the CPSIA months 
before it was passed by Congress." 
 
Other Companies Nervous About CPSIA Requirements 
--------------------------------------------- --- 
 
 
HONG KONG 00002211  002 OF 002 
 
 
 5. (C) In contrast to Wal-Mart's confidence regarding the 
company's full compliance with the CPSIA, other manufacturers 
and importers voiced strong concerns about the law.  At an 
AmCham-arranged gathering of 45 procurement professionals 
from U.S. and Hong Kong-based firms, corporate 
representatives told the StaffDel of their respective product 
safety compliance difficulties.  Many said the CPSIA 
regulations lack sufficient clarity, and they requested 
further education and outreach efforts by the CPSC.  A white 
paper produced for the StaffDel by the local AmCham 
recommended that the CPSC "permanently post in Hong Kong 
and/or China an officer solely or primarily responsible for 
product safety issues." 
 
 6. (SBU) A senior Hong Kong-based executive from a publicly 
traded U.S. importer of apparel and footwear told the 
StaffDel that his firm would "have difficulty" meeting the 
currently published compliance deadlines under the law.  A 
senior procurement manager from a publicly traded U.S. 
retailer of sporting goods said the new law does not allow 
composite testing of finished products; it instead requires 
testing of individual product components.  He cited the 
testing requirements for children's golf clubs as an example. 
 He said the CPSC's regulations under the CPSIA require his 
firm to order 32 separate tests on the components of the 
clubs, resulting in a significantly increased cost basis for 
the final product purchased by consumers in the United 
States.  He said, "Companies here are just now realizing what 
a bear the CPSIA is." 
 
 7. (SBU) Hong Kong-based toy manufacturers also expressed 
their concerns about the CPSIA.  In a December 3 meeting with 
the StaffDel, the Chairman of the Hong Kong Toys Council, 
Lawrence Chan, said U.S. importers and retailers are forcing 
manufacturers in China to absorb much of the increased 
product testing costs.  Reiterating earlier comments to us 
about the negative effects of product testing costs on 
manufacturers' profit margins, Chan said, "This is all we 
needed on top of the economic downturn." 
 
 8. (U) Staffdel Nelson did not have the opportunity to clear 
this cable. 
DONOVAN