Asia Times: China caught in WTO insurance crossfire


	July 5, 2001	atimes.com

China

China caught in WTO insurance crossfire
By D Ravi Kanth

GENEVA - Members of the World Trade Organization are close to an agreement over China's multilateral commitments for the country' admission to the World Trade Organization (WTO), but differences over insurance between the United States and the European Union involving the New York-based AIG (American International Group) remain unresolved, trade diplomats say.

As the crucial China Working Party meeting came to a close late on Wednesday afternoon, WTO members worked feverishly in small groups to resolve differences in agriculture, transitional review mechanisms, tariff rate quotas and non-tariff measures - areas that would require China to adopt extra commitments in comparison to other members.

Long Yongtu, China's chief trade negotiator, commented that "of the major areas of substantive negotiations, we have almost reached consensus on all major areas except two or three issues that remained in brackets [lack of agreement]".

The chairman of the China Working Party, Pierre-Louis Girard, told Asia Times Online that efforts are under way to hammer out an agreement on all difficult areas, adding that small groups, which are called plurilateral meetings in trade jargon, might produce results by the evening.

If all goes well to formalize the outcome of the latest talks, the parties will meet again in mid-July and then again in mid-September when officials say an overall agreement could be completed. If this timeframe is met, the package will then be approved by trade ministers from all present 141 WTO states when they meet in Doha, Qatar, from November 9-13. After that, the Chinese parliament has to ratify the pact and Beijing has to formally notify the WTO that this has been done. Thirty days after such notification, it would automatically become a member, ending a 15-year struggle for admission.

ThIs is assuming there are no last-minute hitches, of course. Still to be resolved is a spat over insurance. The United States and the European Union are deadlocked over China's services commitments, particularly in regard to entry and majority equity norms for existing foreign insurers in China wanting to set up new local branches, trade diplomats say.

The differences have arisen because of attempts by AIG to secure the most beneficial treatment for its future insurance business in China. Pushed by AIG, US negotiators are asking China to agree to allow firms already established there to open branch offices around the country without seeking new permission. EU officials say this will give AIG, already in China, an unfair advantage over European firms which might come in later, and that either the US request should be dropped or Beijing should agree to give similar terms to all foreign companies.

AIG was the first foreign insurer China allowed to set up business, in September 1992, and currently it has four branches, in Shanghai, Guangzhou, Foshan and Shenzhen, offering life and other general insurance. It also has a representative office in Beijing. The American international insurance behemoth wants to ensure that its existing 100 percent ownership in China ventures be extended to any new branches it wishes to set up in future, called "grandfathering" of concessions.

A US senior official, who preferred anonymity, concedes AIG would be the main beneficiary from the proposed language wanted by the US, but argued this had already been agreed to in its bilateral agreement with China in November 1999.

In the bilateral agreements with the US and the EU, China has promised that within two years of joining the WTO it will allow foreign insurers to set up new branches with an equity ceiling of 100 percent for non-life and 50 percent for life insurance.

The US wants a special exception to this rule in the services text so that AIG can expand all its future activities in China on the basis of its existing 100 percent equity cap, both in life and non-life insurance activities, but the EU says this would be tantamount to discrimination and a lack of equal treatment for foreign insurers, trade diplomats said.

Last Friday, the US, the EU and China submitted a joint text to the WTO that spells out Beijing's multilateral commitments that would apply foreign services providers, but it contained bracketed language for the existing foreign insurers in China in regard to the opening of new branches and sub-branches. Bracketed language in trade jargon implies lack of agreement among the parties.

The US wants to include language to China's multilateral commitments saying a branch or sub-branch should be treated as an extension of the parent enterprise and not a separate legal entity, and accordingly China will allow internal branching on the same basis. This would enable AIG to maintain 100 percent ownership in its future branches without having to set up join ventures with Chinese partners.

A EU trade diplomat said the US's insistence on new language is "unclear and confusing". The EU wants that if such a condition is introduced, it must apply to all firms and consequently a footnote must be included to ensure equal treatment to other foreign services suppliers. The EU argues the services text "says that those already in China should have their rights grandfathered", the official said.

The EU's chief trade negotiator, Karl Falkenberg, vehemently says he would be prepared to accept the language if it is ensured that all WTO members gain from such special treatment. Japan also says it would support the EU on the insurance issue as its own companies, such as Tokyo Marine, Mitsui Marine and Nippon Life, would lose out if they are not provided the same treatment as conceived for AIG.

Some Asian developing countries have expressed concern that China is being asked to accept exceptional commitments in agriculture that might impact adversely on future trade negotiations. India, Malaysia and South Korea are concerned over a concession made by China to the United States in which it agreed to set a ceiling for production subsidies to its farmers at 8.5 percent of output value. Developing countries are normally allowed up to 10 percent.

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