Attacking China on Services

Geneva - Industrialized countries - led by the United States, the European Union, Canada and Japan - yesterday attacked China in the World Trade Organization for not complying with its accession commitments in the areas of financial services (WTD, 11/20/06).

The members alleged that Beijing is not providing national treatment to foreign financial service providers and is setting lower standards for its own companies, trade diplomats said. China insists on higher capital-adequacy requirements for foreign providers in banking and insurance while treating its companies with kid gloves, WTD was told.

During the fifth yearly transitional review meeting, the four also questioned whether China was fully complying with its accession commitments in insurance, banking, news agencies and securities.

China was required to sufficiently overhaul its entry provisions for foreign providers in insurance and banking within five years of its joining the WTO. China stoutly maintained that it is implementing all the provisions as were stipulated in its accession protocol.

Key members with strong insurance sectors - such as the United States, the EU, Japan and Switzerland - also argued that China does not allow foreign providers to expand branches in non-life insurance.

But the Chinese trade official defended his nation, saying subsidiaries and joint ventures are allowed to expand in China - even though branches of foreign companies are not. China also quashed criticism that foreign companies face delays in gaining approvals to convert branches into subsidiaries, saying the issue is not one to be raised during a transitional review mechanism meeting. On reinsurance, the official said he could not comment on the commercial decisions of companies such as the China Reinsurance Company regarding capital injection practices.

China also was at loggerheads with members on thresholds imposed on insurers to invest their foreign exchange funds in overseas funds or equities. While foreign insurers view the thresholds as unduly high, China pointed out that they are the same for both domestic and foreign companies. The underlying rationale is to prevent excessive risk in overseas investments.

In banking, the United States, the EU and Canada raised concerns over Chinas stiff requirements imposed on foreign-funded banks to conduct local-currency business. The requirements, China maintained, are based on prudential considerations.