What's New in the EU: EU requests WTO consultations on China

The EU states that China has prevented foreign suppliers of financial information services from providing their services directly to their clients.

By ARI SYRQUIN
eu flag biz 88 (photo credit: )
eu flag biz 88
(photo credit: )
The European Union this week has formally requested consultations at the World Trade Organization over measures that affect the operation of foreign financial information suppliers in China. The EU states that China has prevented foreign suppliers of financial information services from providing their services directly to their clients. They are now required to operate through an agent that is a branch of Xinhua itself. Moreover, Xinhua has recently launched a financial information service in direct competition with foreign suppliers. The European Commission reportedly had tried to solve the issue through cooperation and dialogue, but without success. The United States has also requested consultations at the WTO over this issue. Ensuring full and timely implementation of WTO commitments is one of the EC's key priorities in its bilateral trade and economic relationship with China. The main issues identified so far by the EU include inadequate enforcement of intellectual property rights, the definition of multifaceted industrial policies that may discriminate against foreign companies (e.g. in the automobile sector) and barriers to market access in a number of service sectors (e.g. construction, banking, telecommunications and express postal services). Access to raw materials has recently been identified as a major trade issue as well. The relevant Chinese measures appear to breach China's GATS commitments on national treatment and market access, which require that foreign companies can operate in China and are not treated less favorably than local ones. It is also contrary to obligations not to cut back on existing rights for companies and to provide regulatory independence, which China committed to ensure at the time of its WTO accession in 2001. The rules in place in China supposedly pose a serious obstacle to the business of EU financial information suppliers, which in turn impedes the smooth functioning and transparency of China's financial markets. The EC has maintained in its dialogue with the Chinese authorities that such a development would be contrary to China's own stated goal of stable markets and a modern and competitive financial services sector, in which Chinese providers will also be able to grow and prosper. EC Commissioner for External Trade Peter Mandelson met with Xinhua President Tian Congming twice last year, in June and again in November, to discuss the issue. He has also raised the EU's concerns with Vice Premier Wu Yi and with outgoing Minister of Commerce Bo Xilai. In 2006, China remained the EU's second-largest trading partner and displaced the US as the largest source of EU imports. According to Chinese statistics, the EU continued in its role as China's first trading partner (ahead of both the US and Japan). Chinese imports to the EU totaled approximately €191 billion during that period, representing a year-on-year increase of almost 21 percent. Likewise, EU exports to China increased by 22.5% to approximately €63b., accounting for overall bilateral trade of upwards of €254b. Whereas the EU enjoyed a trade surplus with China at the beginning of the 1980s, trade relations are now characterized by a sizable and widening EU deficit with China (approximately €128b. in 2006). This represents the EU's largest bilateral trade deficit. In 2005, China was the second largest beneficiary of 178 countries of the EU's Generalized System of Preferences (GSP) scheme, under which the EU grants autonomous trade preferences to imports from developing countries. It has a share of more than 10.3% of all effective preferential imports under the GSP. The bilateral EU-China agreement on WTO accession signed in Beijing in May 2000, together with the US-China agreement signed in November 1999, were essential milestones in China's accession process. The commitments made by China in the context of accession to the WTO secured improved access for EU firms to China's market. Import tariffs and other nontariff barriers were sharply and permanently reduced. As such, current EU investment in China takes place in a more attractive and predictable business environment. WTO membership also accelerated China's own efforts to promote transparency, fairness and openness more generally throughout its trade regime. WTO accession also opened access for foreign companies to key service sectors, such as insurance and telecommunications, which to that point had been closely monitored and restricted, if not completely prohibited. As for China, WTO membership supported and accelerated domestic processes of economic reform and development. Finally, the European Commission has declared that practical experience of applying and enforcing WTO rules makes a positive contribution to strengthening the rule of law in China in areas above and beyond the specific field of trade and investment. syrquin@013.net Ari Syrquin is the head of the International Department at Joseph Shem-Tov Law Firm.