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China WTO Talks Resume as U.S., EU Clash on Insurers By Blair Pethel and Marc Wolfensberger
Aug 7, 2001

Geneva, July 17 (Bloomberg) -- China entered the last stretch of a 15-year bid to join the World Trade Organization, with latest talks marked by a dispute between the U.S. and Europe over insurers' access to the market of 1.3 billion consumers.

The European Union opposes a Sino-U.S. agreement it says would favor American International Group of the U.S., the world's second-largest financial-services company and the only foreign insurer allowed to have 100 percent-owned subsidiaries in China.

That issue, and talks over how high China will set import quotas and prices, are among the last matters China must resolve with WTO members to reach an accord that will give foreign businesses a bigger share of the market in everything from telecommunications to motion pictures.

``There are still problems that need to be resolved,'' said Cherise Valles, an attorney with the Geneva-based law firm Sonnenschein Nath & Rosenthal. ``The EU-U.S. divergence over foreign insurance companies willing to operate in China remains a big issue.''

Fastest-Growing Market

At stake for New York-based AIG is the chance to keep its edge in the largest potential market in Asia, a region where sales are already surging.

AIG's Asia revenue has expanded more than 20 percent a year for the last two years compared with growth in North America of 13 percent. The company made almost a third of its $46 billion in sales last year in Asia.

Under the terms of an accord the U.S. and Chinese governments signed in November 1999, AIG would be able to open new branches in China without having a Chinese partner.

Under the EU's own agreement with China, European insurers such as Germany's Allianz AG, France's AXA and Britain's Royal & Sun Alliance, can only operate in China through ventures that are at least half-owned by local companies.

The disagreement wasn't resolved today, according to EU trade officials who took part in the closed-door talks.

The WTO is hoping to endorse China's membership at a November meeting in Qatar. For that to happen, all 141 WTO members will have to sign off on a final agreement by September.

Mexican Hurdle

China's failure to reach a trade accord with Mexico may also complicate its WTO bid. Mexico, concerned that low-cost Chinese imports may threaten its own manufacturers, wants to keep import duties on about 1,400 Chinese products for a decade or more, while China is pushing for their abolition after five years.

While Mexico has said it won't stand in the way of China's membership even if the two don't resolve their dispute, Mexican officials may take a tougher line if China doesn't give more ground. Mexican negotiators are planning a trip to Beijing at the end of July to try to resolve the dispute.

The current round of Chinese accession talks in Geneva will last until the end of the week.

Assistant U.S. Trade Representative Jeffrey Bader told reporters last week he hopes to be able to reach agreement with China on most, if not all, outstanding issues during the talks.

Bader will first need to find a way to compromise with the 15-nation EU over AIG's operating rights.

Grandfather Clause

The 1999 U.S.-China accord ``grandfathered'' AIG's China operations, a clause the U.S. claims applies only to the insurer because the Chinese agreed to it.

The EU says WTO rules say the most favorable market-access deal negotiated by any government seeking to join the trade body must apply to all member countries.

``It's got to be grandfathering for everybody,'' said Matthew King, the EU's counselor for financial services in Washington.

U.S. Trade Representative Robert Zoellick said the issue is ``complicated,'' adding he was ``hopeful and confident'' it will be settled.

AIG -- founded in 1919 in Shanghai -- is one of three U.S. companies licensed to sell insurance in China and was the first to be granted a life insurance license, in 1992, after years of lobbying by the company's president, Maurice Greenberg.

Greenberg has ties to Chinese Premier Zhu Rongji, having been appointed in 1990 by Zhu -- then mayor of Shanghai -- as the first chairman of a foreign business advisory group to the mayor.

The other two U.S. licensees in China, Chubb Corp. and Aetna Inc., don't offer life insurance.

After being kicked out of China in the 1950s by Mao Tse- Tung's government, AIG restarted operations there in 1992 and was permitted to operate wholly owned life insurance subsidiaries and open branches without getting a separate license for each office.

Government Issue

AIG spokesman Joseph Norton declined to comment, saying it is a ``government-to-government issue.'' Greenberg didn't return calls seeking comment.

John Savercool, vice president for government affairs at the American Insurance Association, an industry group representing almost 400 U.S. companies, acknowledged that WTO rules say ``all countries should benefit from the most liberalizing provisions.''

``What's less clear is how a provision relating to one specific company would apply,'' he said.

U.S. embassy trade officials in Beijing and Asia-based bankers consider China's entry into the WTO early next year to be a virtual certainty a compromise between the U.S., EU and China on agricultural subsidies last month.

``When the farm subsidies issue was resolved in June, one could consider both China and Taiwan to be WTO members, full stop,'' said Andy Rothman, China Strategist at CLSA Emerging Markets in Beijing and a former economics officer at the U.S. embassy. ``There are no deal-breaking issues out there.''

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