China-EU WTO Deal Significant

The Sino-EU trade deal eked out some significant gains for European business without producing any dramatic suprises, but most importantly it has put China on the threshold of the WTO.

European and other foreign businesses will be allowed faster and wider access to the vast Chinese market under the deal signed between China and the European Union last Friday.

The trade pact expanded on the Sino-US deal reached in November and finetuned areas the earlier agreement did not cover.

Specifically, EU officials negotiated speedier access to the mobile telecommunications and insurance sectors; greater flexibility for auto manufacturers; and substantial tariff cuts on a wider variety of goods.

"It's a significant improvement, even though it's not a breakthrough," said Morgan Stanley's China economist Andy Xie.

"The Europeans got the best it could." he added.

Levels of tariff cuts were similar to that won by US negotiators, but the range of products was extended to cover 150 European items such as British gin and Italian leather not included in the American deal.

Tariffs on those products will come down from as much as 70 percent to as low as eight percent.

Jeanne-Marie Gescher, chair of the British Chamber of Commerce in Beijing, said EU negotiators cleverly brokered concessions which would help Europeans maintain their advantage in areas where they are strongest.

In the automobile sector, for instance, the EU got China to agree to lift all restrictions on the type of vehicles they can produce in two years and raise the thresholds for approval of licenses at the provincial level from 30 million dollars to 150 million dollars.

That greatly helps Volkswagon, Citroen and other European automakers -- which already control about two-thirds of China's personal automobile market -- stay one step ahead of new competitors who might rush into the market once China joins WTO, Gescher said.

Even in the mobile telephone market, where the EU failed to win foreign majority ownership for joint ventures, foreign companies will greatly benefit from China's agreement to open the market two years ahead of schedule, Gescher said.

Foreign operators will be permitted a 25 percent share upon China's accession to the WTO, rising to 49 percent three years after accession, rather than five years in the US agreement.

"It was very unlikely for Europe to secure any real improvement on telecoms than the US deal. The Chinese view had been they had already given the best they could to the Americans," Gescher said.

Ron Spithill, Asia Pacific president of French telecom company Alcatel, said the overall agreement represents a tremendous opening of the market.

"Many countries go through stages of steps in opening their telecom sector and this agreement represents a huge step for China," Spithill said.

In insurance, EU negotiators seized seven new licences for European insurance companies in life and non-life sectors, a big gain in a market now dominated by American companies.

The insurance business also will be opened to foreign companies two years sooner than foreseen in the Sino-US agreement and companies will enjoy effective management control in life insurance joint ventures, through choice of partner and legal guarantee of freedom from regulatory interference.

EU negotiators, however, were not able to get majority ownership.

The banking sector is the part in the EU deal which does not seem particularly strong, Gescher said.

European banks, currently restricted to foreign currency business, had hoped for rights to operate in local currency as well.

The EU deal allows foreign banks to conduct business in local currency in the southern Chinese city of Zhuhai in Guangdong province, where several EU banks are located, but Gescher said banks had wanted more locations.

However, the European deal secured improvements in several other areas. It obtained rights for non-financial institutions to give credit facilities for the purchase of all motor vehicles, including trucks and tractors, not just cars.

China still has to seal bilateral pacts with five small trading partners and finish technical accession procedures at the WTO in Geneva, but the EU predicted it could join the trading body by the end of the year.





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