China WTO Admission Approved After Diplomatic Compromise

September 17, 2001

Weary negotiators in Geneva finally put their signatures on a Treaty of more than 1000 pages setting forth the terms and conditions for China’s admission to the World Trade Organization after 15 years. The agreement is expected to be formalized today, and to receive the final approval of all WTO members at their next scheduled session in Qatar in November.

While no one’s quite sure what the future holds in store after China becomes a member, the general consensus of opinion is that it’s better to have the world’s most populous nation inside the WTO, rather than outside. It increases opportunities for world business, especially the insurance industry, which will have have new access to Chinese markets. It could also hasten reforms in China and loosen the Communist Party’s grip on power. While many analysts welcome such changes, others have warned that adhering to WTO rules could cause severe disruptions in the Chinese economy, leading eventually to chaos.

The American Council of Life insurers issued a statement congratulating U.S. Trade Representative negotiators for “positively resolving the outstanding insurance and reinsurance issues that had been among the final obstacles to China’s joining the World trade Organization.”

Brad Smith, the ACLI’s managing Director for international Relations hailed the accord as a “win-win-win outcome for U.S. insurers,” which would give Chinese consumers a wider array of “financial protection and retirement products at competitive prices.” He also noted that the agreement “assured ACLI’s member companies that their current and future rights in China are protected.”

Approval of the entire Treaty has in fact been delayed over what those “future rights” are. The European Union has been locked in a dispute with the U.S. and American international Group over what the EU sees as AIG’s “privileged position” in the Chinese life market. (See IJ Website Sept. 5 & 7). It’s the only foreign insurer with 100 percent ownership over its subsidiaries, while the Treaty limits participation to 50 percent foreign ownership.

While both sides claimed victory, it appears that “compromise” would be a better description. As far as anyone can tell the problem wasn’t in effect solved. China has promised the EU that it will abide by the Treaty, while at the same time its given assurances to U.S. negotiators and AIG, that it will “honor its current agreements with them.”

Even in the midst of the turmoil in New York, AIG’s CEO Maurice “Hank” Greenberg was quick to spell out his company’s position. While he praised the negotiators efforts his written statement said, “We are pleased that the United States government has received a binding commitment from China that the existing rights of AIG’s life insurance branch operations in China have been preserved, and that we will be able to expand throughout China off of those existing branches, consistent with our current 100 percent ownership structure, as geographic restrictions are lifted in the future.” [AIG currently operates only in Shanghai]

That certainly doesn’t sound like a climbdown, and while the EU plainly expects China to either enforce the 50 percent limits, or to give EU companies the same rights as AIG, the situation has apparently been left in limbo in order to reach agreement on China’s admission. It can only cause problems in the future.

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