Report Compromise in EU, AIG Dispute Over China Branches

December 7, 2001

Of the hundreds of compromises and agreements reached before China was formally admitted to the World Trade Organization last month, one dispute stubbornly refused to go away – the clash between American International Group and the European Union over the ownership percentage of Chinese subsidiaries. Now, according to a report in London’s Financial Times, a compromise agreement has apparently been reached.

The dispute centers on AIG’s insistence that its original agreement with the Chinese government provides for 100 percent ownership of its Chinese branch offices; whereas the pact with the EU and other countries provides for a maximum participation of foreign firms in Chinese insurance subsidiaries of 50 percent.

Until now neither side had been willing to budge, but the FT reports that AIG has accepted a compromise which will allow it to establish a maximum of two additional branches in China, in addition to the four it has already set up, with 100 percent ownership, and after that any future operations it establishes will be subject to the 50 percent limit.

The compromise would avoid bringing the dispute before the WTO. AIG CEO Maurice “Hank” Greenberg has always insisted that his company had assurances from the Chinese government that its original agreement would be honored, while EU officials have been equally adamant that China has agreed to “equal treatment” for all foreign insurers operating in its market, including AIG.

Once China formally joins the WTO on December 11, it has agreed to implement the compromise agreements it has made with the EU, the U.S. and other countries to greatly increase the number of license issued to foreign insurers and their Chinese partners.

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