Committee on Trade in Financial Services - Report of the Meeting Held on 1 December 2003 - Note by the Secretariat
World Trade
Organization RESTRICTED S/FIN/M/43
4 December 2003 (03-6434) Committee on Trade in Financial Services
REPORT OF THE MEETING HELD ON 1 DECEMBER 2003
Note by the Secretariat
The Committee on Trade in Financial Services held a meeting on 1 December 2003.
ADOPTION OF THE ANNUAL REPORT TO THE COUNCIL FOR TRADE IN SERVICES
Pursuant to the annual reporting requirements to the Council for Trade in Services, the Chairman drew Members' attention to document S/FIN/W/31, containing a draft report of the Committee's activities since the last update submitted to the General Council before the Ministerial Session held in Cancun (Mexico).
TRANSITIONAL REVIEW UNDER SECTION 18 OF THE PROTOCOL ON THE ACCESSION OF THE PEOPLE'S REPUBLIC OF CHINA
The Chairman recalled that the Committee was mandated to conduct this review of the implementation by China of its commitments in the WTO pursuant to section 18 of the Protocol on the Accession of the People's Republic of China.
Since last year's transitional review mechanism (TRM), the Chinese government had finalized the Measures for the Administration of Automobile Financing Institutions and its implementing rules, which would make it possible for foreign non-bank institutions to engage in automobile financing in China.
In the case of banking, in the period between the accession and end October 2003, 28 representative offices of foreign-funded banks were approved to be established; 14 applications from foreign banks to establish branches were accepted, and 12 were approved; 48 foreign bank institutions in Shanghai, Shenzhen, Tianjin, Dalian, Guangzhou and Qingdao were approved to operate RMB local currency business.
This was a transitional measure for the purpose of attracting foreign investments and liberalizing the securities market within certain limitations in the light of the fact that the free convertibility of RMB had not been realized.
Furthermore, three years after China’s accession to the WTO, when geographic restrictions are lifted, provincial branches of foreign insurance companies will be allowed to conduct insurance business in any city or area within the province pursuant to relevant regulations of CIRC.
Regarding the capital requirement for the establishment of new branches, China was currently drafting the detailed rules of the Administrative Regulation on Foreign-Invested Insurance Companies and working on the revision of the Administrative Regulation on Insurance companies,
On the questions concerning minimum working capital requirements for direct branches of foreign banks, he said that China believed that a WTO Member was entitled to set its own minimum working capital requirements for branches of foreign banks.
auto-financing institutions belonged to non-banking financial institutions under China’s regulatory system, the administration of which was conducted by CBRC pursuant to relevant regulations governing financial institutions.
The questions on insurance were the following: a) On the minimum capital requirements for foreign-invested insurers, can China confirm that they are required to put in place RMB 200 million for the initial branch, and additional RMB 20 million for each subsequent branch, up until RMB 500 million?
Recognizing the extremely high level of such requirements by international standards, he asked whether China could explain exactly how the requirements might be considered as prudential and how they might be considered as consistent with national treatment.
Those changes included, among other things, the creation of a separate banking supervisory authority (CBRC), the renewed energy to dispose of the massive non-performing loans in the banking sector, and the introduction, as China indicated, of the so-called QFII system in the capital market.
He raised the following questions concerning China's implementation in the areas of insurance and reinsurance: a) Can a Chinese owned and/or registered vessel in international traffic (not cabotage) buy insurance directly from an insurance company not incorporated or present in China?
; and c) can a Chinese owned and/or registered vessel in cabotage trade (domestic traffic), on its own account, insure the vessel, cargo and other liabilities directly with a foreign insurer not incorporated or present in China,
It was Norway's understanding that for certain groups of insurance classes (such as property insurance, freight, ship and aviation insurance, energy and liability insurance), the domestic insurance company could apply to the State Administration of Foreign Exchange for purchasing foreign exchange to make the reinsurance payment if either of the following conditions was satisfied: a) The maximum insurance liability for a single insurance contract exceeded RMB 50 million; or b) the cumulative RMB premium income for a single insurance contract type exceeded the sum of the capital and the accumulation fund of that company.
But some delegations were talking about issues that should be discussed in the current round of multilateral negotiations –the Doha Development Round- or even in the following round of multilateral trade negotiations.
For example, the questions raised by Australia and Canada on approval requirements and procedures for new life insurance products, on reserving requirements for life insurance products, on outward and inward cross-border insurance with associated enterprises, and on the management of foreign exchange control of insurance business.
Regarding the questions on language requirements for senior management personnel of foreign-invested insurance companies, he said that CIRC had already changed the related qualification requirements contained in the measures governing the qualifications of senior management personnel of insurance companies.
There was one question on the requirement that the value of foreign banks' foreign currency deposits within China should not exceed 70 per cent of the value of the banks' foreign currency assets within China.
a fund management company, whether domestically-owned or joint-venture, was not allowed to manage assets for institutional investors because this service did not exist in China due to the special situation of the Chinese securities market.
Fourthly, with regard to the opening of branches in banking, he said that according to his understanding, it was not possible for foreign banks to open more than one branch a year, while Chinese banks had had the possibility to open several branches in the same year.
He noted the fact that these restrictions were applied equally to both foreign and national companies, but he said that the commitments were not only about national treatment.
With regard to the so-called national treatment for the approval of the number of branches of foreign insurers, he said that it was not appropriate to set up a compulsory number of licences to be issued to foreign insures by CIRC at one time.
The representative of the United States found distressing to hear from China that Members could not seek a clarification because they would be accused of not having paid attention to the statement being delivered.
The representative of the United States took note of the statement by China and said that simply talking to technical experts after the TRM had concluded did not respond to a question or a clarification expressly asked at the TRM meeting.
It would be a factual report, stating basically the following:
that, pursuant to section 18 of the Protocol on the Accession of the People's Republic of China, the Committee conducted a review of the implementation by China of the WTO Agreement and of related provisions of the said Protocol, in the meeting held on 1 December 2003;
that written communications had been received from five WTO Members, namely Japan, the European Communities, Canada, Chinese Taipei, and the United States; and
that the details of the discussion, including all the interventions made at the meeting, would be found in the meeting report, to be issued as document S/FIN/M/43.
OTHER BUSINESS
The Chairman informed Members that the OECD, who is an observer to the Committee, had brought to the Secretariat's attention a recent document entitled "Managing request-offer negotiations under the GATS: the case of insurance services.
However, he noted that different approaches were followed in other WTO bodies as far as this kind of invitations was concerned, and his delegation might have to reflect on that aspect as well and the likely systemic impact on the Council for Trade in Services.
sfinW64.doc
