EU, China Reach Telecom Deal

BRUSSELS (05/23/2000) - China will open up its telecommunications market to foreign investors and resellers, once it enters the World Trade Organization (WTO), as a result of a bilateral deal negotiated Friday with the European Union (EU).

After almost one year of on-again, off-again discussions, the EU has obtained the right for foreign companies to take up to a 25 percent share in Chinese mobile telecommunications companies once China joins the WTO, EU Trade Commissioner Pascal Lamy said at a press conference in Brussels yesterday. This could happen as early as Jan. 1, 2001, he said.

The investment ceiling will increase to 35 percent after one year and to 49 percent over three years, he added.

The EU also convinced the Chinese authorities to liberalize the market for domestic leased telephone lines so that foreign telecom companies can rent capacity from Chinese operators and resell it, he said.

Although the EU initially sought to obtain the right for foreign investors to set up 50-50 joint ventures with Chinese companies in exchange for entry to the WTO, EU negotiators finally accepted that it was more important to obtain immediate access to the Chinese market in order to benefit from the telecom licenses that China will auction off over the coming year, according to Lamy.

"We wanted a foot in the door" to China's telecom market, Lamy told the press conference.

The bilateral deal is part of the long process which will lead ultimately to China's membership of the WTO. Six months ago the U.S. reached a similar agreement. [See "US, China Reach WTO Deal," Nov. 15, 1999.] Benefits obtained from such bilateral deals are automatically available to all WTO members under WTO rules. Once it joins the organization, China will have to respect all WTO rules, including respect for the dispute settlement procedures, basic protection of intellectual property rights, nondiscrimination and most-favored nation principles, whereby any advantage granted to one WTO member becomes the right of all members.

Both the U.S. and the EU had identified China's entry to the WTO as a top priority, as it is the largest market in the world still closed to imports. As Lamy explained in a statement, "The WTO without China is not really the World Trade Organization at all."

U.S. President Bill Clinton is currently guiding the U.S. bilateral deal with China through Congress, and the EU agreement must also win approval from the 15 member states, which heard the details of the agreement during a meeting of EU foreign ministers yesterday in Brussels.

Other aspects of the deal include substantial reductions in import tariffs to an average of 8 to 10 percent on key products, and under the terms of the deal with the EU, China will also cease to apply several other trade-distorting measures such as the award of export subsidies.

"The deal is good for EU business," Lamy stressed.

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