China poised for membership of WTO

European Union and Chinese officials toasted each other in champagne yesterday to celebrate reaching a market opening deal which removes the last major obstacle to China joining the World Trade Organisation (WTO) - probably by January 1st, 2001.

"We came to cut the right key," said EU Trade Commissioner Mr Pascal Lamy. "Now we have got the right key, and I am confident the door marked WTO entry will soon swing open."

The key to yesterday's agreement, which had eluded the EU and China for 16 years, was the decision by Mr Lamy to back down from the once non-negotiable EU insistence on 51 per cent foreign ownership of telephone networks and insurance companies - the Americans got only 49 and 50 per cent respectively in their WTO deal with China last autumn - and accept instead a range of compensations from the Chinese.

These included a generally faster timetable for market access in telecommunications and insurance, and a reduction in tariffs on 150 EU export goods. "It was made clear from the start that certain things would be difficult," Mr Lamy told a press conference in the EU embassy last night. "A great deal was offered by China to compensate us for what we could not achieve. We could have said - give us 51 per cent or we will block you. But that is not my style, not when someone looks you in the eye and tells you `I can't do that'."

The person who looked Mr Lamy in the eye was the unblinking Chinese Prime Minister, Mr Zhu Rongji, who apparently convinced Mr Lamy over lunch yesterday that Beijing just could not concede the hugely important issue of Chinese ownership.

Mr Zhu intervened only at the final stage - as he always does - and granted face-saving concessions on which the Chinese negotiator, Trade Minister Shi Guangsheng, had earlier been, to quote an EU official, as "unyielding as a wall".

Playing good cop to Mr Shi's bad cop has become a standard ploy in China's long drawn-out WTO negotiations. It did not work in March, but this time it did, under the pressure of the drastic consequences of failure, including Chinese isolation and a set back for reform. "The package . . . which they accepted could never have been accepted without his personal authority," the EU Trade Commissioner said.

"We had three remaining issues which were among the most important - telecommunications, insurance, distribution. On these three things the authority of the prime minister made the deal."

EU firms will enjoy greater access to China after it joins the EU, and the benefits won by the US and the EU who together produce 40 per cent of world trade, also apply to all WTO members. The advantages for the Chinese consumer in the EU deal include cheaper European wines, spirits, cosmetics and shoes, more foreign department stores, more transparency in business, and access to foreign insurance brokers, accountants, architects and banks. Mr Lamy will present the deal to the 15 EU foreign ministers on Monday.

The breakthrough comes at a good moment for President Clinton who has been making an all-out drive to persuade the US Congress to endorse the deal his administration struck with China on WTO entry in November. Congress is due to vote next week on whether to grant China Permanent Normal Trade Relations, which would give US companies all the benefits of China's more open markets within the WTO.

Under the WTO deal with the US, China agreed to 49 per cent foreign investment in all telecommunications services and to 50 per cent foreign ownership for value-added services, including the Internet, in two years and paging services in three years. The EU had been seeking 51 per cent ownership in mobile networks.

The concession made by the Chinese was that it will open its mobile telephone market two years earlier than agreed with the US. Upon accession foreign operators will be permitted a 25 per cent share, rising to 49 per cent three years after accession (instead of five).

The EU had also been pushing Beijing to allow 51 per cent foreign investment in life insurance joint ventures, rather than the 50 per cent limit under the US-China accord. China agreed to give immediately seven licences to European insurers in the life and non-life sectors. An EU delegate said: "Both in the telecommunications sector and in the insurance there is an added scope of business in the sense of certain sectors being covered that were not covered before." "The same applies to motor vehicles. In certain sub-sectors of motor vehicle production we have managed to get equity limits lifted."

The range of tariff reductions include spirits, down from 60 per cent to 10 per cent; cosmetics 30 to 10 per cent; leather goods 20 to 10 per cent; footwear products 25 to 10 per cent; marble 25 to 10 per cent; ceramics 24-35 to 10-15 per cent, and 52 machinery and appliance products down from up to 35 per cent to 5-10 per cent.

In agriculture China has agreed to lower tariffs on wine from 65 per cent to 14 per cent and on butter from 30 to 10 per cent, as well as a range of other products such as pasta, mandarins, olives and wheat gluten.

China has agreed to open the crude and processed oil sectors and NPK fertiliser and allow EU firms to buy raw silk directly from Chinese producers rather than through state export channels.

All restrictions regarding the category, type and models of vehicles produced in EU-Chinese joint ventures will be lifted within two years. China has also agreed to eliminate the specific joint venture restriction on department stores and virtually all chain stores as well as lifting the 20,000 sq m size limit for foreign-owned stores.

The end of the five days of talks came at 5.30 p.m. when scores of waiting journalists were suddenly invited into the Foreign Trade Ministry in Beijing where the negotiations had been taking place. The EU delegates looked drained after the session ran late on Thursday.

By contrast Mr Shi smiled broadly throughout the brief ceremony. After the signing and handshake, and the sipping of the ritual champagne, Mr Shi said the deal embodied "the principle of equality, friendship and mutual benefit" between China and the EU.

Mr Lamy said it "has benefits for China, it has benefits for EU companies and it will enhance China-EU relations". He added: "The European Union believes that WTO can provide a boost for the reform process, hence the extra special importance of this successful conclusion of our agreement."

Chinese President Jiang Zemin, who has fought hard for WTO membership, later hailed what he called a "win-win" deal.