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Tuesday, 10 July, 2001, 14:47 GMT 15:47 UK
China concedes in WTO talks
By BBC News Online's Mary Hennock
Tesco is the latest retailer to consider opening for business in China, one of the world's largest emerging markets.
Its team in China is set to report its findings to the board in the next few months.
If it does move there, it will follow in the footsteps of Swedish furniture seller Ikea and French supermarket chain Carrefour.
In the past, it has proven tough for retailers to uproot their businesses to another country profitably.
But in the case of China, the path to profit should be made easier by last minute concessions won by the European Union (EU) in talks on China's entry to the World Trade Organisation (WTO).
The original deal with China may have been sealed last year, but talks have continued since then, allowing the US and the EU to wrest further concessions.
Retailers like Tesco are not the only winners: the latest gains cover financial services companies such as insurers and stock brokers as well as agriculture. Crucially, businesses moving to China will also have freedom to choose a joint venture partner.
The US and EU were able to win these concessions because of a rule that all parties to the WTO treaties must agree the wording of legal documents relating to China's accession.
This allowed all parties the chance to return to the negotiating table.
US and EU officials insist all they have done is clarify previous agreements, but the gains are substantial.
The EU, in particular, has been able to build on what the US has done because it concluded its deals after the US.
This is particularly clear in retail distribution.
In the original treaties, China said any retailer with more than two outlets was a chain store and could not be majority foreign-owned.
The US successfully widened this definition to retailers with over 30 outlets, but the deal continued to exclude sellers of multiple brands - exactly the type of development being considered by Tesco and already successfully pursued by Carrefour.
"The US were especially concerned about specific products - petrol pumps, cars. We were concerned about the types of store because we have big, general, multiple retailers", a senior EU official told BBC News Online.
When the EU finished negotiating on 20 June 2001, it had secured an agreement that multiple retailers would be free of joint venture obligations after three years.
The EU's biggest advance came when China granted companies the freedom to choose their joint venture partner.
Originally, China wanted "links to Chinese state companies only", the EU official said.
In the past, foreign investors have spent valuable time and resources making up for the shortcomings of state-imposed partners.
The US team's major coups came in financial services and agriculture.
They negotiated a definition of large scale commercial risk for insurers that tackled China's attempt to narrow the original terms and "will allow more business to take place", said US Trade Representative Robert Zoellick.
Nor will foreign insurers have to reinvest 20% of their premiums with the state-run China Reinsurance Company, a clause that takes effect 5 years after China joins the WTO.
Talks on licences for branch offices for insurers with existing business in China were particularly sensitive, according to Brad Smith of the American Council of Life Insurers.
The EU also improved the working party language on branching, said Mr Smith.
A tussle between China and the US about the level of agricultural subsidies was also settled when China agreed to cap its agricultural subsidies at 8.5% of total output.
In practice, the decision will have little impact on Chinese farmers since even the US admits that China's current subsidies amount to a mere 2%.
But for political reasons, China was keen to be classified as a developing country, which would have allowed a 10% cap. The US was anxious to be seen defending American farmers, who have had a tough time financially in recent years.
China's legal system has developed rapidly in recent years but nonetheless its ability and willingness to enforce its WTO obligations has been widely questioned.
Can China ensure smooth commercial law enforcement?
The consensus seems to be that the spotlight of the WTO talks has produced real political momentum but there is a long way to go.
"It's a very big country and it doesn't behave as one entity so it'll be more difficult for them to enforce the regulations nationwide," said Madeleine Sturrock, deputy chief executive of the Great Britain-China Business Council, which represents UK investors.
But she says, "We're confident that China will use its best endeavours to enforce the rules".
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