In 1996, China attempted to impose restrictions and requirements on foreign financial information suppliers similar to those currently being imposed. That matter was resolved in 1997 when China agreed to allow foreign financial information suppliers to contract directly with customers in China and to distribute their services directly to these customers. Ten years later, China’s regulator has again attempted to impose similar restrictions on foreign suppliers. This is despite China’s strong market opening commitments in the financial information sector in its 2001 WTO accession.The USTR also hints at a conflict of interest in that the Chinese regulator in question is in cahoots with the competition. Ah, the joys of crony capitalism:
The United States maintains that China’s restrictions and requirements limit the ability of foreign suppliers of financial information services to conduct business in China and place them at a competitive disadvantage in the marketplace. The apparent conflict of interest of China’s regulatory authority compounds these issues. As such, China appears to be acting inconsistently with several WTO provisions, including Articles XVI and XVII of the General Agreement on Trade in Services as well as commitments made by China in its WTO accession agreement.
Consultations are the first step in a WTO dispute. Under WTO rules, if the parties do not resolve an issue through consultations, the complaining party may refer the matter to a WTO dispute settlement panel.
In addition, the agency designated by China to regulate this financial service appears to have a conflict of interest, since the agency seems to be closely aligned with a Chinese competitor in the supply of these services.More specifically, the Wall Street Journal describes how Xinhua, our favorite official news agency, tried to corner the Chinese market for financial information services while acting as a regulatory body as well:
China issued rules in September 2006 that required Reuters Group PLC, Bloomberg LP, Dow Jones & Co. and other foreign financial-information companies to sell their products through the China Economic Information Service, an agency appointed by Xinhua...The World Trade Law blog has the scoop on the US Trade Representative's complaints as well as that of the EU. Once more, given that the US and the EU largely thought up the configuration of the WTO dispute settlement mechanism, I believe that China will back down again either during consultations or through another defeat if this case goes to court. Are we edging closer towards trade war? As long as the case in question isn't the big "C"--currency undervaluation--perhaps Armageddon can be avoided, but only just. The New York Times has a pretty good summary of this case and the history of US/EU trade cases against China.
The new rules effectively gave Xinhua a chokehold on the multimillion-dollar business of providing financial information to China's banks, brokerages and other companies. That market is expanding quickly, along with growth in China's economy and stock market and the increasing internationalization of its companies. Previous rules, agreed to in 1997, required only that foreign financial-information companies register themselves and their clients with Xinhua.
The U.S., EU and the companies all contend they have a strong case. The companies argue that in this case, Xinhua is acting as both the regulator and a market player. Last June, about eight months after the new rules were announced, Xinhua said it had started a real-time financial-data service. Called Xinhua 08, the service claimed to supply data for more than 20 major exchanges in China and overseas. China's government has denied any intention to restrict the flow of financial information or discriminate against foreign vendors.
UPDATE: Purported offender Xinhua has released the official reply to the WTO filing. 60 days to solve this dispute out of court and counting, then...
Chinawill seriously study requests filed by the and the European Union over financial information services regulations and settle the problem under World Trade Organization (WTO) rules, a spokesman of the Ministry of Commerce said here on Tuesday. United States
United Statesand European Union asked the WTO to launch a dispute settlement process on Monday against 's regulations on financial information service management. China
respected the choices of other WTO members and would seriously study the requests and follow the WTO dispute settlement process to solve the problem, the spokesman said. China
To promote the healthy and orderly distribution of news and information, the Xinhua News Agency was authorized to examine and approve the publication in
of economic information and news by foreign news agencies and their information subsidiaries and publicized regulations on September 2006. China
and the European Union disagree with the regulations, media reports said. United States