AUSTR STRATFORD PRESENTS WHITE PAPER ON XINHUA WTO

C O N F I D E N T I A L SECTION 01 OF 03 BEIJING 004234

SIPDIS

SIPDIS

STATE PASS USTR FOR STRATFORD, READE, WINTER, MCCARTIN,
ADAMS, ALTBACH
GENEVA PASS USTR
TREASURY FOR OASIA/ISA DOHNER, CUSHMAN
NSC FOR SHRIER, TONG

E.O. 12958: DECL: 06/22/2017
TAGS: ECON EFIN ETRD KIPR PREL CH
SUBJECT: AUSTR STRATFORD PRESENTS WHITE PAPER ON XINHUA WTO
VIOLATIONS TO XINHUA NEWS VP LU WEI

REF: A. BEIJING 2009

B. BEIJING 1158

Classified By: Robert S, Luke, Economic Minister Counselor.
Reasons 1.4 (b/d)

Summary
--------------


1. (C) AUSTR for China Tim Stratford met with Xinhua News
Vice President Lu Wei for the second time on April 20 to
discuss Xinhua regulations requiring foreign financial
information providers to sign a service contract with a
Xinhua agent company. As a follow-up to a commitment he made
in the first meeting on March 14, AUSTR Stratford presented
Lu with a USTR White Paper outlining the areas where the
Xinhua regulations appear to contradict WTO rules and
provided an explanation of the White Paper's main points. Lu
insisted that the regulations were not in violation of WTO
but promised to provide a written response as soon as
possible. Lu also presented AUSTR Stratford with an official
copy of the Xinhua model agency agreement and examples of
politically prohibited materials that had been disseminated
by foreign companies with financial news. AUSTR Stratford
asked Lu to separate politics from trade issues in preparing
response to the White Paper and to provide regulations
governing Chinese financial news distributors along with his
response. He also requested that Xinhua postpone
implementing regulations requiring companies to sign an
agency contract before renewing their licenses. Lu said the
dialogue had been productive but reiterated that Xinhua would
"never give in" to foreign pressure to abolish the
regulations. Both sides agreed to reconvene for further
discussions once Xinhua completes its response to the White
Paper. End summary.

USTR White Paper: Xinhua Regulations Clash with WTO
-------------- --------------


2. (C) On April 20, AUSTR Stratford, accompanied by
emboffs, met for the second time with Xinhua News Vice
President Lu Wei and his staff (see reftel A). After
providing Lu with a brief background on WTO, AUSTR Stratford
outlined the four major points in the White Paper: That the
Xinhua regulations apparently violate WTO rules on national
treatment, market access, preservation of acquired rights,
and independent regulation. AUSTR Stratford noted that while
Xinhua may not have intended to violate WTO rules when it
issued the September 2006 regulations, an examination of WTO
requirements suggests that the challenge is to ensure that
the regulations are not interpreted or implemented in a way
that violates WTO. AUSTR Stratford suggested that in light
of detailed information in the White Paper, and the
technicalities involved, Lu might consider having Chinese WTO
experts examine it in order to inform Xinhua's response.

--National Treatment. The regulations, as published, require
that foreign companies sign a service contract with the
wholly-owned Xinhua subsidiary China Economic Information
Service (CEIS),but do not require that Chinese companies
sign such a contact. In order to interpret its regulations
in such a way as to be consistent with WTO rules, Xinhua must
demonstrate that all companies are subject to the same
restrictions.

--Market Access. The requirement that foreign companies must
sign a contract with CEIS in order to distribute financial
information appears to be a barrier to direct access. Since
China's commitments related to the General Agreement on Trade
and Services call for the elimination of such limitations,
this requirement appears to violate that commitment.

--Acquired Rights. WTO rules require that rights enjoyed by
foreign companies before a country joins the WTO must be
retained after joining. American companies had business
licenses before China joined the WTO that allowed them access
to customers without the kind of restrictions imposed in the
new regulations. Therefore, the regulations appear to
violate this principle.

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--Independent Regulation. When it joined the WTO, China
agreed to keep regulatory functions independent from Chinese
entities engaged in the same business, with the exception of
railroad transportation and express delivery services.
Xinhua is a news provider but is now acting as a regulator
for companies that compete with it, which is a clear problem
under the WTO commitments China has made.

VP Lu Wei: Xinhua's Regulations Do Not Violate WTO
-------------- --------------


3. (C) After thanking AUSTR Stratford for "fulfilling your
promise" to deliver a White Paper within a 30-day period, and
pledging to study it carefully, VP Lu launched into a
point-by-point rebuttal of AUSTR Stratford's presentation.
Lu insisted that the Xinhua regulations do not conflict with
WTO rules, including in the four areas outlined in the White
Paper.

--National Treatment. Lu said that foreign companies are not
subject to unequal treatment because Chinese financial
information providers are subject to "other regulations"
which impose restrictions similar to those imposed on foreign
providers by Xinhua.

--Market Access. Lu reiterated Xinhua's previous assertions
that its regulations do not limit market access as long as
the content does not violate Chinese law. The Xinhua agent
company is not a financial information provider and receives
no profit in the transactions. Its sole responsibility is to
serve its customers.

--Acquired Rights. Lu denied that foreign providers had been
denied rights that they enjoyed before the regulations were
issued. Brushing aside the WTO legal points raised by AUSTR
Stratford, Lu returned to arguments he had made in the first
meeting, claiming that "there has not been one case" where a
foreign company's interests had been harmed by the new
regulations. On the contrary, he said, there has been a
surge in finance news providers' business activities and many
foreign companies previously denied access were now
requesting permission to enter the market.

--Independent Regulation. Again, Lu reiterated his previous
claim that Xinhua's role as both regulator and competitor is
in line with Chinese and international norms because the two
functions are kept separate in practice. He said that as a
competitor, Xinhua is not allowed to pass judgment on the
regulations. He cited remarks by Xinhua President Tian
Congming that the news agency welcomes international scrutiny
of its operations to see if it abuses its right to regulate
the market for its own financial gain. Lu underscored that
Xinhua's regulatory role was assigned by the Chinese
government according to Chinese law and was not something
Xinhua acquired on its own. Lu cited WTO clauses number 20
and number 21 that grant exemptions to member countries on
the core issues of national security and public ethics as
justification for Xinhua's demand that it regulate content.
Lu concluded by saying China will honor all commitments it
has made to WTO but it did not commit to preventing Xinhua or
any Chinese news agency acting as a regulator.


4. (C) Lu laced his presentation with references to recent
examples of politically sensitive material distributed with
financial news, including Dow Jones reports of Uighur
dissident Rebiya Kadeer's criticism of China and articles on
the abuse of psychiatry for political purposes and the need
for greater U.S. funding of democracy activists in China. Lu
provided AUSTR Stratford with copies of the offending Dow
Jones material and said that Xinhua was now looking carefully
at the "tax situation" of foreign financial service providers
to see whether they had received permission from the
commercial and tax bureaus to do business in China.


5. (C) Lu presented AUSTR Stratford with an official
pamphlet containing the model Xinhua agency agreement,
stating that Xinhua, too, had fulfilled its promise at the
last meeting to be "transparent regarding its regulatory

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role." He said Xinhua wanted "let the whole world decide for
itself" whether Xinhua is imposing restrictions on foreign
providers inconsistent with WTO rules.

Xinhua Review of White Paper, Next Steps
--------------


6. (C) Lu said his agency would carefully review the USTR
White Paper with the advice of China's WTO experts and
"quickly" provide a written response so the discussion could
continue. AUSTR Stratford asked Lu to provide, in addition,
the other regulations that govern Chinese financial service
providers and requested that Xinhua postpone implementing
reglations requiring companies to sign an agency contract
before renewing their licenses.


7. (C) AUSTR Stratford said he considered Lu's conclusions
that the Xinhua regulations did not violate WTO rules to be
"preliminary," and urged Lu, in preparing his response to the
White Paper, to separate politics from trade issues and to
consider possible contradictions between Chinese law and
international law. In light of Lu's preliminary judgment,
the two sides have two choices, he said: to continue talking
and making adjustments in order to reach agreement; or, as a
last resort, asking the WTO to help make the judgment.
Stratford noted that he had found the two meetings very
productive and hoped to continue discussions to resolve the
differences between the two sides. At this point, USTR was
not considering taking the case to the WTO. He repeated that
the challenge was to find a way to change, interpret, or
implement the regulations in a way that is consistent with
China's WTO commitments.


8. (C) Lu expressed agreement with these points and
concurred that the meetings had been productive but continued
to strongly reject the suggestion that China is in violation
of WTO. He said that although politics and trade are
separate issues, "politics sometimes intrudes on trade" and
when this happens, he gets involved. China "will simply not
allow" foreign financial news distributors to disseminate
proscribed political material and thus "will never give in"
to foreign pressure to renounce the regulations. Lu said he
looked forward to dialogue to resolve the issues and that
"everything is negotiable" as long as the regulations are not
abolished. Both sides agreed to reconvene for further
discussions once Xinhua completes its response.


9. (U) This cable was cleared by AUSTR Stratford.
PICCUTA