USTR MEETING WITH STATE COUNCIL LEGISLATIVE

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SUBJECT: USTR MEETING WITH STATE COUNCIL LEGISLATIVE
AFFAIRS OFFICE ON DRAFT POSTAL LAW

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1. (SBU) SUMMARY: USTR officials Claire Reade and Tim
Stratford discussed China's draft Postal Law with State
Council Legislative Affairs Office Director General Zhao
Xiaoguang on September 2. Zhao acknowledged that the
current draft still restricts the rights of foreign
companies to engage in domestic express document delivery,
which he said is consistent with China's WTO commitments.
Zhao said China welcomes foreign express delivery companies,
but that the SC/LAO is under pressure to protect domestic
companies. Reade noted that the USG understands that
companies other than China's postal monopoly did engage in
domestic express document delivery prior to China's WTO
accession, in which case, the principle of national
treatment would obligate China to extend these rights to
foreign companies. She offered to provide SC/LAO with
examples of private or joint-venture companies involved in
domestic express document delivery at the time of China's
WTO accession. Reade and Stratford stressed the benefits
to China's economy of fully opening the express delivery
market to competition, and urged SC/LAO to consider the
interests of consumers and the Chinese economy overall, not
just the interests of some companies. END SUMMARY.


2. (SBU) USTR Chief Counsel for China Trade Enforcement,
Claire Reade and AUSTR Tim Stratford met with State Council
Legislative Affairs Office (SC/LAO) Director General Zhao
Xiaoguang on September 2 to discuss China's draft Postal
Law and its possible effect on United States express
delivery companies operating in China. Present from the
Embassy were Econmincouns, USTR Senior Trade Representative,
USDOC Special Counsel, Commercial Officer, and Econoff.
USDOC International Trade Specialist Janice Wingo also
attended.


3. (SBU) Reade stressed the importance of openness and
competition to China's economic development, and noted the
important role played by United States express delivery
companies in China's development, including by improving
communications between Central and Western China and the
coastal regions.


4. (SBU) Reade asked whether the USG could see a copy of
the current version of the draft Postal Law, and whether it
still contains provisions that would restrict foreign
companies from engaging in domestic express document
delivery. Zhao said the draft Law is still under revision
in the SC/LAO. He said it would be difficult to share the
draft or make it public, but that the SC/LAO is willing to
hear the opinions of interested parties, such as United
States express delivery companies, and take them into
account. He said he has talked to Fedex, UPS and TNT
several times. Zhao acknowledged that the draft Law still
contains the restrictive provisions. He said the draft Law
would not impose new restrictions on foreign express
delivery companies, and that China welcomes U.S. companies
in the express delivery business and intends to allow them
an (unspecified) "slightly" greater role under the revised
postal Law. Zhao said China may grant authority to
foreign express delivery firms to deliver documents
domestically (e.g. from Changchun to Beijing) en route to
an overseas location. He said the draft Law is consistent
with China's WTO commitments, which contains a carve-out
for activities restricted to China's state postal monopoly,
China Post.


5. (SBU) Reade said companies that cannot deliver both
documents and packages would be at a significant
disadvantage in the China market. On WTO commitments,
Reade acknowledged that China has a GATS carve-out for
activities reserved for China Post as of December 2001, but
said it is not clear that such a monopoly really extended
to domestic express document delivery. She said the USG
understands that companies other than China Post did engage
in domestic express document delivery prior to China's WTO
accession, and that if this is the case, China must treat

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foreign and domestic companies equally. Zhao said he was
aware of foreign companies engaging in express delivery of
documents on international routes, operating under
entrustment certificates, but was unaware of any licenses
issued to foreign or domestic firms to engage in domestic
express document delivery in competition with China Post.
Reade offered to provide SC/LAO with examples of private or
joint-venture companies that competed with China Post in
domestic express document delivery at the time of China's
WTO accession, and Zhao agreed to receive them.


6. (SBU) Zhao said that China does value openness and
competition, and recognizes the contribution of United
States companies. He claimed that American express
delivery companies tell him they are satisfied with the
legal and business environment in China. Zhao went on to
discuss the government's need to protect the local rights
of "customers" and described China's express delivery
industry as backward. He noted that after restricting
foreign competition in some sectors, e.g. tourism, giving
domestic industry a chance to develop, China was able to
eliminate market access restrictions that were permitted
under China's WTO services offer. Zhao said the SC/LAO is
under pressure from domestic companies regarding the Postal
Law.


7. (SBU) Stratford urged Zhao to consider two points:
first, that placing market access restrictions directly in
the Postal Law will make it very difficult for China to
remove these restrictions if it wishes to liberalize in the
future. Second, Stratford noted that while governments
must take the interests of domestic companies into account,
they must also realize that the interests of specific
companies do not always coincide with the interests of
their countries or the overall economy. Reade added that
consumers tend not to comment on draft legislation, so
responsibility for this falls to government.


8. (SBU) Stratford took the opportunity to invite SC/LAO
to participate in the 9/18-19 Postal and Express Delivery
Symposium in which the State Postal Bureau will participate.
Zhao said one Deputy Director General from the SC/LAO will
participate, and said the SC/LAO welcomes this opportunity.

RANDT