Identifier
Created
Classification
Origin
08BEIJING4611
2008-12-19 09:46:00
CONFIDENTIAL
Embassy Beijing
Cable title:  

Korea-China BIT Talks Stall Over Pre-Establishment

Tags:  ECON EFIN EINV EAID ETRD WTRO PREL CH 
pdf how-to read a cable
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TO RUEHC/SECSTATE WASHDC IMMEDIATE 1499
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RUEHKO/AMEMBASSY TOKYO IMMEDIATE 2335
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RUEHGP/AMEMBASSY SINGAPORE IMMEDIATE 9568
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C O N F I D E N T I A L SECTION 01 OF 02 BEIJING 004611 

SIPDIS

STATE FOR EAP/CM -- PARK AND FLATT
STATE FOR EAP/K AND EAP/J
STATE FOR EEB/OIA -- SCHOLZ, TRACTON, AND HICKS
STATE FOR EEB/TPP/MTA
STATE FOR E - YON
STATE FOR L - CAPLAN
STATE PASS USTR FOR STRATFORD, WINTER, BAHAR, ROHDE
NSC FOR SMART AND LOI
TREASURY FOR RESNICK AND SAMPLINER
COMMERCE FOR BRZYTWA AND ARONOFF
PARIS PASS OECD

E.O. 12958: DECL: 12/18/2018
TAGS: ECON EFIN EINV EAID ETRD WTRO PREL CH

SUBJECT: Korea-China BIT Talks Stall Over Pre-Establishment

Classified By: Economic Minister-Counselor Robert Luke for Reasons
1.4 (b) and (d).

C O N F I D E N T I A L SECTION 01 OF 02 BEIJING 004611

SIPDIS

STATE FOR EAP/CM -- PARK AND FLATT
STATE FOR EAP/K AND EAP/J
STATE FOR EEB/OIA -- SCHOLZ, TRACTON, AND HICKS
STATE FOR EEB/TPP/MTA
STATE FOR E - YON
STATE FOR L - CAPLAN
STATE PASS USTR FOR STRATFORD, WINTER, BAHAR, ROHDE
NSC FOR SMART AND LOI
TREASURY FOR RESNICK AND SAMPLINER
COMMERCE FOR BRZYTWA AND ARONOFF
PARIS PASS OECD

E.O. 12958: DECL: 12/18/2018
TAGS: ECON EFIN EINV EAID ETRD WTRO PREL CH

SUBJECT: Korea-China BIT Talks Stall Over Pre-Establishment

Classified By: Economic Minister-Counselor Robert Luke for Reasons
1.4 (b) and (d).


1. (C) Summary: In a December 18 meeting, Korean Embassy officials
told Econoff that China and Korea continued to discuss in two forums
the prospects for strong bilateral and trilateral (with Japan)
investment agreements after signing a more limited "Investment
Protection and Promotion Agreement" in September 2007. Talks in both
forums have stalled as China resists granting pre-establishment
national treatment (PE-NT) rights to foreign investors, a position
China also has staked out in ongoing U.S.-China bilateral investment
treaty (BIT) talks. On Doha, they said that China did not push
strongly for an agreement because it is more focused on its role as a
"leader of developing countries." They advised that the main
outcomes of the December 13 China-Japan-Korea summit was the $50
billion currency swap agreement, a commitment to implement the G20
consensus, including refraining from protectionist measures, and
establishing the meeting as a standalone, annual event. The
officials also assessed that President-elect Obama's victory had
increased U.S. soft power in Asia, perhaps at the expense of China.
End Summary.

China-Korea BIT Talks Stalled
--------------


2. (C) Korean Embassy in China Economic Section Chief xxx and First
Secretary SEO Min-jeong told Econoff in a December 18 meeting that
Korea continues to discuss the prospects for a stronger investment
agreement with China as a part of its bilateral Free Trade Agreement
(FTA) negotiations and in trilateral investment treaty talks between

China, Japan, and Korea. In both cases, talks are stuck at the joint
feasibility study stage as China resists making any concessions on
PE-NT, which would grant foreign investors the right to make
investments on the same terms as domestic investors, thus allowing
them greater market access.


3. (C) The trilateral group has held five rounds of negotiations,
they said. In both sets of talks, the lead Chinese negotiator is
Deputy Director General Sun Feng, who is from the Ministry of
Commerce's (MOFCOM's) Foreign Investment Administration (FIA),rather
than from MOFCOM's Treaty and Law bureau, which has the lead in
China's BIT negotiations with the United States. They assessed that
FIA, which also leads MOFCOM's participation in China's approval
process for foreign investment projects is "inwardly focused" on the
impact of investment on China's domestic markets. The FIA is
relatively conservative because it has no responsibility for outbound
investment, they said.

Details on 2007 China-Korea Investment Agreement
-------------- ---


4. (C) The Korean Embassy officials noted that while Korea's 2007
investment agreement with China does not include PE-NT, it does have
performance requirements and transparency provisions. The 2007
agreement also contains a blanket exception for existing
non-conforming measures (NCM's),but restricts China from adopting
new measures that discriminate against foreign investors in areas
other than PE-NT. The Korean officials said that the issue had come
up when China passed a bankruptcy law that Korea felt disadvantaged
its investors, suggesting they had discussed the concerns with China.

China-New Zealand BIT Employs a Partial Negative List
-------------- -


5. (C) The officials added that China employed a negative list of
NCM's in its BIT with New Zealand, but only covering it obligations
to foreign investors in the manufacturing sector, not services.

China's Desire to Lead Developing Countries Hurt Doha
-------------- -

BEIJING 00004611 002 OF 002




6. (C) The Korean officials asked if the United States had engaged
China substantively on Doha during the fifth round of the U.S.-China
Strategic Economic Dialogue, which ended December 5. They said that
China is aiming to solidify a leadership role among developing
countries. The belief among many developing countries that Doha will
not achieve its ostensible goal of promoting "development" for their
benefit was one reason China allowed the talks to fail in JJuly, even
though it was in China's economic interest as a major exporter to
achieve a deal.

Trilateral Summit Outcomes
--------------


7. (C) On the December 13 summit between China, Japan, and Korea, the
Korean Embassy officials said that the main outcomes were the $50
billion currency swap program, a commitment to work together to
combat the financial crisis, including implementing the G20
agreement, and establishing the meeting as a standalone, annual
event, whereas all previous trilateral meetings had taken place
alongside other multinational events.

Obama Victory Enhances U.S. "Soft Power"
--------------


8. (C) The two officials were enthralled about President-elect
Obama's victory in the U.S. presidential election. They said that
Obama's Kenyan father and upbringing in Indonesia made him an
inspiring figure to people in Africa and Asia and "increased American
soft power." One of the officials mentioned that several years ago,
her colleagues all wanted to go to China because China was viewed as
the most important emerging power, but following Obama's victory, she
wants to go to Washington.

Comment -- Korean Interest in Discussing China Economic Policy
-------------- -


9. (C) In this and other meetings, the Korean Embassy in Beijing
welcomed the opportunity to share ideas on economic engagement with
China. Apart from the points above, the Korean officials also asked
questions on China's anti-monopoly law, transparency, innovation, and
protection of China's state-owned firms. Our take from this meeting
was that Korea would be open to regularly sharing ideas on China
economic and trade policy.

RANDT