Copyright 2008, Blake, Cassels & Graydon LLP
Originally published in Blakes Bulletin on International Trade/Financial Services, November 2008
On November 13, 2008, Canada's new Minister of International Trade, Stockwell Day, announced that Canada and China have signed a Memorandum of Understanding Regarding Measures Affecting Foreign Suppliers of Financial Information Services (MOU). According to the Minister, the MOU is aimed at improving access to Chinese markets for Canadian companies delivering such services. This negotiated settlement followed formal consultations with China under the World Trade Organization's (WTO) dispute settlement framework pursuant to which Canada, in combination with the EU and the U.S., demanded that China loosen restraints on foreign financial information services companies.
Under China's regulatory regime, foreign financial information services companies seeking to enter the Chinese market were required to supply their services through an intermediary designated by the Xinhua News Agency (Xinhua). Xinhua had only one designated agent, China Economic Information Service, one of Xinhua's own commercial enterprises and a competitor in the industry. Moreover, China prohibited foreign financial information suppliers from directly soliciting subscriptions for their services, requiring that solicitation of subscriptions be done through the Xinhua-designated entity. China likewise prohibited users of financial information services in China from directly subscribing to services supplied by foreign suppliers.
These restrictions led to the initiation of complaints to the WTO by Canada, the U.S. and the EU. In its request for consultations with China, which was submitted to the WTO on June 20, 2008, Canada complained that the measures restricting the provision of financial information services in China were in violation of the rights of market access and national treatment pursuant to Articles XVI, XVII and XVIII of the General Agreement on Trade in Services (GATS) as well as the commitments by China in the Accession Protocol to which China agreed upon joining the WTO in 2001. In Canada's view, the measures established by China nullified and impaired many of the benefits that were supposed to accrue to other WTO members, including Canada, upon entry of China to the WTO.
According to the Canadian government, the recent signing of the MOU with China represents a "culmination of Canada's efforts to resolve concerns" arising from Chinese measures affecting foreign suppliers. Under the Agreement, China has agreed to establish an independent regulator of financial information services. China has also confirmed that providers of financial information services will no longer face obstacles in establishing a commercial presence in the country, and that foreign suppliers will be accorded treatment that is no less favourable than the treatment of domestic financial information service providers.
China also recently signed similar agreements with the U.S. and the EU. European Trade Commissioner Catherine Ashton applauded the MOU, commenting that this "agreement ensures that investors and market operators will be able to receive comprehensive and objective financial information.''
While companies like Thomson Reuters Corp., Bloomberg LP, Dow Jones & Co. and other financial information service providers are expected to benefit from improved operating conditions resulting from the MOU, the importance of the MOU extends well beyond the financial information services sector. One might argue that the settlement can be seen as a positive indicator of China's willingness to reform existing state policies so as to ensure these more closely conform with the obligations that stem from its WTO commitments. This development bodes well for investors in China who may have concerns regarding market access, national treatment or most favoured nation treatment in connection with existing or planned business ventures in China.
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