Cablegate: How to Address China's Draft Postal Law Restrictions On

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P 240224Z NOV 08
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC PRIORITY 0992
INFO RUEHOO/CHINA POSTS COLLECTIVE
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RUEATRS/DEPT OF TREASURY WASHDC
RULSDMK/DEPT OF TRANSPORTATION WASHDC

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STATE PASS TO USTR STRATFORD AND MAIN
DEPT OF COMMERCE PASS TO KASOFF, MELCHER, DYCUS

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TAGS: ECON WTRO ETRD EAIR CH

SUBJECT: HOW TO ADDRESS CHINA'S DRAFT POSTAL LAW RESTRICTIONS ON
U.S. EXPRESS DELIVERY COMPANIES

THIS CABLE IS SENSITIVE BUT UNCLASSIFIED AND CONTAINS BUSINESS
SENSITIVE INFORMATION. NOT FOR INTERNET DISTRIBUTION. PLEASE
HANDLE ACCORDINGLY.

1. (SBU) SUMMARY AND ACTION REQUEST: China's recent release of its
draft revised postal law confirmed the pre-release concerns of the
global express delivery industry, including U.S. companies FedEx and
UPS. If enacted, the law would exclude foreign express delivery
companies from domestic document delivery, subject them to
additional taxes to benefit China Post, and could -- according to
industry estimates -- cost FedEx and UPS hundreds of millions of
dollars. The exclusion of foreign express delivery companies from
document delivery raises questions as to whether the regulation is
consistent with China's WTO commitments on national treatment and
market access. Timing is short, with National People's Congress
(NPC) passage possible by early January, and industry is doing a
full-court press to persuade the NPC at a minimum to delay passage
to permit more dialogue.

2. Building on earlier efforts, Mission has already formed an
inter-agency team to plan and implement an integrated strategy to
press U.S. concerns with the Chinese Government and has proposed to
a very receptive EU mission (activated by DHL and TNT) that we
closely coordinate efforts. In addition, we recommend strongly that
involved Washington agencies: 1) prepare official comments on the
draft law for submission to the NPC through official channels before
the November 30 deadline; 2) complete legal analysis of the WTO
implications as rapidly as possible; and 3) seek opportunities to
raise this issue in the coming weeks in high-level meetings. End
Summary.

Draft Postal Law Confirms Industry Earlier Concerns
--------------------------------------------- ------
3. (SBU) While the public release of the draft revision after its
first NPC reading on October 28 provided a first look at actual
text, rumors and sightings of some earlier iterations already had
sparked an international campaign by potentially affected express
delivery firms to prevent possible exclusion from the
letter/document market. Industry efforts have been paralleled by
USG interventions, both by high-level visitors and by Mission
officials. Previously available information indicated China would
exclude all private companies, both foreign and domestic, from the
"document" express delivery market, leaving "document" delivery to
be defined within the scope of the monopoly reserved for China Post.
As a result, some foreign firms and analysts had been focused
primarily on whether China's inclusion of document delivery in the
scope of the China Post monopoly was consistent with its WTO
obligations. Although China's accession commitment included a
postal monopoly exception, it also contained a commitment not to
roll back existing market access.

4. (SBU) The finally-revealed draft postal law confirms many of the
anticipated concerns of U.S. and European express delivery companies
regarding the scope of the monopoly reserved for China Post.
However, the draft also raises a second, even more troubling issue:
the draft law explicitly excludes foreign companies from engaging in
document delivery but is silent on domestic private firms. The
relevant language in the draft comes in Article 50:
"Foreign-invested enterprises are forbidden to invest or operate
domestic express delivery of letter articles." Another principal
area of concern is a vague definition of the postal monopoly that
could potentially prevent express delivery companies from delivering
documents. Article 54 stipulates that "the express delivery
enterprise shall not undertake the express delivery of letter
articles exclusively undertaken by the postal enterprises, or the
delivery of government documents," and Article 55 stipulates that
"the express delivery enterprises shall not pack letter articles and
deliver them as parcel." Finally, Article 19 would establish a
universal postal service fund that would potentially subject express
delivery companies to additional taxes to benefit China Post.

5. (SBU) The NPC has already completed the first reading of the
draft law, and industry sources report that the second reading will
take place in December, perhaps simultaneously with the third
reading. The law could be approved as early as January 2009. The
Mission has been engaged on this issue since industry concerns first
arose and has now formed an inter-agency team to implement an
accelerated lobbying strategy that will focus on the NPC while
targeting other relevant bodies as well.

Draft Postal Law Inconsistent with WTO Commitment
--------------------------------------------- ----
6. (SBU and Business Sensitive) The draft postal law may be
inconsistent with China's WTO commitments. In particular, allowing

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Chinese express delivery companies to operate but excluding foreign
express delivery companies seems to violate the principle of
national treatment. Even if China applies the exclusion to both
foreign and domestic private firms, the definition of the scope of
the monopoly may represent a roll-back of actual market access that
was available at the time of China's WTO accession. We understand
that private Chinese companies were participating, albeit
unlicensed, in this market at the time of accession. Interestingly,
our EU contact shared in confidence that Brussels lawyers are now
examining a pre-accession document held by one European express
delivery company that reportedly contains Commerce Ministry written
approval for express document delivery. (Note: Our EU contact
requested that we not share this information with industry. End
Note.)

EU Shares U.S. Concerns and Plans Active Lobbying Effort
--------------------------------------------- --------
7. (SBU) European express delivery companies DHL and TNT are active
in the Chinese market and could see their investments and operations
significantly affected if the postal law is enacted. In a November
19 meeting, an EU diplomat told EmbOffs that the EU shares the same
concerns as the U.S. and is preparing to submit official comments to
the NPC. He said EU lawyers are still reviewing the WTO
implications based on the monopoly situation at the time of
accession, as well as considering a legal argument that defines
express delivery service as a "courier service" and draws a
distinction between private letters and commercial documents. The
EU diplomat reports that former EU Trade Commissioner Peter
Mandelson raised the issue of the draft postal law during his
September 24 meeting with Chinese Minister of Commerce Chen Deming.
The EU is now focusing its lobbying efforts on the NPC and
considering asking European Parliament legislators to contact their
Chinese counterparts. Besides submitting comments on the draft law
to the NPC prior to November 30, the local EU mission also plans to
express its concerns in meetings with Chairmen of the NPC Law
Committee and Finance and Economic Committee.

Japan Remains on the Sideline
-----------------------------
8. (SBU) A Japanese diplomat told EmbOffs on November 19 that Japan
is not lobbying the NPC to revise the draft postal law and not
planning to take any action at this point. Although several
Japanese express delivery companies are active in China, the
Japanese diplomat reported that these companies have not expressed
their concerns about the draft postal law to the Japanese Embassy.

Action Request
--------------
9. (SBU) Action Request: 1) Post strongly recommends appropriate
USG agencies submit official comments to the NPC before the November
30 deadline. The United States has consistently urged the Chinese
to make their legislative process more transparent, and the NPC has
responded by posting the draft postal law on its website and seeking
public comments. Not commenting on the draft postal law would send
the wrong message about transparency and undercut future arguments
the U.S. would make after the law is passed. 2) Post recommends
involved Washington agencies complete legal analysis of the WTO
implications as soon as possible and, if legal analysis permits,
specifically raise arguments about the draft law's inconsistencies
with China's WTO commitments. 3) Post recommends appropriate USG
agencies seek opportunities in the coming weeks to raise this issue
at high-level meetings between U.S. and Chinese officials. The
upcoming Strategic Economic Dialogue (SED) could provide
opportunities for USG officials to press the Chinese to revise the
postal law.

RANDT

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