VZCZCXRO7525
PP RUEHCN RUEHGH RUEHVC
DE RUEHBJ #4293/01 3290224
ZNR UUUUU ZZH
P 240224Z NOV 08
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC PRIORITY 0992
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RULSDMK/DEPT OF TRANSPORTATION WASHDC

UNCLAS SECTION 01 OF 02 BEIJING 004293 
 
STATE PASS TO USTR STRATFORD AND MAIN 
DEPT OF COMMERCE PASS TO KASOFF, MELCHER, DYCUS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958:  N/A 
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