Thank you, Chairman D’Amato, Chairman Mulloy and Members of the Commission, for inviting me to testify today. I am Andy Shoyer, a partner in the Washington, DC office of Powell, Goldstein, Frazer & Murphy. Prior to joining the firm, I served for seven years with the Office of the U.S. Trade Representative, most recently as Legal Advisor in the U.S. Mission to the World Trade Organization in Geneva. Then as now, the primary focus of my work is to help U.S. companies and industry associations to use WTO disciplines to address market access barriers and unfair conditions of competition abroad.

The accession of China to the WTO late last year has presented our financial services industry with enormous opportunities. We advise a number of companies active in financial services markets in China. In support of that work, I traveled to China twice last year in capacity-building efforts with Chinese government officials on WTO implementation. It is from that perspective that I offer testimony today about the benefits that should accrue to the U.S. industry from China’s financial services commitments, the challenges that lie ahead, and the means (short of formal WTO dispute settlement) through which we can maximize the benefits of these commitments. I will begin by outlining the benefits that U.S. industry should derive from China's WTO commitments.

Part I: Benefits

To set the stage, let me briefly describe the competitive conditions faced by U.S. financial service suppliers in China in the absence of WTO disciplines.

According to the Office of the U.S. Trade Representative, China's services sector has been one of the most heavily regulated and protected parts of the national economy. Foreign banks and securities firms have faced a restrictive, opaque regulatory environment. They could not engage in local currency business except in Shanghai and Shenzhen. There were numerous discriminatory regulatory burdens placed on foreign banks that appeared to have no rational relationship to "prudential" criteria.

Independent auto and other vehicle financing (i.e., financing by non-banks) was prohibited, as was financial leasing.

Market access for insurance service suppliers was similarly restrictive. Prior to WTO accession, 16 foreign insurers were licensed to operate in China, mainly in Shanghai or Guangzhou.

And securities firms have been able to trade only in "B" shares (small quantities of stock designated for foreign investors) but only on a shared commission basis, and to underwrite only international securities offerings. Market access for foreign asset management firms was very limited.

China’s WTO commitments provide new and significant opportunities for U.S. financial services providers:

• Geographical limitations are eliminated within 5 years of accession and rigorous limitations on product offerings are lifted.

• In banking, local currency services are permitted and the requirement of approval, on a case-by-case discretionary basis, for each new representative office or branch has been eliminated.

• Auto financing by non-banks is now permitted, and financial leasing will be open to foreign service suppliers when domestic institutions are permitted to do so.

• In securities, the prohibition on investment and the underwriting of securities is ended.

• And, in insurance, providers are able to offer life, non-life and reinsurance products as well as group and pension polices. Restrictive licensing procedures are eliminated. Moreover, providers are released from the requirement of operating with a government-selected partner.

Certainly, U.S. financial service firms did not get everything they hoped for in China's WTO accession package. But the benefits of these commitments to U.S. financial service suppliers should be very significant. For example, according to USTR, even the most conservative estimates predict that total insurance premiums in China will reach $15-30 billion in the next few years. U.S. industry estimated that, if China were to lift its market access barriers completely -- which it will over time -- U.S. insurance providers should capture more than $2 billion of that market.

But the range of American beneficiaries of China's financial service commitments is hardly limited to U.S. financial service suppliers. Our financial service suppliers are among the most efficient, dynamic and innovative in the world. Their active participation in China will enhance the quality of financial services throughout the country. This improved financial infrastructure will, in turn, make it easier for other U.S. companies, who will depend on high-quality banking and insurance services, to thrive in that market.

Part II: Challenges

These benefits can only be achieved, however, if China implements its commitments. Based on my discussions with U.S. firms and Chinese officials, there are real challenges ahead. As new regulations are promulgated, Chinese courts will have to take on the burden of interpreting them. Yet the rule of law in China is still emerging, and there has been little experience for Chinese courts to draw upon in addressing legal issues affecting capital markets. Moreover, Chinese capital markets lack an effective ratings system, disclosure requirements are poor, transparency is lacking, bankruptcy procedures are underdeveloped, and the government domestic bond market is still developing. The domestic banking system itself is hampered by the lack of a credit culture, numerous non-performing loans, poor balance sheets, and little diversification.

Foreign competition secured by WTO commitments will help to address many of these problems. For example, the implementation of WTO commitments on transparency and procedural due process will help enormously to underpin the reforms needed in China's judicial system. But I see two additional risks associated with WTO implementation.

First, it will be more difficult to educate and discipline provincial and municipal regulators than it will be at the national level. There are many more local officials and (notwithstanding Western stereotypes of China's one-party rule) China is far from a monolith in terms of governance. These officials will resist change and resist the notion that international rules discipline their freedom of action. Yet the actions (or inaction) of government regulators at the sub-national level play a significant role in the life of financial service suppliers, and will therefore play a significant role in China's overall compliance record.

Second, but equally important, as foreign service suppliers increase the scope of activity in China, less competitive domestic service suppliers will surely press government officials to maintain or erect barriers to protect their positions in the market. China has had little experience with open competition within its borders. We have great difficulty resisting the siren song of protectionism here at home. How will Chinese government officials fare?

Part III: Ensuring Compliance

One of the great advantages of having our trade relationship with China governed by WTO commitments is that they are enforceable through dispute settlement. We advise many clients on WTO compliance matters and formal WTO dispute settlement has proven to be a remarkably effective tool in many cases.

But dispute settlement cannot serve as the only means through which China's trading partners seek compliance with China's WTO obligations. Nor can we afford to stand aside and hope and pray that China will do the right thing. Instead, enforcement efforts must be combined with, and preceded by, serious and consistent efforts to provide technical assistance. Indeed, all of us with a stake in the success of China's WTO implementation -- private companies, industry associations, government officials and international bodies -- must assist China to build its capacity to meet its WTO commitments. As I mentioned, I have been involved in several technical assistance programs, both here and in China, designed to educate Chinese officials about WTO substantive and procedural obligations, give them specific examples of how other governments meet those obligations and to suggest how these "best practices" might be translated into the Chinese system. In my experience, the most effective programs have combined government regulators and private sector expertise, so that private companies can explain which practices have worked well in the past, and which practices have not.

IV:- Conclusion

In conclusion, there is much work ahead, but I am cautiously optimistic that U.S. industry can and will secure the benefits of China's WTO commitments in the financial service sector.

I appreciate the opportunity to participate in the important work of the Commission, and would be pleased to answer any questions.