Hannibal El-Mohtar


(Photo attribution: Karolina Grabowska)


Despite the tortuous path ahead for the US 2020 election campaigns, and the trials and tribulations of this year, the US-China Phase 1 Trade Deal (the “P1 Deal) remains in place.[1]

Although commitments under the P1 Deal are only between China and the US, international trade law limits the extent to which benefits under such agreements can be strictly bilateral.

In particular, Most Favoured Nation (“MFN”) requires World Trade Organization (“WTO”) members (like China and the USA) to give all WTO members the same benefits they give to a preferential trading partner.

This might leave some non-US entities with business in China wondering: is the P1 Deal beneficial only for US entities, or do other foreign entities also benefit?

Foreign Insurance Institutions (“FIIs”) especially may wonder: as China begins to further open its financial market, do non-US FIIs have any chance of benefitting from China’s treatment of US insurers, specifically under the insurance heading of the P1 Deal’s financial services chapter (Article 4.6)? If only US insurers benefit, would that be a Global Agreement on Trade in Services (“GATS”) violation, or would it be GATS compliant?

These are thorny legal questions, and answering them begins with a look at China’s commitments under GATS, the P1 Deal’s Article 4.6 insurance heading, and MFN under GATS.

As we will see, China has already voluntarily passed GATS compliant legislation extending one bilateral commitment in Article 4.6 to all foreign investors. It is certainly possible that China will follow a similar course of action with its other bilateral insurance commitments to the US. However, as is often the case with international trade law, whether it decides to do so will depend on both legal and diplomatic concerns rather than solely on legal considerations.


I. China’s P1 Deal Insurance Commitments Fall in Line with Prior Plans


(Attribution: Adrianna Calvo)

Modernizing and improving China’s insurance sector has been a strategic state goal since as early as 2014, with the passing of the Several Opinions of the State Council on Accelerating the Development of the Modern Insurance Service Industry (2014, the “Opinions”). Among the goals contained within the Opinions is that by 2020, insurance will become an essential means of risk and financial management for government, enterprises, and residents, with specific targets for greater insurance penetration (5%) and density (RMB 3,500 Yuan per person). [2]

In line with these objectives, at the start of the 2020 two sessions (两会, the “2020 Lianghui”) Premier Li Keqiang announced “higher government subsidies for basic medical insurance for rural and non-working urban residents” (third session of the 13th National People’s Congress). After the end of the 2020 Lianghui, the State Council also encouraged insurers to increase coverage for Chinese exporters and small to medium enterprises impacted by COVID-19 in its Guidelines about Further Strengthening Financial Services for SMEs and Micro Enterprises (Yin Fa 2020 No.120).

Like these more recent measures, many Chinese commitments to US insurers in the P1 Deal also dovetail with earlier Chinese reform plans. The text of Article 4.6 reads as follows:

Article 4.6: Insurance Services

  1. No later than April 1, 2020, China shall remove the foreign equity cap in the life, pension, and health insurance sectors and allow wholly U.S.-owned insurance companies to participate in these sectors. China affirms that there are no restrictions on the ability of U.S.-owned insurance companies established in China to wholly own insurance asset management companies in China. 
  1. No later than April 1, 2020, China shall remove any business scope limitations, discriminatory regulatory processes and requirements, and overly burdensome licensing and operating requirements for all insurance sectors (including insurance intermediation), and shall thereafter review and approve expeditiously any application by U.S. financial services suppliers for licenses to supply insurance services. In accordance with this commitment, China affirms that it has eliminated the requirement of thirty-years of insurance business operations for establishment of new foreign insurance companies. 
  1. The United States acknowledges current pending requests by Chinese institutions, including by China Reinsurance Group, and affirms that such requests will be considered expeditiously.


Observers will note that prior to the conclusion of the P1 Deal, the concession outlined in 4.6.1. was already scheduled to be passed. To this end, on December 06, the China Banking and Insurance Regulatory Commission had issued both the Detailed Rules for Implementing the Regulations Administering Foreign-Invested Insurance Companies in the PRC together with the Notice Clarifying the Timeline to Cancel Foreign Equity Ratio Restrictions in Joint Venture Life Insurance Companies. Most importantly, the concession in 4.6.1 was granted not solely to US enterprises (which would be a GATS violation, as we will discuss below), but rather to all foreign investors in China.

The US acknowledging “pending requests by Chinese institutions” in 4.6.3. relates to applications from Citic Group, China Re, and China International Capital Corp (CICC) for licensing in the US.

The only possible friction between China’s insurance sector P1 Deal and GATS commitments would be 4.6.2., where China singles out US firms for what appears to be preferential treatment: “review and approve expeditiously any application by US financial services suppliers for licenses to supply insurance services.”


II. The Road to Accession: China Included Insurance in its GATS Schedules of Commitments in 1994 and 2002


(Attribution: Manual Joseph)

Would this friction result in a possible GATS violation? Let us first examine China’s GATS commitments. For brevity, the particulars of these commitments are not listed in this article.

China’s first GATS commitments were published in 1994, prior to its accession to the World Trade Organization (“WTO”). A fundamental concept in understanding GATS commitments is the difference between “positive” and “negative” lists. WTO Members use a “positive” list to indicate their specific commitments to provide market access and national treatment in a schedule of commitments (“SOC”). On the other hand, a blanket MFN commitment applies to all areas of GATS, unless there is a “negative” reservation in the form of an exemption (discussed later, together with other exceptions). Whether or not a positive commitment is listed in the SOC, a WTO Member must not discriminate among its trading partners in terms of market access or national treatment.

At the time China made this SOC, foreign insurers had a minimal presence in China. The only FII in China in 1994 was AIA (a subsidiary of AIG), which had established a branch in Shanghai in 1992 (becoming the first foreign-invested insurance entity in the PRC). Later, in 1996, Manulife (a Canadian insurer) set up the PRC’s first life insurance joint venture with Sinochem.

Later, in 2001 China acceded to the WTO and a year later in 2002, China issued another SOC under GATS, leading to further liberalization. The ensuing relaxation of market entry rules ushered in a series of new insurance players in the PRC market. To better understand what this liberalization entailed, by way of overview, we can look at China’s commitments for its four “modes of supply” that took place. These “modes” refer to the four means for supplying services listed in GATS (see GATS I:2). Mode [2] (consumption abroad) became open for all but brokerages (meaning that China still reserves the right to restrict consumption of insurance services from brokerages based abroad). Most significantly, [3] dealing with commercial presence, was opened (but still subject to a number of restrictions). Modes of supply [4] (presence of natural persons) and [1] (cross-border trade) remained “unbounded” (meaning China had made no commitment to liberalize them), but with some exceptions for mode [1].


III. GATS MFN Applies to the P1 Deal, and no Exemptions or Exceptions Apply

Under GATS, there are two general, unconditional (with certain exceptions) obligations. The first is MFN, the second is the obligation of transparency. Only the first, MFN, is relevant to this analysis. The operative MFN provision for GATS is:

GATS Article II.1 (Most Favoured Nation)

With respect to any measure covered by this Agreement, each Member shall accord immediately and unconditionally to services and service suppliers of any other Member treatment no less favourable than that it accords to like services and service suppliers of any other country.

The effect of MFN is to forbid discrimination among a Member’s trading partners. For example, if China gives special market access to a US bank, it cannot deny that same access to a Canadian bank (except with some exceptions, discussed below).

Under GATS Article II, the test to determine whether a measure violates China’s MFN obligations is to ask whether it modifies “the conditions of competition to the detriment of like services or service suppliers of any other Member” (Appellate Body Report, Argentina – Financial Services, paras. 6.114-6.115.). Such an analysis must begin “with careful scrutiny of the measure, including consideration of the design, structure, and expected operation of the measure at issue” (Appellate Body Report, Argentina – Financial Services, para. 6.127).

As a result, any favourable treatment afforded solely to the US under the P1 Deal is discriminatory and must also extend to other foreign investors under MFN. For any measure covered by the GATS (in other words falling under the definitions in GATS Article I), a WTO member cannot give favourable treatment to services and service suppliers of any country without immediately and unconditionally giving no less favourable treatment to all WTO members (GATS Article II). This applies irrespective of whether that measure is the subject of a specific commitment in the SOC.


IV. Depending on How They Are Implemented, China’s Commitments to the US May Engage GATS and Extend to Other WTO Members


(Attribution: Mihai Vlasceanu)

China has already voluntarily extended many of its P1 Deal concessions to all foreigners. Recall that China already granted the concessions in Article 4.6.1 to all foreign insurers, making it GATS-compliant. As of January 1, 2020, all foreign insurers (and not just US insurers) are allowed full ownership of Chinese life insurance companies. Beginning April 1, 2020, this commitment also extends to the pension and health insurance markets. As mentioned in another article, under China’s new Foreign Investment Law, all FIIs will also now be governed by the Company Law of the People’s Republic of China rather than ad-hoc foreign investment laws.

However it remains to be seen whether China’s above commitments under Article 4.6.2 of the P1 Deal will violate GATS. Article 4.6.2, which can be split into two parts, appears to signal an intent to give US firms special treatment. The first part commits China to remove “any business scope limitations, discriminatory regulatory processes and requirements, and overly burdensome licensing and operating requirements for all insurance sectors (including insurance intermediation).” This part complies with GATS. The second, however, requires China to “thereafter review and approve expeditiously any application by U.S. financial services suppliers for licenses to supply insurance services.” This second part strongly indicates an intent to grant preferential, discriminatory treatment for the benefit of US firms.

The question is, will China:

  • Extend 4.6.2. commitments to all FIIs willingly, as it did with 4.6.1. commitments
  • Overtly discriminate in favour of US insurers (“De Jure Discrimination”) or
  • Covertly discriminate in favour of US insurers (“De Facto Discrimination”)?

In the case of [1], there is no MFN violation. This may happen and it is entirely possible for China to formulate regulations in its implementing measures which meet this P1 Deal term while affording equal treatment to other WTO Members.

In the case of [2], De Jure Discrimination, the MFN violation is straightforward and other WTO Members may initiate dispute settlement proceedings under the auspices of the Dispute Resolution Body (“DSB”), and most likely obtain a favorable decision. Chinese authorities are well aware of this and as a result [2] is unlikely.

In the case of [3], De Facto Discrimination, the issue becomes much more complicated and guiding WTO caselaw becomes necessary. In EC — Bananas III, the European Communities argued that MFN under GATS does not extend to De Jure discrimination, only De Facto discrimination. This was rejected (Appellate Body Report, EC – Bananas III, paras. 231-234). Applying the above analysis from Argentina Financial Services, any treatment which modifies the “conditions of competition” against one Member in favour of another falls afoul of MFN. In the Appellate Body (the “AB”)’s reasons in EC — Bananas for ruling against the EC, the AB expressly applied this standard to De Facto licensing discrimination: “various aspects of the EC licensing procedures at issue created less favourable conditions of competition for service suppliers of the complainants’” (Appellate Body Report, EC – Bananas III, see paras. 240-248).

The standard for breaching MFN in this context is low, and there is no separate enquiry into the regulatory objective or concerns behind a measure’s impact on the conditions of competition (Appellate Body Report, Argentina – Financial Services, paras. 6.105-6.106):

This legal standard does not contemplate a separate and additional inquiry into the regulatory objective of, or the regulatory concerns underlying, the contested measure. Indeed, in prior disputes, the fact that a measure modified the conditions of competition to the detriment of services or service suppliers of any other Member was, in itself, sufficient for a finding of less favourable treatment under Articles II:1 and XVII of the GATS.

As a result, if China visibly moves the needle in favour of licensing US insurers, it breaches GATS, but if it does so inconspicuously, it would be insufficient to mount a GATS challenge. If China wishes to grant favourable licensing terms US insurers in a way that does not lead to losing a GATS challenge, it must do so in a manner that is almost imperceptible and at the least, non-provable. For example, any kind of quid pro quo that leads to a US firm being licensed in China shortly after the US licenses a Chinese firm (like China Re, Citic Group, or CICC) would appear transactional, arouse suspicion, and could be challenged as a MFN violation. In challenging any discriminatory treatment, the fact that in the text of the P1 Deal, China’s 4.6.2 commitment (to approve US insurers) immediately precedes the US’ 4.6.3 commitment (to acknowledge the “pending requests” of Chinese insurers) may be used as a smoking gun to show discriminatory intent.



Legally under GATS, Chinese concessions to the US must be legislated in ways that do not discriminate between WTO Members. If these concessions instead extend only to the US, or if it is discovered that a government measure in fact discriminates against other WTO Members, then those Members may initiate consultations. Failing consultations, those Members may pursue dispute settlement under the auspices of the DSB.

So far all of China’s measures implementing the Phase 1 Deal appear to have been GATS compliant and have not led to a challenge from another Member.

However, what might possibly occur, and raise questions about compliance with GATS, is a quid pro quo between the Chinese and US administrations. For example, licensing a US insurer in exchange for the US licensing a Chinese insurer. This would be a MFN violation. However, as a form of De Jure Discrimination, such violations are notoriously difficult to prove.

This means that, from an evidentiary standpoint, there is room — however narrow — for China to license US insurers on a preferential basis without demonstrably affecting the conditions of competition in the Chinese insurance market. Nevertheless WTO precedent on the matter is clear and if such De Jure Discrimination were to be proven, it would not be difficult to show that such treatment adversely affects the conditions of competition in violation of MFN. [4]

Although preferential licensing of US insurers is an option available to China, diplomatic considerations will be taken into account on whether or not to pursue it. China voluntarily extended the commitment in Article 4.6.1 to all FIIs, and has been carefully planning this phase in its insurance reform since before the release of the 2014 Policy. It may find that the economic benefits of greater competition and variety in the PRC insurance market are more valuable to its long-term reform plans than the diplomatic points it would gain through a licensing quid pro quo with the current US administration. If that is the case, it would be logical to then also voluntarily extend the commitment in Article 4.6.2 to all FIIs.


[1]In fact, damaging floods and spiking corn prices have pushed Chinese importers to buy record volumes of U.S. corn, which could help the government fulfil a pledge under the P1 Deal. See Hallie Gu, Dominique Patton, “Exclusive: China plans wheat, rice sales to tame surging corn prices – sources”, Reuters, July 21, 2020, online: <>

[2]Zhen Jing, Chinese Insurance Contracts: Law and Practice, (Abingdon, Routledge 2017) at 23.

[3]There are a few exceptions to the MFN requirement in Article II, none of which apply to the P1 Deal. For one, if the P1 Deal were an Economic Integration Agreement (“EIA”), China could give the US preferential access under GATS Article V. However, in order for an agreement to qualify as an EIA it must, among other requirements, have “substantial sector coverage” under services, GATS Article V. The P1 Deal cannot be characterized as having “substantial sector coverage”, because among other reasons, the P1 Deal does not liberalize all four GATS modes of supply (a key requirement for substantial sector coverage). It also cannot be characterized as a regional trade agreement, which like an EIA could spare China from Article II MFN commitments, because the US and China do not share a border (Article II.3). If either were the case, China could have claimed the right to liberalize its market solely for the benefit of US insurers under the P1 Deal, and not extend that same treatment to all other WTO Members.

A couple of other exceptions are worth reviewing briefly, but they do not apply either. The first is exemptions. A WTO Member may enter reservations to its MFN obligations through MFN “exemptions” in its Annex to the GATS. However, China’s insurance commitments were not exempted in its annex. The only exempted industries are those relating to transportation (maritime, international, and freight and passengers). In other words, under GATS, the Chinese insurance sector (including life, pension, and health insurance) is not exempt from MFN treatment. Second is government procurement: direct purchases of insurance services by the Chinese government are not subject to MFN. It is unclear, however, whether or not MFN would apply to purchases by state owned enterprises (“SOEs”).


[4]In 2020, should China continue to go through the motions of showing GATS compliance, though? The WTO does not have any teeth, and cannot enforce any of its decisions. The WTO’s dispute resolution platform also continues to face a crisis due to the US blocking the appointment of AB panelists.

The answer is most likely yes. Unfavourable rulings do carry consequences. They sometimes lead to countermeasures from trading partners and continue to carry weight in international diplomacy. Members prefer to avoid unnecessary pressure from other Members, and it is unlikely China will overtly ignore GATS rules.


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