Hearing on The China-WTO Agreement and Financial Services

Prepared Testimony Mr. Gary Benanav
Chairman and CEO
New York Life International, Inc.
on behalf of the International Insurance Council

9:00 a.m., Tuesday, May 9, 2000

Mr. Chairman, members of the Committee, I'm grateful for the opportunity to offer the perspective of the International Insurance Council on China's impending membership in the WTO, and on the question of acknowledging that step through permanent normal trade relations status.

The International Insurance Council (IIC) represents members who generate nearly 80 percent of all U.S. international insurance and reinsurance sales abroad. This totals more than $50 billion annually. Member companies operate in over 110 markets. Through the Council, member companies are active in promoting increased trade and investment relations around the world. Also, the IIC counts among its members, The American Council of Life Insurers, The Council of Insurance Agents and Brokers and the Reinsurance Association of America.

My job is managing the international business operations of New York Life, one of America's leading life insurance companies. In that role, I find myself regularly involved in public policy issues that have a bottom-line significance for New York Life International. The issues of China's WTO membership and PNTR certainly fall into that category. Make no mistake: my company and its policyholders and all of those represented by the IIC have a great deal at stake in China's WTO accession.

But the insurance industry's interest in this issue is more than parochial. I'm here today because of my industry's firm conviction that China's integration into the WTO is profoundly in America's broad national interests -- economically, geo-strategically, and in terms of the values that are most important to us as Americans.

For proponents of PNTR, the arguments for a "yes" vote on this issue are compelling. In negotiating the terms for China's entry into the World Trade Organization (WTO), U.S. trade officials concluded an agreement that gives American manufacturers, farmers, and service providers world class levels of access to China's huge market. Economically, the agreement is a one-way street running in America's direction. No one seriously debates this; the economic arguments overwhelmingly favor the agreement and this alone provides a strong case for extending to China permanently the "normal" trading status it has now enjoyed for two decades.

And yet we can't, and don't, casually discount the arguments from the other side of this debate. I know that members of Congress, in both Houses and on both sides of the aisle, care deeply about China's human rights record, its treatment of religious minorities, its posture towards its Asian neighbors and its view of global security issues. I'm not here to argue those concerns are unwarranted. On the contrary, every American has a stake in seeing these concerns addressed effectively as part of U.S.-China relations. The real question underlying the PNTR debate is how will we as a country influence the development of an open, stable and cooperative China.

On that score, one of the key debating points regarding PNTR centers around the degree to which China's membership in the WTO, and its associated economic and trade liberalization commitments, will advance the development of a more democratic China. We have to be careful in this argument. I think it is unwise to portray WTO membership as a sort of "silver bullet" that will rapidly transform Chinese society in a way that addresses many U.S. policy concerns. There are no quick fixes to these problems, and we should not pretend WTO membership would provide such a fix.

But I do believe U.S. goals can be achieved most effectively and most quickly by granting China PNTR status, bringing it into the WTO and integrating its economy more deeply with that of the rest of the world. Moreover, I'm convinced that the financial services dimensions of China's WTO package speak eloquently to the power of WTO accession to foster positive economic and social change in China.

China's trade concessions in the financial services arena are far-reaching. They will make an enormous difference in the level of access and transparency companies like mine will have in the China market. Those of us in the U.S. insurance services industry have much to be enthusiastic about in the agreement negotiated by U.S. Trade Representative Charlene Barshefsky's team.

The agreement shifts the entire basis for foreign companies' participation in the Chinese market. Under the agreement, gone will be the days of arbitrary and discretionary "needs tests" and other subtle and not-so-subtle barriers to entry. Licenses to operate will be issued based on clear-cut criteria that matches international insurance industry standards. In the life insurance sector, the market for group policies, pension, and annuity products will be open within five years of China's accession to the WTO. The practice of imposing geographic limitations on the sales area of foreign insurers will be phased out within three years. Joint venture equity restrictions are likewise being relaxed. All major U.S. insurance companies have established representative offices in China, at expense levels that average several million dollars annually, in expectation that China eventually would join the WTO. Now that the details of China's commitments on opening its insurance market are agreed, our industry urges the Congress to take the single step needed to allow the benefits of those commitments to flow to us and not just to our competitors.

The significance of these commitments is particularly striking when one considers the future of the Chinese market for life insurance and other personal financial and insurance services products. Although China has more than one-fifth of the world's population, it currently accounts for less than two-tenths of a percent of the world's life insurance market. Even though the Chinese have one of the highest individual savings rates in Asia, China spends less on all forms of insurance than 28 U.S. states spend individually.

This disparity between China's size and its currently underdeveloped insurance market can be summed up in a single word: potential. The market-opening commitments contained in China's WTO agreement are likely to lead to volume increases that exceed 300 percent -- more than $4.8 billion.

China's market liberalization steps will accelerate a process of awareness about insurance and other personal financial management tools that is already underway in China, by virtue of changing attitudes about personal finance. As we have seen so clearly in the Eastern European region, doubts about the solvency of state-run pension systems are increasing the demand for privately-held annuities and life insurance.

In China, this dynamic is particularly relevant in connection with emerging strains on the traditional rural system of old age support. As China's huge population ages, the sheer number of elderly will stretch the traditional rural system beyond the breaking point. Recognizing this, individual Chinese are increasingly moving to assure their future financial stability by investing in personal financial instruments. The WTO agreement will accelerate that trend, and will allow U.S. companies to participate more fully in it.

So the terms of the agreement are clearly very good for U.S. providers of all forms of financial services products. But this economic argument is only one part of the reason we are supporting PNTR. My industry and my company are convinced that vital U.S. strategic interests are at stake as well.

We have seen over and over in the "newly industrializing" countries that competitive, dynamic and transparently regulated financial services systems are at the very core of entrepreneurship and economic freedom. A mature financial services market creates stable pools for investment in infrastructure, housing and other critical needs. Through its commitments in the WTO agreement, the Chinese government has taken a monumental step towards strengthening this market and expanding the financial horizons of Chinese citizens. I am convinced the Chinese negotiators knew exactly what they were doing in offering such far-reaching "concessions" in the financial services and insurance sector areas, because those very "concessions" hold the potential to spark dramatic developments in individual prosperity and capital mobilization in China.

President Clinton, in arguing the case for PNTR, has noted that "with lower [trade barriers] and greater competition, China's state sector will shrink, [and] the private sector will expand." I have no doubt the enhanced ability of American financial services companies to compete and grow businesses in China will contribute directly to that process. By providing greater opportunities for personal and systemic financial security, American financial services firms will be enabling Chinese economic freedom and social stability.

The investments that millions of Chinese make in an expanding array of personal financial instruments will be translated into a stronger financial foundation for the country as a whole. And just as the insurance industry in the United States has enabled some of this country's most significant investments in infrastructure and productive enterprises, the expansion of China's financial services market will reinforce the entrepreneurial spirit that is already at work creating a "new China."

Finally, I would like to note our belief that U.S. national security interests will be served through an extension of PNTR to China. As a country, we are linked economically and strategically to the Asia Pacific. Stability and peace in that region is essential to businesses' ability to compete in those markets. And regional stability will be at risk unless China is included in the regional and world community and there exists a degree of cooperation and predictability in U.S.-China relations on which we as business -- as well as our allies and friends -- can rely. Or put differently, rejection of PNTR will isolate America from China, will undermine the economic reformers in Beijing, will lessen the security of our allies, and will make confrontation in the U.S.-China relationship all but certain.

The bottom line is that China's participation in the World Trade Organization is a truly pivotal development in that country's evolution towards greater economic reform, political openness and full integration into international rules based disciplines on issues ranging from trade to nonproliferation to environment. Congress, by approving PNTR, can send a strong signal that it recognizes the benefits -- for the citizens of both China and the United States -- of China's decision to play by global rules.

On behalf of all members of The International Insurance Council, thank you for your attention, and for inviting me to appear today.

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