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To: John Cuthbertson who wrote (3365)	11/17/1999 8:45:00 PM
From: Caxton Rhodes	Respond to of 13582

Foreign Firms Seek To Salvage China Telecom Deals By Reuters staff 17 November 1999 A WTO pact between China and the United States has given foreign firms a new weapon in their battle with China Unicom over $1.4 billion in frozen investments in telecommunications networks, executives said on Wednesday. "WTO will give us more ammunition against claims that our contract is irregular," said a Western telecom executive whose company invested in a China Unicom mobile phone network. "I think it's going to make it fairly difficult for Unicom to negotiate from now on," he said. China's number two telecom firm has been fighting for more than a year to nullify joint ventures with two dozen foreign companies following a declaration by industry regulators that the projects were "irregular". Since the mid-1990s, the foreign firms had used Chinese middlemen to skirt a ban on overseas participation in the sector and pour a total of $1.4 billion into Unicom's networks. Cash-starved Unicom initially welcomed the capital but is now trying to buy out foreign partners to pave the way for a multi-billion dollar overseas stock listing in April. Most foreign companies have rebuffed Unicom. "GRANDFATHER" CLAUSE SEEN THE KEY Now the companies are turning to a key pact signed between the United States and China on Monday, which would require China to gradually open telecom firms to 50 percent foreign ownership as a term of entry into the World Trade Organisation. Equally important, China has agreed under the accord to "grandfather" - or seal in place - all existing operations in service sectors. "China will grandfather all existing current market access and activities in all services sectors," the pact said. "This will protect existing American distribution services, financial services, professional and other service providers in China, including those operating under contractual or shareholder agreements or a licence, from restrictions as Chinese commitments phase in," the document said. Europe will probably seek a similar clause in any WTO pact it negotiates with China, executives said. Several foreign companies said they would seek to use the grandfather clause to maintain a stake in their joint ventures with Unicom. "I think the WTO signing will upset the momentum of the current negotiations," the Western company executive said. "We're going to re-look our strategy from the bottom up." BUT WILL UNICOM ACCEPT THE ARGUMENT? It is far from clear whether China Unicom or industry regulators would entertain protection under WTO. "If you were to ask Unicom, I think whey would give you an answer that it doesn't change anything," said one source familiar with the issue. "It's to their advantage to get the foreigners out for a cheap price and then go do a public offering," he said. China Unicom declined immediate response on the issue. Still, a second Western executive with a stake in the issue said Unicom might see advantage in maintaining its partnerships. "For starters, they don't have the money to pay us off. Second, they might see the bright side of strong partnerships with multinationals" when Unicom seeks business opportunities abroad, he said. Unicom has offered to pay back its partners their original investments in Chinese currency, plus a few percent in interest. But foreign companies have rejected the offers, which they say vastly underestimate the current value of networks and fail to account for revenues that would be earned over the life of contracts spanning up to 15 years.