Electronic Payments: US v China DS413

1. Electronic Payments: US v ChinaDS413 Maria Leon Tim Kirkconnell David Levy

2. Circumstances • September 15, 2010 US requested consultations with China • US alleged China had restricted access to electronic payment systems in-country • US alleged that China’s control over renminbi transactions was unfair and violated Articles XVI and XVII of the GATS

3. US Request for Consultations Letter • China UnionPay (CUP) is the only company with guaranteed access to payments in China using the renminbi (RMB) • Other companies can only process payments in foreign currency

4. US Request for Consultations Letter • China Requires all merchant locations to use CUP compatible devices • Forces foreign companies to negotiate with individual merchants for access

5. POSITION • On 02/11/2011, the US requested a panel pursuant to Article 6 of the DSU. • “Certain restrictions and requirements maintained by China affecting electronic payment services for payment card transactions and the suppliers of those services (electronic payment services suppliers)“. US • The US’ panel request fails to provide a brief summary of the legal basis of the complaint in a clear manner. CHINA • China has failed to establish that the US' panel request is inconsistent with Article 6.2 of the DSU on the grounds that it does not provide a brief summary of the legal basis sufficient to present the problem clearly. PANEL

6. Scope of the expressions “payments services” and “money transmission services” • Electronic payment services for payment card transactions are one integral service. • EPS is the service through which transactions involving payment cards are processed and through which transfers of funds between institutions participating in the transactions are managed and facilitated. EPS means "payment and money transmission services" as one type of "all" such services. US • A service supplier that is merely "managing" or "facilitating" the supply of this type of payment service, or "processing" payment transactions, is not itself a party to the payment transaction. CHINA • The services at issue are classifiable under China's Schedule, which reads "[a]ll payment and money transmission services, including credit, charge and debit cards, travellers cheques and bankers draft (including import and export settlement)". • The Panel agrees with the US that "payment and money transmission services" include those services that "manage", "facilitate" or "enable" the act, of paying, or transmitting money. PANEL

7. MEASURES AT ISSUE The United States has identified a series of six requirements that impose market access restrictions and national treatment limitations on service suppliers of other WTO Members seeking to supply EPS in China. These measures are maintained through a series of legal instruments. Each of the requirements allegedly imposed by China is considered by the United States to be in breach of Articles XVI:1 and XVI:2 and Article XVII of the General Agreement on Trade in Services (GATS). US The requirements identified by the US as measures at issue in this dispute do not violate Article XVI or XVII of the GATS. China further claims that the identified measures establish a national inter-bank network for clearing and settling RMB payment card transactions and otherwise create uniform technical and commercial standards that allow this inter-bank payment card network to function. CHINA • See subsequent slides. PANEL

8. Measures/Requirements identified by the US The requirements/measures that impose market access restrictions and national treatment limitations are: • Sole Supplier Requirement -Mandates the use of CUP and/or establish CUP as the sole supplier of EPS for all domestic transactions denominated and paid in Renminbi; • Issuer Requirement – on issuers that payment cards issued in China bear the CUP logo; • Terminal Equipment Requirements - All ATMs, merchant card processing equipment and POS terminals in China must accept CUP cards; • Acquirer Requirements – Acquiring institutions must post the CUP logo and be capable of accepting all payment cards bearing the CUP logo; • Cross-Region/Inter-bank Prohibition - Non-CUP cards can’t be used for cross-region or inter-bank transactions ; and • Hong Kong/Macao - Requirement pertaining to card-based electronic transactions in China, Macao, and Hong Kong.

9. Panel’s conclusion regarding measures • China imposes requirements on issuers that bank cards issued in China bear the Yin Lian/UnionPay logo, issuers become members of the CUP network, and that the bank cards they issue in China meet certain uniform business specifications and technical standards; • China imposes requirements that all terminals (ATMs, merchant processing devices and POS terminals) in China that are part of the national bank card inter-bank processing network be capable of accepting all bank cards bearing the Yin Lian/UnionPay logo; • China imposes requirements on acquirers to post the Yin Lian/UnionPay logo, acquirers must join the CUP network and comply with uniform business standards and technical specifications of inter-bank interoperability, and that terminal equipment operated or provided by acquirers be capable of accepting bank cards bearing the Yin Lian/UnionPay logo;

10. Panel’s conclusion regarding measures(cont…) • China imposes requirements that CUP and no other EPS supplier handle the clearing of certain RMB bank card transactions that involve either an RMB bank card issued in China and used in Hong Kong or Macao, or an RMB bank card issued in Hong Kong or Macao that is used in China in an RMB-denominated transaction; • The United States failed to establish that China imposes requirements that mandate the use of CUP and/or establish CUP as the sole supplier of EPS for all domestic RMB payment card transactions; and • The United States failed to establish that China imposes broad prohibitions on the use of "non-CUP" cards for cross-region or inter-bank transactions.

11. GATS art. XVI – Market Access Restrictions These measures are inconsistent with China’s obligation to accord services and service suppliers of any other Member treatment no less favourable than that provided for in China’s Schedule and that China is maintaining or adopting measures set out in Article XVI:2 of the GATS. US None of these requirements "have anything to do with the maintenance or adoption of a limitation on market access 'in the form of' of a monopoly or exclusive service supplier arrangement" CHINA The US failed to established that these measures when considered either individually or jointly, are not inconsistent with Article XVI:1 and Article XVI:2(a) of the GATS; PANEL

12. GATS art. XVII – Less favorable treatment The US considers that these measures appear inconsistent with China’s obligations to accord services and service suppliers of any other Member treatment no less favourable than that it accords to its own like services and service suppliers. US China considers that it is unnecessary to resolve these questions. China does not specifically address whether these issues result in different treatment. CHINA • The issuer, terminal equipment, and acquirer requirements are inconsistent with Article XVII:1 of the GATS these requirements fail to accord to services and service suppliers of any other Member treatment no less favourable than China accords to its own like services and service suppliers; • The Hong Kong/Macao requirements are not inconsistent with Article XVII:1 of the GATS, as China has no national treatment obligation in respect of these requirements; PANEL

13. Panel’s recommendation • Under Article 3.8 of the DSU, in cases where there is an infringement of the obligations assumed under a covered agreement, the action is considered prima facie to constitute a case of nullification or impairment. The Panel concluded that, to the extent that the measures at issue were inconsistent with the GATS, they had nullified or impaired benefits accruing to the United States under that agreement. • Pursuant to Article 19.1 of the DSU, the Panel recommended that the Dispute Settlement Body request China to bring its measure into conformity with its obligations under the GATS.

14. Outcome of the Panel Decision • The DSB Accepted the report on August 31st, 2012 • China indicated it would comply with the DSB recommendations and requested an acceptable period of time to begin implementation

15. Proposals for Compliance • China complies with international interbank practices regarding transfer/handling of monetary transactions • Eliminate the monopoly of CUP • Allow market access for other financial institutions to offer bank card transactions involving RMB