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US - China Electronic Payment Services

US - China Electronic Payment Services. Presented by: Evan Morris Charles Murray Sebila Raubacher. Outline. History, Context, and Issue of DS 413 What is EPS? US providers vs. Chinese providers DS 413 Alleged Violations Specific Provisions US and Chinese positions WTO Resolution

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US - China Electronic Payment Services

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  1. US - China Electronic Payment Services Presented by: Evan Morris Charles Murray Sebila Raubacher

  2. Outline • History, Context, and Issue of DS 413 • What is EPS? US providers vs. Chinese providers • DS 413 Alleged Violations Specific Provisions • US and Chinese positions • WTO Resolution • Conclusion and Group Observations

  3. History and Context Of Case • Consultations 15 September 2010 • Complainant: United States • Respondent: China • Issue: “certain restrictions and requirements maintained by China pertaining to electronic payment services for payment card transactions and the suppliers of those services”. • Articles XVI and XVII of the GATS.

  4. History and Context • Electronic payment services (EPS) are providers that make possible payments using credit, debit, prepaid, and other payment cards. • Each year well over one $1 trillion worth of electronic payment card transactions are processed in China. (1% fee is $10 billion) • Most of the world’s top providers of electronic payment services for credit and debit card transactions are headquartered in the United States. • By industry estimates, the U.S. stands to gain 6,000 jobs related to EPS.

  5. History and Context • China permits only a Chinese entity to supply EPS for card transactions denominated in renminbi • Other Members can supply services in foreign currency only • All cards must bear the Chinese company logo • Chinese entity has guaranteed access to all merchants • Other Members have to negotiate access to merchants • Other Members system must be compatible with China entity’s card processing device

  6. History and Context • China’s entity – UnionPay • Owned by 85 Chinese banks, led by state-owned lenders • In 2011 it’s profit rose about 70% to 1.07 billion yuan • Half of its revenue comes from domestic transactions • Direct competition to Visa and MasterCard • Now also accepted in 135 countries

  7. Union Pay today

  8. Specific WTO Agreement and Provisions: Alleged Violation of: • General Agreement on Trade in Services (GATS) • Articles XVI – Market Access • 1 – Modes of supply - No less favorable treatment • 2(a) – No limitation son the number of service suppliers "..Member cannot limit the number of service suppliers whether in the form of quotas, monopolies, exclusive service providers...“ • Article XVII – National Treatment

  9. Modes of Supply • Mode 1:      from the territory of one Member into the territory of any other Member • Mode 2:      in the territory of one Member to the service consumer of any other Member • Mode 3:      by a service supplier of one Member, through commercial presence in the territory of any other Member • Mode 4:     by a service supplier of one Member, through presence of natural persons of a Member in the territory of any other Member

  10. Contested Issue in Chinese Law • China’s accession schedule Item 7: Financial Services B: Banking and Other Financial Services d) All payment and money transmission services, including credit, charge and debit cards, travelers cheques and bankers drafts 法

  11. Consistency with WTO agreements: • China blocked foreign ESP providers • Preferential Access to China Union Pay • Dual-logo cards • Freedom of Commitment to GATS -major distinction between GATT & GATS

  12. Observations Regarding DS 413 • China’s Schedule of Commitments includes a market access commitment and national treatment commitment for EPS providers • Chinese limitations that restrict certain RMB transactions • Rejection of US claims of across-the-border monopoly with CUP • Allowing foreign suppliers of EPS would generate lower transaction costs for users

  13. U.S. Position • China permits only Chinese UnionPay to supply EPS for payment card transactions denominated and paid in renminbi in China.  • Other EPS suppliers (notably Visa and Mastercard) of other Members can only supply these services for payment card transactions paid in foreign currency • This restriction gives CUP a monopoly on EPS transactions within China

  14. Chinese Position • Market entry for electronic payment services is possible and that foreign firms need only meet certain uniform business specifications and technical standards.

  15. Major Findings in Favor of the U.S. • Bank cards in China that required the YinLian/UnionPay logo. (GATS Article XVII:1) • The required mandate to join the CUP network. (GATS Article XVII:1) • Banking terminals that were all required to accept all bank cards bearing YinLian/UnionPay logo. (GATS Article XVII:1)

  16. Major Findings in Favor of China • China had not implemented policies that guaranteed CUP as the sole supplier for all domestic RMB (GATS Article XVI:1) • The use of “non-CUP” cards for cross region or inter-bank transactions. (GATS Article XVI:1) • The panel found that the United States had failed to establish that China’s market access commitment for EPS and for entering the market were different. (GATS Article XVI:1)

  17. SUMMARY OF FINDINGS

  18. SUMMARY OF FINDINGS

  19. RESOLUTION • Ultimately the issuer requirements, joining the CUP network and foreign acquirer requirements for bank cards in China were inconsistent with Article XVII:1 of the GATS (National Treatment) • The panel found that CUP was not in fact a monopoly as the there were no requirements restricting market entry. Article XVI:1 of the GATS (Market Access)

  20. CONCLUSION • Tim Reif, general counsel for the U.S. Trade Representative's office, declared the WTO ruling favorable saying that some small points had been lost but that there were areas in every trade dispute where "you don't quite get what you're looking for". • ShenDanyang, a spokesman for the Ministry of commerce (MOC), made a statement that the PRC welcomed the WTO’s decision, namely its dismissal of U.S. accusations concerning China’s UnionPay’s market status as a monopoly at home by barring foreign service providers from entering the Chinese market.

  21. Group Observation • Although the United States failed to establish a prima facie case against Chinese UnionPay as a monopoly, it seems clear through the WTO ruling that there was no competitive incentive for foreign credit card companies to enter the market in China

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