DISPUTE SETTLEMENT: DISPUTE DS413

1. DISPUTE SETTLEMENT: DISPUTE DS413 China — Certain Measures Affecting Electronic Payment Services

2. Outline • History & Context • The Main WTO Issues and applicable GATS Articles • The Position of the Complainant and Respondent • WTO Panel Findings • National Perspectives • Implementation • Proposal

3. History & Context • Chinese market for electronic payments expected to open by Dec. 11, 2006 • Still, in 2010, China only allowed China UnionPay (CUP) to supply electronic payment services for all transactions paid in Renminbi. • In 2009, electronic payments in China amounted to US$722billion. This was expected to double by 2012.

4. History & Context • Also, service suppliers of other WTO members could only handle transactions made in foreign currencies. And all payment cards of other companies must bear CUP’s logo. • Finally, CUP had access to all Chinese merchants that accept credit cards while foreign suppliers had to negotiate for access.

5. History & Context • September 2010 – US formally requests consultations with China, claiming abuse of Articles XVI and XVII. We are concerned that China is breaking its trade commitments to the United States and other WTO partners, both by favoring its one state-owned financial services firm to the exclusion of American credit and debit card companies…USTR is fighting for the American jobs threatened by China’s actions, and insisting on the level playing field promised in our WTO agreements” -Ron Kirk, US Trade Rep

6. History & Context June 23, 2011 – US requested the Director-General to determine the composition of the panel. Feb. 11, 2011 – US requests the creation of a panel. July 4, 2011 – Panel composition determined. March 26, 2011 – DSB agreed to create panel. Ruling issued on July 16, 2012

7. The Main WTO Issues • National Treatment • Market Access The United States claimed that, in view of commitments made in section 7.B(d) of China’s GATS schedule, the Chinese electronic payment services requirements are inconsistent with China's market access and national treatment obligations under Articles XVI and XVII of the GATS.

8. China’s GATS Schedule 7.B(d) “[a]ll payment and money transmission services, including credit, charge, and debit cards, travellerscheques and bankers drafts (including import and export settlement)”.

9. General Agreement on Trade in Services (GATS) • Article XVI: Market Access • 1.       With respect to market access through the modes of supply identified in Article I, each Member shall accord services and service suppliers of any other Member treatment no less favourable than that provided for under the terms, limitations and conditions agreed and specified in its Schedule. • 2.       In sectors where market-access commitments are undertaken, the measures which a Member shall not maintain or adopt either on the basis of a regional subdivision or on the basis of its entire territory, unless otherwise specified in its Schedule, are defined as: • (a)      limitations on the number of service suppliers whether in the form of numerical quotas, monopolies, exclusive service suppliers or the requirements of an economic needs test;

10. General Agreement on Trade in Services (GATS) • Article XVII: National Treatment • 1.       In the sectors inscribed in its Schedule, and subject to any conditions and qualifications set out therein, each Member shall accord to services and service suppliers of any other Member, in respect of all measures affecting the supply of services, treatment no less favourable than that it accords to its own like services and service suppliers. • 2.       A Member may meet the requirement of paragraph 1 by according to services and service suppliers of any other Member, either formally identical treatment or formally different treatment to that it accords to its own like services and service suppliers. • 3.       Formally identical or formally different treatment shall be considered to be less favourable if it modifies the conditions of competition in favour of services or service suppliers of the Member compared to like services or service suppliers of any other  Member.

11. The Main WTO Issues (cont.) • Are EPS included in China’s GATS schedule? • If so, are the Chinese requirements consistent with the market access obligations of Article XVI? • If so, are the Chinese requirements consistent with the national treatment obligations of Article XVII?

12. The Position of the USA (Complainant) • Are EPS included in China’s GATS schedule? YES • If so, are the Chinese requirements consistent with the market access obligations of Article XVI? NO • If so, are the Chinese requirements consistent with the national treatment obligations of Article XVII? NO Third Parties: Australia, Ecuador, European Union, Guatemala, Japan, Korea, India

13. The Position of China (Respondent) • Are EPS included in China’s GATS schedule? YES • If so, are the Chinese requirements consistent with the market access obligations of Article XVI? YES • If so, are the Chinese requirements consistent with the national treatment obligations of Article XVII? YES

14. WTO Panel Findings • Alleged requirements that establish China UnionPay (CUP), a Chinese company, as the sole supplier of electronic payment services (EPS) for all domestic Renminbi (RMB) payment card transactions; • WTO Finding: Mixed findings, rejected national treatment claims of US but determined that China maintains CUP as a monopoly supplier for the clearing of certain types of RMB-denominated payment card transactions • Alleged requirements that payment cards issued by banks in China bear the “Yin Lian”/“UnionPay” logo (the logo of CUP's network); • WTO Finding: Substantiated US Claim

15. WTO Panel Findings • Alleged requirements that all ATMs, merchant card processing equipment and point-of-sale terminals in China be capable of accepting payment cards bearing the “Yin Lian”/“UnionPay” logo; • WTO Finding: Substantiated US Claim • Alleged requirements that acquiring institutions post the “Yin Lian”/“UnionPay” logo and be capable of accepting all payment cards bearing the “Yin Lian”/“UnionPay” logo; • WTO Finding: Substantiated US Claim • Alleged prohibitions on the use of non-CUP cards for inter-bank and cross-region payment card transactions; and • WTO Finding: Substantiated US Claim

16. Both Countries Claim Success • The Ministry of Commerce (MOC) on Friday welcomed a ruling by a World Trade Organization (WTO) dispute panel rejecting part of the accusations made by the United States against China's handling of electronic payments. http://news.xinhuanet.com/english/business/2012-08/31/c_123657947.htm • Tim Reif, USTR general counsel, said in a teleconference with reporters that the WTO panel found in favor of the United States "with respect to each aspect.” http://www.google.com/hostednews/afp/article/ALeqM5g_MaK0zK1lCFW77RX71YWr01-6LA?docId=CNG.b875bca87dc5066fb2c7b7510ef57454.1a1

17. Implementation • Neither country appealed the panel report • China and the USA reached mutual agreement that a July 31st, 2013 deadline represented a reasonable amount of time for Chine to implement the panel’s recommendations and meet its WTO obligations • It will likely take several years, rather than 11 months agreed to, for full implementation • Prior to the final report, China accelerated regulatory efforts in the EPS industry • China granted 96 non-financial institution payment business licenses • China issued EPS industry regulation drafts

18. Our Proposal • Though neither country appealed the panel’s report it will likely take more than 11 months and one case for the issue to be completely resolved • The USTR should form a committee (including industry representatives) to investigate whether or not China has met its obligations • If obligations are not met, the US may request a subsequent compliance panel to maintain attention on the issue • China should continue to draft regulations and issue additional business licenses in the EPS industry to demonstrate their willingness to comply and to avoid criticism if obligations are not met entirely by July 31, 2013