Transcript China — Electronic Payment Services

US - CHINA
ELECTRONIC
PAYMENT
SERVICES
Presented by:
Evan Morris
Charles Murray
Sebila Raubacher
OUTLINE
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
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
HISTORY AND CONTEXT OF CASE
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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.

HISTORY AND CONTEXT

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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.
HISTORY AND CONTEXT
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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
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

UNION PAY TODAY
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
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
Article XVII – National Treatment
MODES OF SUPPLY
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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
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
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
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OBSERVATIONS REGARDING DS 413
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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
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
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CHINESE POSITION
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Market entry for electronic payment services is
possible and that foreign firms need only meet
certain uniform business specifications and
technical standards.
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)
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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)
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SUMMARY OF FINDINGS
Document
Article
Article summary
Item in
question
In favor of
China
Accession
Schedule of
Services
7.B. (d)
Includes Financial
Services, specifically
All payment
transmission
services
USA
GATS
XVI
Market Access
Issuer, terminal
equipment
China
GATS
XVI 2(a)
Market Access – limit
no. of suppliers
Issuer, terminal
equipment,
acquirer
China
GATS
XVI 2(a)
Market Access – limit
no. of suppliers
Issuer, terminal
equipment,
acquirer for
Hong
Kong/Macao
USA
GATS
XVI: 1
Market access no less
favorable than
Schedule
Issuer, terminal
equipment,
acquirer
China
SUMMARY OF FINDINGS
Document
Article
Article
summary
Item in
question
In favor of
GATS
XVII: 1
National
treatment, no
less favorable
Issuer
requirements
USA
GATS
XVII: 1
National
treatment, no
less favorable
Terminal
equipment
requirements
USA
GATS
XVII: 1
National
treatment, no
less favorable
Acquirer
requirements
USA
GATS
XVII: 1
National
treatment, no
less favorable
Hong
Kong/Macao
USA
RESOLUTION
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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)
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".
Shen Danyang, 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.
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