U.S. - CHINA (DS 413)ELECTRONIC PAYMENT SERVICES

Bilal Kayani

Tareq Kayali

Ruth Mikre

Case Facts and Dates

• Complainant: United States• Respondent: China• Third Parties: Australia; Ecuador; European Union;

Guatemala; Japan; Republic of Korea; India• Request for Consultations: September 15th, 2010• Panel Report Circulated: July 16th, 2012• DSB Adoption of Report: August 31st, 2012• Time period for resolution: 11 months• Actual Agreed Procedures date: August 19th, 2013 • China – Electronic Payment Services represents the

first dispute in which a WTO panel considers and makes findings on a Member’s financial services commitments

US Allegations

On 15 September 2010, the United States requested consultations with China with respect to “certain restrictions and requirements maintained by China pertaining to electronic payment services for payment card transactions and the suppliers of those services”The United States alleged the following requirements were in violation of China’s obligations under GATS:•(i)requirements that mandate the use of China Union Pay, Co. Ltd. (CUP) and/or establish CUP as the sole supplier of electronic payment services (EPS) for all domestic transactions denominated and paid in China’s domestic currency, renminbi (RMB) (the “sole supplier requirements”) Service suppliers of other WTO Members can only supply these Electronic Payment Services for foreign currency transactions•(ii) requirements on issuers that payment cards issued in China bear the CUP logo (the “issuer requirements”)•(iii)requirements that all automated teller machines (ATM), merchant card processing equipment, and point-of-sale (POS) terminals in China accept CUP cards (the “terminal equipment requirements”) •(iv)requirements on acquiring institutions to post the CUP logo and be capable of accepting all bank cards bearing the CUP logo (the “acquirer requirements”) •(v) broad prohibitions on the use of non-CUP cards for cross-region or inter-bank payment card transactions (“cross-region/inter-bank prohibitions”)•(vii) China also required all payment card processing devices to be compatible with that entity's system•( viii) Chinese entity (China Union Pay) has guaranteed access to all merchants in China that accept payment cards, while services suppliers of other Members must negotiate for access to merchants.

Citibank Card with Union Pay Logo

As part of the US’s allegations of monopolization, the US pointed to the requirement by China that all EPS cards must bear the CUP logo

Alleged GAT ViolationsChina Violets Agreements on Market Access•Article XVI: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 favorable than that provided for under the terms, limitations and conditions agreed and specified in its Schedule

•Article XVI:2(a)• “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”.

China Violates Agreements on National Treatment •Article XVII

• requires that foreign services suppliers of like services are treated no less favorably than domestic service suppliers unless a Member reserved discriminatory measures of this type in its Schedule.

Evolution of EPS (China)- Background

• Payment Card System inefficient.

• EPS networks ad hoc development.• Multiple terminals vs. None• Access cash and make

purchases from POS terminals bearing respective bank logos

• Incompatibility between bank networks. • Inter-Bank vs. Cross-Bank

Remedial Policy Measures

• 1993 – Efforts to develop network.

• 2002 – Delegation of project to UnionPay (CUP).

• Uniform technical standards adopted.• Payment cards• POS terminals• Yin Lian Logo

• Adherence to established Business Specifications for Bank card interoperability.

China Case Arguments

• US definition of• Services through which transactions

involving payments cards are processed• “Systems” that intermediate electronic

payment services.• Five distinct elements of alleged “System”

1.Processing Infrastructure2.Process of approving or declining3.Delivery of transaction information4.Calculation, determination and reporting

of financial position5.Facilitation, and management in transfer

of net payments• Descriptions do not encompass issuance

of payment card transactions.

Continued• Three of five elements of “system”

relate to clearing and settlement.• Effect of the challenged measures

• Affect the ability of network operators.

• Do not affect ability of financial institutions to enter and compete.

• Services at issue are network services.• Services relate to operation

telecommunication and data processing

• Operators supply authorization, clearing and settlement services.

Case Position

• US failure to demonstrate Market Access and National Treatment Commitments• Did not meet Burden of

Proof

• US relies on the same aspects of the same measures.

Panel

• February 11th, 2011- US requested establishment of a panel

• March 25, 2011- DSB established panel• Australia, EU, Guatemala, Japan & Korea

• Ecuador & India reserved 3rd party rights

Panel Considerations

• Issuer Requirements• Terminal Equipment Requirements• Acquirer Requirements• Hong Kong/ Macao Requirements

Panel Examinations• How should EPS be classified?

• Payment and money transmission services • Settlement and clearing series for financial assets

• Did Chinese regulations permit/ encourage a CUP monopoly and restrict market access?

• Did Chinese regulations endorse less favorable treatment for foreign EPSs and EPS suppliers?

Panel Findings

• EPS viewed as integrated service: subsector 7.B(d) within Banking and other Financial Services

• In the case of the Hong Kong/ Macao markets: CUP designated as primary EPS supplier but NOT as the sole supplier in all domestic transactions

• Non-existence on “broad prohibitions” of non-CUP cards for cross-region or inter-bank transactions

• China fails to align with Market Access Commitments under Article XVI 2(a) in the case of Hong Kong/ Macao

• China fails to align with National Treatment Agreements under Article XVII

Implications

• CUP is the 3rd largest provider of EPS• First case to interpret provisions of FSA• Flexibility/ Fairness of the DSB

Thank you/Questions?