WTO Case DS413:
Dispute on Certain Measures
Affecting Electronic Payment
Services (EPS)
CHINA
VS.
UNITED STATES
By: Nicole Russell, Aaron Stanley, Rebecca Toth
10/08/14
Global Services Industry Overview
• US-China trade in private services in 2013 totaled $52.1B
• Total U.S. service exports increased from $294B in 2003 to $682B
in 2013
• US exports to China were just $5.9B in 2003 but grew to $37.8B
in 2013
• Services imports = $14.3B
• U.S. services trade surplus with China was $1.6B in 2003 and
grew to $23.4B in 2013
10/08/14
10/08/14
Global EPS Industry Overview
Additional Data that may be helpful: http://blog.unibulmerchantservices.com/tag/china-unionpay/
10/08/14
China’s EPS Industry Overview
10/08/14
Source: McKinsey
10/08/14
The WTO Dispute
• GATS = General Agreement
on Trade in Services
• Non-Interference in
Electronic Payment Market
• 7.B(d) of China's GATS Schedule
• Market Access
• Article XVI:1 & 2(a) of the GATS
• No Monopolies, No Limits on
Providers
• National Treatment
Commitment
• Article XVII of the GATS
10/08/14
Timeline
2010
• Sept. 15: U.S.
requests
consultations
with China
10/08/14
2011
• Feb.11: U.S.
requests est. of
panel
• Feb.24: DSB
deferred est. of
panel
• Mar.25: DSB est.
panel
• Jun.23: U.S.
requests Dir-Gen
determine
composition of
panel
• Jul.4: Dir-Gen
composes panel
2012
• Jan.9: Panel Chair
notifies DSB unable
to issue report in 6
months
• May: Final Report
issue date agreed to
• Jul.16: panel report
circulated to DSB
• Aug.31: DSB
adopted report
• Sept.28: China
intends to
implement rec’s
• Nov.22: China &
U.S. agreed on time
for China to
implement
2013
• Jul.23: China claims
it implemented rec’s
• U.S. didn’t agree
• U.S. monitored and
review China’s
actions.
• Jul.31: Reasonable
time expires
• Aug.19: China & U.S.
inform DSB of
Agreed Procedures
under Articles 21 and
22 of the DSU.
Why Did the U.S. File the
Dispute?
• Political Motivations
• Economic Motivations
• To Set a Precedent
10/08/14
Political Motivations
• Obama getting pressure from Congress to confront China on
currency issues
•
•
•
•
•
•
10/08/14
Substitute for currency manipulation case
Congressional hearings at the time on Chinese manipulation
(filed 2 months before elections)
Baucus (Finance)
Grassley (Finance)
Levin (Ways & Means)
Political Motivations (cont.)
• Obama’s 2012 Re-election bid
• Obama wants to be perceived as “tough on China” vs. Romney
• Special Interests: U.S. Credit Card Companies
• Frustrated by lack of access to fast-growing market
• Visa called for banks to stop using CUP’s network to process some
international payment transactions
• U.S. – China Relations
• “The move comes as trade tensions b/w 2 countries are once again on
the rise, with Congress holding hearings to penalize China for
undervaluing RMB” (Dow Jones Newswires, 16 Sept 2010)
• Filed jointly with GOES case in Sept 2010
10/08/14
Economic Motivations
• Excuse to again mention Chinese currency undervaluation
• In 2010, U.S. manufacturers claimed China’s currency undervalued by
as much as $0.40, making Chinese goods cheaper in U.S. and U.S.
goods more expensive in China (AP)
• Saves 6,000 financial services industry jobs
• Visa, Mastercard, American Express denied access to fastgrowing Chinese market
• Estimated to be $1 Trillion
• Administration devising ways to push China on currency issues
• Strong testimony from Geithner
10/08/14
Setting a Precedent
•
Few cases against China in services sector have been brought to the WTO
•
2008 U.S. filed against China restricting access for financial information
service providers. The case was settled during the consultations
•
Canada and the EU filed similar cases afterwards, also settling during the
consultation stage.
•
First services dispute filed against China by US
•
Previous cases over goods and IPR
Opens the door for other countries to challenge China at WTO re services
•
•
3rd time China challenged over service trade issue
•
Could embolden countries and business groups to seek greater access
10/08/14
What Are People Saying?
• Sen. Grassley, RM Senate Finance:
• “China needs to stop treating U.S. EPS companies unfairly. It’s against the
rules, and I’ve called on the Administration to take China to the WTO.”
• USTR Ron Kirk:
• “We are concerned China is breaking its trade commitments to the U.S.
and WTO partners, both favoring its one state-owned financial services
firm to the exclusion of American credit- and debit-card companies.”
• Mastercard:
• China will overtake U.S. as largest credit-card market by 2020 (Dow Jones
16 Sept 2010)
• Chinese Embassy in U.S.
• “China will continue to faithfully implement its WTO obligations and
firmly defend its legitimate rights through the multilateral trade
mechanism.” (Dow Jones 16 Sept 2010)
10/08/14
U.S. vs. China
U.S. Alleges
 Discriminatory policies
toward U.S. suppliers of
EPS
 China’s GATS schedule
includes a market access
commitment that allows
cross-border supply of EPS
into China by foreign EPS
suppliers
10/08/14
WTO & China
Counter
 China has national
treatment commitment, a
market access commitment
that allows foreign EPS
suppliers to supply their
services through commercial
presence in China, so long
as supplier meets certain
requirements related to
RMB currency business.
U.S. vs. China
U.S. Alleges
 China maintains CUP
as across-the-board
monopoly supplier for
the processing of all
domestic RMB
payment card
transactions
10/08/14
China Counters
 China says it doesn’t
have monopoly
WTO
 U.S. has insufficient evidence to claim monopoly
 Rejects U.S. allegation that there is an “across-the-board”
monopoly, though
 China’s requirements that (1) all cards have the UnionPay
logo and (2) that all institutions operating in China be
capable of accepting those cards is not allowed under Article
XVII (national treatment)
10/08/14
Panel Report Conclusions
 China inconsistent with its market access commitment of
the GATS by granting CUP a monopoly for the clearing of
these types of RMB payment card transactions.
 Members can’t limit number of service suppliers where market
access commitments exist
 CUP is a monopoly supplier for the clearing of certain types of
transactions involving cards issued in and/or used in China,
Hong Kong, or Macao
10/08/14
Panel Report Conclusions (cont.)
 China modifies the conditions of competition in favor of
CUP and therefore fails to provide national treatment to EPS
suppliers of other Members, contrary to China’s
commitments.
10/08/14
What Happened Next?
Both Claim Victory!
U.S. Win
China Win
 US says win because China found
to be discriminating
 China says because UnionPay
found not to be a monopoly
 USTR announces WTO found that
China discriminated against U.S.
suppliers of EPS.
 MOC welcomed WTO ruling that
rejecting part of U.S. claims against
China’s handling of EPS.
 If China doesn’t comply, U.S. can
implement retaliatory tariffs
 Little political impact in US – just
6,000 jobs
 Helped Obama's 'tough on China'
narrative
10/08/14
U.S. accusation that CUP is only service
provider in market since China has not
barred foreign service providers from
entering market
WTO rejected U.S. view that foreign
service providers can provide crossborder supplies of EPS in China.
What Happened Next? (cont.)
• U.S. and China didn’t challenge WTO ruling
• China waived an appeal
• China and CUP have to gradually open their market
• The U.S. and China reported to the WTO they agreed the
“reasonable period of time” for China to implement DSB
recommendations was 11 months
• Expired July 31, 2013
10/08/14
Current Situation
• There has been little progress on Visa and MasterCard
entering China’s EPS market
• It will take 5 – 15 years to see the effect of the WTO
recommendations
• Chinese law still limits what foreign companies can do
• Visa and MasterCard are now circulated in China, but are
restricted to the clearance of foreign currencies
• A payment card issued in China (in local currency) must be
issued by UnionPay
• In a report issued by UnionPay, as of 2013:
• Visa is used in 25% of credit card transactions in China,
MasterCard is used 17.7%, and UnionPay is used 54.1%
10/08/14
Recent Services Dispute
Settlements in the WTO
• DS453 – December 12, 2012
• Panama requests consultations with Argentina regarding
Argentina’s restraining of trading goods and services with
Panama, by implementing discriminatory and restrictive
measures which affect taxes, the registration of businesses, and
financial services
• DS476 – April 30, 2014
• Russia requests consultations with the European Union regarding
EU accusations that Russian energy companies are practicing
dumping policies, and thus charging Russian firms hundreds of
millions of dollars known as “energy adjustments”
10/08/14
Thank You
10/08/14