DS413
China — Certain Measures Affecting Electronic Payment Services
ALIYA STAFEYEVA, GEORGE SIMON AND HARVEEN SINGH
WHAT IS IT?

A service that manages the transfer of funds
from a customer to the merchant
CONTEXT
2001 China joins the WTO
 China’s payment card system was inefficient,
fragmented and limited to local regional
transactions
 Incompatibility between various banks
prevented inter-bank transactions
 Chinese government consolidated the industry
to remedy market inefficiencies

CONTEXT (CHINA UNIONPAY)
In 2001, PBOC standardized bank cards and
mandated the use of “UnionPay” logo
 In 2002, PBOC established CUP
 CUP had a dual role

 Created
a uniform national platform for EPS
 National Brand

Chinese’s efforts to strengthen CUP involved
the systematic exclusion of foreign suppliers of
EPS
CONTEXT (CUP TODAY)
Accepted in 141 countries
 Ranked 4th in the world for transaction volume
 Year-on-year growth of 46% transaction
amounts

WHY IS EPS IMPORTANT?
Panel report released during the US
Presidential Election Campaigning
 Visa, MasterCard and American Express are
main US stakeholders
 CUP receives recognition and visits from Hu
Jintao and Wen Jiabao

SUMMARY OF DISPUTE ALLEGATIONS



Sole supplier requirements: Requirements that mandate
the use of China UnionPay, Co. Ltd. (CUP) and/or
establish CUP as the sole supplier of electronic payment
services for all domestic transactions denominated and
paid in China's domestic currency, renminbi (RMB)
Issuer requirements: Requirements on issuers that
payment cards issued in China bear the CUP logo
Terminal equipment requirements: Requirements that
all automated teller machines (ATM), merchant card
processing equipment, and point-of-sale (POS) terminals
in China accept CUP cards
SUMMARY OF DISPUTE ALLEGATIONS



Acquirer requirements: Requirements on acquiring
institutions to post the CUP logo and be capable of
accepting all payment cards bearing the CUP logo
Cross-region/inter-bank prohibitions: Broad prohibitions
on the use of non-CUP cards for cross-region or interbank transactions
Hong Kong/Macao requirements: Requirements
pertaining to card-based electronic transactions in
China, Macao, and Hong Kong
SUMMARY OF THE SUMMARY
US alleged that China maintains a
government mandated monopoly (CUP)
in the EPS sector and accords less
favorable treatment to foreign suppliers
of EPS.
MAIN WTO ISSUES

GATS Agreement
 Consistency
with market access (Article XVI) and
national treatment commitments (Article XVII)
 Mode 1 (cross border basis) and Mode 3
(commercial presence)
PARTIES TO THE COMPLAINT
Complainant: United States
 Respondent: China
 Third parties:

Australia
 Ecuador
 European Union
 Guatemala
 India
 Japan
 Republic of Korea

OPENING POSITIONS

United States




Six measures imposed by China result in impermissible
market access restrictions or national treatment limitations
on foreign suppliers of electronic payment services (EPS) for
all types of renminbi (RMB) payment card transactions
involving bank cards issued and/or used in China
The six measures are inconsistent with China's obligations
under Article XVI:1 and XVI:2(a) and Article XVII:1 of GATS
The panel should recommend that China bring its measures
into conformity with its WTO obligations (DSU Article 19.1)
China

The panel should reject the United States' claims in this
dispute in their entirety
GATS ARTICLES AT ISSUE

XVI – Commitment to market access (modes of supply)



XVI:1 – Each Member shall provide market access to other
Members at least at the minimum level defined in its
Schedule of Specific Commitments (Schedule) under GATS
XVI:2(a) – Where market access is given in the Schedule,
each Member shall not limit the number of suppliers by
quotas, monopolies, exclusivity or economic needs test
XVII – National treatment

XVII:1 – Each Member shall treat services and service
suppliers of other Members at least as favorably as it does
its own services and service suppliers
MODES OF SUPPLY AT ISSUE




Mode 1 – (cross border trade) from the territory of one
Member into the territory of any other Member
Mode 2 – (consumption abroad) in the territory of one
Member to the service consumer of any other Member
Mode 3 – (commercial presence) by a service supplier
of one Member, through commercial presence, in the
territory of any other Member
Mode 4 – (presence of natural persons) by a service
supplier of one Member, through the presence of
natural persons of a Member in the territory of any other
Member
ELECTRONIC PAYMENT SERVICES (EPS)
- Issues payment
card/credit
- Pays bills
Consumer
Issuer
(Banks)
- Purchase
transactions
Payment Card
Company
Merchant
- Sends transactions for
processing
- Finds merchants to accept
a payment card
Acquirer
- Creates and manages the
transaction processing
network, infrastructure and
payment card standards
- Connects issuers and
acquirers
MAJOR POINTS TO RESOLVE

Preliminary


China: The US request for panel failed to meet Article 6.2
requirements
Primary




China: EPS does not fall under Schedule 7.B.(d) but rather
under other subsectors or under 5.(a)(xiv) of the GATS Annex
on Financial Services for clearing and settlement services
China: EPS is not a single, unified service and should be
split into separate services
China: The United States cited, among others, rescinded or
replaced laws or regulations as the basis for its claims
United States: EPS information transfer is core to the service
and is not constrained by mode 1 (market access)
limitations in China’s Schedule
CHINA’S SCHEDULE OF SPECIFIC
COMMITMENTS UNDER GATS
Sector or subsector
Limitations on market
access (Article XVI)
Limitations on national
treatment (Article XVII)
7. Financial Services
(1: Cross-border supply)
Unbound except transfer of
financial information,
advisory, intermediation
and auxiliary financial
services on all activities.
(3: Commercial presence)
Geographic restrictions to
open on a timeline. Client
and licensing restrictions to
open on a timeline. Foreign
financial requirements for
local currency business
operations in China.
(1: Cross-border supply)
None.
B. Banking and Other
Financial Services
(excluding insurance and
securities)
(d) All payment and money
transmission services,
including credit, charge
and debit cards, travellers
checks and bankers drafts
(including import and
export settlement)
(Mode 3: Commercial
presence)
Except for geographic,
client, and licensing
restrictions (listed in the
market access column),
foreign financial institution
may do business, without
restrictions. Otherwise,
none.
PANEL FINDINGS
Restrictive
Measures
General
Findings
Sole supplier
Not proven
Issuer
Article XVI:1
(Mode 3)
Article XVI:2(a) Article XVII:1
(Mode 3)
(national
treatment)
China imposes Not
requirements inconsistent
with Schedule
US failed to
present prima
facie case
US failed to
prove
inconsistent
China
inconsistent in
Modes 1, 3
Terminal
equipment
Imposes
requirements
Not
inconsistent
US failed
US failed
Inconsistent in
Modes 1, 3
Acquirer
Imposes
requirements
Not
inconsistent
US failed
US failed
Inconsistent in
Modes 1, 3
Cross-region
and interbank
Not proven
Hong Kong
and Macau
Imposes
requirements
Not
inconsistent
Judicial
economy
China
inconsistent in
Mode 3
Mode 1 not
inconsistent;
judicial econ
in Mode 3
US failed
US failed
Declined to
comment
Joint
consideration
Article XVI
(mkt access)
(Mode 1)
POST DSU
China stated needing time to make changes
 Ruling would be 11 months from the date of
adoption of the panel report
 Reasonable period time expired on 31 July 2013
 China
- reported it had fully implemented DSB’s
recommendations and rulings
 US
- did not agree with China

POST DSU
US stated that it would monitor and review
China’s actions
 On August 19, 2013, China and the US
informed the DSB of Agreed Procedures under:
 Article 21 (Surveillance of Implementation of
Recommendations and Rulings) and
 Article 22 (Compensation and the Suspension
of Concessions)

OUR PROPOSAL
Need global standard for EPS
“An efficient, reliable and secure payment system is
critical to the stability of a country’s financial system,
besides contributing to a country’s economic growth
and competitive position” from the keynote address
by Mr Muhammad bin Ibrahim, Deputy Governor of
the Central Bank of Malaysia, at the Payment System
Forum 2013
 WTO Panel validated that EPS is a single unified
system that is not divisible

SIGNIFICANCE AND OBSERVATIONS
Guarantee of equal national treatment under
GATS Article XVII impacts Member Schedule by
potentially requiring equality if Member does
not enforce GATS Article XVI reserved
limitations
 For example, in this case, China Schedule
7.B.(d) where if China allows foreign firms
market access, it potentially opens itself to a
complaint if it in any way limits market access
for certain Members but not others.

SIGNIFICANCE AND OBSERVATIONS
Schedule limitations stifle innovation and
efficiency
 In this case, CUP appears to be a rather
inefficient organization compared to other
global EPS providers such as Visa or
MasterCard.

DS413
China — Certain Measures Affecting Electronic Payment Services
ALIYA STAFEYEVA, GEORGE SIMON AND HARVEEN SINGH