1. DS 413: U.S. - China Electronic Payments (Panel 2012)
By: Patricia Medina Lopez, Valdas Sirutis and Labiba Rahman

2. Introduction to the Case DS 413
In 2010, the U.S. requested the World Trade Organization consultations with China with respect to market restrictions in the electronic payment services levied by the former regarding card transactions and the suppliers of those services.
China required all domestic renminbi-denominated payment cards to use China Union Pay (CUP) network, as well as all merchants and ATMs to accept CUP-based cards. Foreign suppliers - like US-based Visa Inc. - were thus limited to payments and transactions in foreign currency.
Include sources in the end.

3. Definitions
Payment Card - includes a credit card, charge card, debit card, check card, automated teller machine ("ATM") card, prepaid card, and other similar card or payment or money transmission product or access device, and the unique account number associated with that card or product or access device.
Electronic payment services (EPS) - involve the services through which transactions involving payment cards are processed and through which transfers of funds between institutions participating in the transactions are managed and facilitated.

4. History and Context of the Case
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;
Alleged requirements that payment cards issued by banks in China bear the “Yin Lian”/“UnionPay” logo (the logo of CUP's network);
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;
all transactions denominated and paid in RMB in China had to be processed and cleared in RMB through CUP, and where there is a choice, all domestic transactions on dual currency cards must be routed in RMB through CUP.

5. History and Context
Alleged prohibitions on the use of non-CUP cards for inter-bank and cross-region payment card transactions;
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; and
Alleged requirements pertaining to RMB transactions involving payment cards issued in China and used in Hong Kong, China or Macao, China, and payment cards issued in Hong Kong, China or Macao, China and used in China.
Source: WTO Secretariat

6. Timeline 2012 July 2010 September 2013 July 2011 March
The Panel Report issued
The panel concluded that China maintains CUP as a monopoly supplier for the clearing of certain types of RMB-denominated payment card transactions
2010 September
U.S. Requests Consultations with China
2013 July
China started implementing DSB’s recommendations and rulings
2011 March
DSB Establishes the Panel
June 1st Visa and Mastercard entered the Chinese Market

7. Main WTO Issue
Services at issue: EPS for all types of renminbi (“RMB”) transactions of payment cards issued and/or used in China.
Measures at issue: The alleged series of requirements imposed by China created impermissible market access restrictions or national treatment limitations on foreign suppliers of EPS
Complainant
U.S.
Respondent:
China
Third Parties
Australia, Ecuador, European Union, Guatemala, Japan, Korea, India

8. WTO Agreement and Provisions Involved
General Agreement on Trade in Services (GATS)
Article XVI
Market Access
Article XVII
National Treatment
XVI:1
XVI:2(a)

9. Article XVI - Market Access
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
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:
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;
Market access through the modes of supply identified in Article 1: Each Member country shall accord services and service suppliers of other Member countries treatment no less favourable than agreed and specified in its Schedule.
In sectors where market-access haS been given , 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 are defined as:
limitations on the number of service suppliers, either in the form of numerical quotas, monopolies, exclusive service suppliers or the requirements of an economic needs test;

10. Article XVII: National Treatment
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.
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.
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.
Source: WTO General Agreement on Trade in Services
In the sectors specified in the Schedule, each Member shall provide services and service suppliers of any other Member, treatment no less favourable than that it accords to its own like services and service suppliers.
This requirement may be met by providing other Members with formally identical treatment or formally different treatment to its own like services and service suppliers.
If it modifies the conditions of competition in favour of its own services or service suppliers of the compared to like services or service suppliers of others Member, this treatment will be considered less favorable.

11. United States’ Position
EPS fall under subsector 7.B(d) of China's GATS Schedule:
“[a]ll payment and money transmission services, including credit, charge, and debit cards, travellers cheques and bankers’ drafts (including import and export settlement)”
China’s GATS Schedule contains Market Access and National Treatment commitments to permit the supply of EPS by other Members both through cross-border basis (Mode 1) and commercial presence (Mode 3).

12. United States’ Position
Inconsistency with Article XVI:
Mandating all domestic transactions denominated and paid in RMB must be processed and cleared in RMB through CUP, limits the number of suppliers of EPS for RMB-denominated transactions that are paid in RMB
China Established CUP as a monopoly
Inconsistency with Article XVII: China’s requirements modify conditions of competition
Foreign suppliers of EPS were not afforded the same privileges as CUP
If a card was issued for a foreign EPS supplier, CUP would also gain as its logo would be on the card as well.
If a foreign supplier of EPS was to secure access to a POS, CUP would also gain as all terminals are required to accept CUP cards
1a. Allegations discussed by Patricia esp the measure that

13. China’s Position
China argued that they had not made any EPS commitments under GATS, and, thus, that they had no obligations to satisfy.
“clearing and settlement services at issue in this dispute are encompassed by a subsector that China left unbound. Accordingly, these services are not classifiable under Subsector 7. (d), and the U.S. claims in respect of these services must fail” - Report of the Panel
The measures and services at issue in this dispute relate to interbank payment card transactions.
They aim to establish the first national inter-bank network for Renminbi payment card transactions

14. Panel Findings
Classification of the services at issue: The Panel observed that the use of the term “all” does cover the entire spectrum of the “payment and money transmission services” encompassed under Subsector 7.B(d).
Scope of China’s GATS commitments:
Commitment on China’s GATS Schedule
Mode of Supply of EPS into China by foreign companies
Mode 1 (cross border)
Mode 2 (commercial presence)
Market Access
Rejected
Accepted
National Treatment
2. so long as a supplier meets certain qualifications requirements related to local (RMB) currency business

15. Panel Findings
GATS Art. XVI (market access obligation): China acted inconsistently with its mode 3 market access commitment
Rejected the claim that China maintains CUP as an across-the-board monopoly supplier for the processing of ALL domestic RMB payment card transactions
Thus, rejected the Market access and national treatment claims on across the board requirements
But, concluded that CUP is a sole supplier of CERTAIN types of EPS: RMB payment cards issued in China and used in Hong Kong, China or Macao
This limits the number of suppliers of those EPS
On the basis of insufficient evidence
This involves

16. Panel Findings
GATS Art. XVII of the GATS (national treatment obligation): inconsistent with China’s national treatment obligations for certain types of EPS
Following measures modified the conditions of competition:
Issuer Requirement: all bank cards issued in China must bear the CUP logo and be interoperable with that network
Merchant & Terminal Requirements: all ATM, merchant card processing devices, and POS terminal equipment in China must be capable of accepting Yin Lian/UnionPay logo cards
Acquirer Requirements: Acquiring institutions post the Yin Lian/UnionPay logo and be capable of accepting payment cards bearing that logo
Broad prohibitions on the use of non-CUP cards
2a. This means that issuers must have access to the CUP system, and pay CUP for that access.

17. DSB Recommendation
“Under Article 3.8 of the DSB, in cases where there is an infringement of the obligations assumed under a covered agreement, the action is considered prima facie to constitute a case of nullification or impairment. We conclude that, to the extent that the measures at issue are inconsistent with the GATS, they have nullified or impaired benefits accruing to the United States under that agreement.
Pursuant to Article 19.1 of the DSU, we recommend that the Dispute Settlement Body request China to bring its measure into conformity with its obligations under the GATS”
Source: Conclusions and Recommendations, Report of the Panel

18. Recent Proceeding
22 November 2012: China and the United States informed the DSB that they had agreed that the reasonable period of time for China to implement the recommendations and rulings of the DSB shall be 11 months from the date of adoption of the panel report.
23 July 2013: China reported full implementation of the DSB's recommendations and rulings.
The U.S. said that it did not agree with China's assertion that it had complied.
The U.S. stated that it would monitor and review China's actions.
19 August 2013: China and the U.S. informed the DSB of Agreed Procedures under Articles 21 and 22 of the DSU.

19. Implementation
2015 June 1st - China’s State Council passes the Decision to Implement Market Access for Bank Card Clearing Institutions which states: To conduct “bank card clearing services” in the PRC, an institution must obtain a bank card clearing licence (“Licence”) from the People’s Bank of China (“PBOC”) (in consultation with the China Banking Regulatory Commission). The license acquisition process may take up to 2 years.
Source: Linklater.com

20. Implementation
2016 June 8th - PBOC and China Banking Regulatory Commission issued the “Measures for the Administration of Bank Card Clearing Institutions” - PBOC said that under the Measures domestic and foreign investors applying for the bank card payment clearing business licence will be subject to the same market access requirements in terms of licence conditions, application procedures and supervisory measures.
Source: CBRC.gov

21. Observations and Recommendation/ Summary
Business Context
“This ruling will support about 6,000 U.S. jobs servicing a market potentially worth $1 trillion”- Tim Reif, general counsel for USTR office.
Visa and Mastercard are attempting to gain market share in China. Short term they expect to gain 2% to 7% of Chinese market. (As of 2015) Total market size approx. $8.4 trillion
China’s internal regulations and bureaucratic processes present additional barriers for U.S. companies to fully enter the Asian EPS market.

22. Observations and Recommendation/ Summary
Political Context
Increased trade in financial services may lower U.S. trade deficit with China in the long term.
Potentially loosening up of Chinese regulations for American companies looking to enter Chinese market in other industries.
EPS regulations have been mentioned by the U.S. government officials as an area where there has been improvement in China - U.S. trade relations.

23. Dispute Resolution Process
11 February 2011
The U.S. requested the establishment of a panel.
25 March 2011
At its meeting, the DSB established a panel.
4 July 2011
The Director-General determined the composition of the panel after a request from the U.S.
9 January 2012
The timetable adopted by the panel envisages that the final report shall be issued to the parties by May 2012.
16 July 2012
The Panel Report was circulated to Members
31 August 2012
DSB adopted the panel report
28 September 2012
China stated that it intended to implement the DSB's recommendations
22 November 2012
Both parties agreed that China had 11 months from the date of adoption of the panel report to implement the DSB's recommendations
Put in the end

24. Questions