1. Electronic Payment Services China vs. US (DS413)
By: Kanousha, Ben & Joyce

2. BACKGROUND OF ELECTRONIC PAYMENT SERVICES (EPS) IN CHINA
There are no prior proceedings to the DS, but several issues lead to the dispute.
Back in 2001, China made important commitments with respect to electronic payment services ("EPS") for payment card transactions when it joined the World Trade Organization ("WTO").
At the same time as CUP expands aggressively abroad, China maintains a government-mandated domestic monopoly, enabling only CUP to provide these services in China.
China maintains measures that also impact the other key entities in payment card transactions.

3. PRIOR US COMPLAINTS
The USTR stated in their annual report of China’s Compliance in the WTO to Congress that the Chinese government’s commitments in the Services Schedule in conjunction with its Protocol of Accession, were to eliminate market restrictions and provide ‘national treatment’ of foreign suppliers of money transactions and payments. This commitment was to be met by December 11th, 2006.
The US brought forth concerns regarding China’s CUP proposals, in September, November, and December of 2006, to satisfy the commitments they made and how the proposals all fall short of that commitment.
The USTR continued, in their annual compliance report, that they brought up their complaints multiple times throughout 2006 to 2010 before the US elected to go through the proper WTO channels.

4. US POLITICAL CONTEXT
The United States officially requested consultation on September 15th of 2010 for DS413 and an additional case regarding anti-dumping in regards to steel, DS414.
On September 16th, US Treasury Secretary Timothy Geithner appeared before Congress and stated that China was purposefully devaluing their currency and not upholding similar market access in China for US firms that the Chinese firms were receiving in the US.
Geithner continued criticizing China for only appreciating the RMB(¥) by 1% since the Chinese government announced in June of 2010 that they were “relaxing” their currency valuation pegging to the US($).
Then President Obama soon thereafter echoed Geithner’s remarks regarding currency devaluation while Chinese officials hit back stating they would not succumb to foreign external pressure.

5. 2010 2013 2011 2012 CHRONOLOGICAL ORDER May 2012 September 15, 2010
February 11, 2011
February 24,2011
March 25, 2011
May 2012
July 16, 2012
August 31, 2012
November 22, 2012
July 23, 2013
August 13, 2013
Third parties:
Australia, Ecuador, European Union (EU), Guatemala, Japan, Republic of Korea, India.

6. HISTORY AND TIMELINE OF THE CASE
On 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 DSB's recommendations
23 July 2013, China reported that it had fully implemented the DSB's recommendations and rulings.
On 19 August 2013, China and the United States informed the DSB of Agreed Procedures under Articles 21 and 22 of the DSU.
15 September 2010, the US requested consultations with China.
On 11 February 2011, the United States requested the establishment of a panel.
On 16 July 2012, the panel report was circulated to Members.
on 31 August 2012, the DSB adopted the panel report.

7. THE CONTESTED ISSUE OF THE US- REQUIREMENTS
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.

8. THE CONTESTED ISSUE OF THE US- REQUIREMENTS
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; Alleged prohibitions on the use of non-CUP cards for inter-bank and cross-region payment card transactions; 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.

9. WTO AGREEMENTS AND SPECIFIC PROVISIONS
The United States argued that China allegedly violated Articles XVI and XVII under the GATS agreement.
Article XVI: Market Access
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 favourable than that provided for under the terms, limitations and conditions agreed and specified in its Schedule.8
2. 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;
(b) limitations on the total value of service transactions or assets in the form of numerical quotas or the requirement of an economic needs test;
(c) limitations on the total number of service operations or on the total quantity of service output expressed in terms of designated numerical units in the form of quotas or the requirement of an economic needs test;9
(d) limitations on the total number of natural persons that may be employed in a particular service sector or that a service supplier may employ and who are necessary for, and directly related to, the supply of a specific service in the form of numerical quotas or the requirement of an economic needs test;
(e) measures which restrict or require specific types of legal entity or joint venture through which a service supplier may supply a service; and
(f) limitations on the participation of foreign capital in terms of maximum percentage limit on foreign shareholding or the total value of individual or aggregate foreign investment.

10. WTO AGREEMENTS AND SPECIFIC PROVISIONS cont.
The United States argued that China allegedly violated Articles XVI and XVII under the GATS agreement.
Article XVII: National Treatment
1. 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.10
2. 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.
3. 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.

11. THE PANEL’S DECISION (ON 08/31/2012)
China was found to have not been living up to all of its commitments within GATS to provide similar market access for foreign EPS suppliers within their domestic Chinese RMB(¥) EPS transaction market that CUP conducted business under.
The Panel found inconsistencies with Articles XVII & XVI - 2(a): “(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”.
The panel rejected, due to lack of evidence, “that China maintains CUP as an across-the- board monopoly supplier for the processing of all domestic RMB payment card transactions.”

12. THE PANEL’S DECISION CONTINUED
While the across the board monopoly claim from the US was rejected, it was decided by the panel that there was a CUP monopoly in the clearing of specific kinds of “RMB(¥)-denominated payment card transactions.” This meant that China was inconsistent with their commitments made under Article XVI:2(a) and its mode 3 market access commitments.
The chinese requirements listed below were also all deemed by the panel “to be inconsistent with China's mode 1 and mode 3 national treatment obligations under Article XVII of the GAT”:
All payments cards having the UnionPay or Yin Lian Logo and be operable with that network
All terminal equipment must be able to accept UnionPay/Yin Lian cards
And all acquiring institutions post the UnionPay/Yin Lian logo and accept their logo cards

13. 4 MODES OF SUPPLY DETAILED BY GATS (ARTICLE I:2)
GATS Covers:
Mode 1: Cross-Border Trade
Mode 2: Consumption Abroad
Services supplied from the territory of one member into the territory of any other member.
Services supplied from within the territory of one Member to the service consumer of any other Member.
Mode 3: Commercial Presence
Mode 4: Presence of National Persons
Services supplied by a service supplier of one Member, through commercial presence, in the territory of any other Member.
Services supplied by a service supplier of one Member, through the presence of natural persons of a Member in the territory of any other Member.

14. CHINESE PROGRESS IN IMPLEMENTING THE PANEL’S DECISION
The USTR’s annual China WTO Compliance Report to Congress states that China stated, in October of 2014, that their domestic electronic payment services market would be open to foreign providers.
China did not officially decide to open their markets until April of 2015.
In August of 2015, China’s central bank (PBOC) issued their draft regarding licensing regulations being available for discourse, which the US submitted comments on.
The PBOC did not release their final regulations licensing report until June of during a US-China Strategic and Economic Dialogue meeting.
In October of 2016 and June of 2017, the PBOC provided added instruction for foreign applicants to enter the market.
As of the end of 2017, US companies had completed the first two required application steps but the PBOC had yet to approve/deny those applications, meaning that the US has remained prohibited to the Chinese electronic payments services market.

15. OBSERVATIONS/SIGNIFICANCE
DS413 was one of the first cases to provide interpretations on portions of the Financial Services Annex of the GATS, specifically subsector XIV.
Subsector XIV -- “Settlement and clearing services for financial assets, including securities, derivative products, and other negotiable instruments”
China was proven to having failed to provide similar fair market conditions for foreign EPS suppliers that the Chinese company UnionPay (CUP) experienced.
While China accepted the decision of the panel, EPS market access had not yet been acquired by US EPS suppliers as recently as the end of 2017.
The US did not succeed in their claim of an all-out monopoly of the Chinese EPS market by CUP but they were successful in having it established that CUP held a monopoly in the clearing of certain RMB(¥) payment card transactions.

16. LINKS/REFERENCES