DS413 ALIYA STAFEYEVA, GEORGE SIMON AND HARVEEN SINGH

1. DS413ALIYA STAFEYEVA, GEORGE SIMON AND HARVEEN SINGH

2. A service that manages the transfer of funds from a customer to the merchant What is it?

3. 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

4. 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 (China UnionPay)

5. Accepted in 141 countries Ranked 4th in the world for transaction volume Year-on-year growth of 46% transaction amounts Context (CUP today)

6. 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 Why is EPS important?

7. 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

8. 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 inter-bank transactions Hong Kong/Macao requirements: Requirements pertaining to card-based electronic transactions in China, Macao, and Hong Kong Summary of Dispute Allegations

9. US alleged that China maintains a government mandated monopoly (CUP) in the EPS sector and accords less favorable treatment to foreign suppliers of EPS. Summary of the Summary

10. GATS Agreement • Consistency with market access (Article XVI) and national treatment commitments (Article XVII) • Mode 1 (cross border basis) and Mode 3 (commercial presence) Main WTO Issues

11. Complainant: United States • Respondent: China • Third parties: • Australia • Ecuador • European Union • Guatemala • India • Japan • Republic of Korea Parties to the Complaint

12. 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 Opening Positions

13. 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 GATS Articles at Issue

14. 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 MODES OF SUPPLY AT ISSUE

15. ELECTRONIC PAYMENT SERVICES (EPS) - Issues payment card/credit - Pays bills Issuer (Banks) Consumer Payment Card Company - Purchase transactions Merchant - Creates and manages the transaction processing network, infrastructure and payment card standards - Connects issuers and acquirers - Sends transactions for processing - Finds merchants to accept a payment card Acquirer

16. 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 Major Points to Resolve

17. CHINA’S SCHEDULE OF SPECIFIC COMMITMENTS UNDER GATS

18. Panel Findings

19. 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

20. 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) Post DSU

21. 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 OUR PROPOSAL

22. 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

23. 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. Significance and observations

24. DS413ALIYA STAFEYEVA, GEORGE SIMON AND HARVEEN SINGH