1、Legal Issue,INTRODUCTION,Dispute Introduction,On 15 September 2010, US requested consultations with China with respect to “certain restrictions and requirements maintained by China pertaining to electronic payment services for payment card transactions and the suppliers of those services”. US allege
2、d that China appears to be acting inconsistently with its obligations under Articles XVI and XVII of the GATS. On 11 February 2011, US requested the establishment of a panel. At its meeting on 25 March 2011, the DSB established a panel. On 16 July 2012, the panel report was circulated to Members.,Pr
3、eliminary Ruling,On 5 July 2011, China submitted to the Panel a request for a preliminary ruling with respect to the consistency of certain aspects of the US panel request with Article 6.2 of the DSU. “US panel request fails to provide a brief summary of the legal basis of the complaint sufficient t
4、o present the problem clearly.” The Panel found that US panel request makes it clear that each of the requirements allegedly imposed by China is considered to be in breach of Articles XVI:1 & 2 and Article XVII of the GATS, and concluded that China had failed to establish its claims.,Payment Card Tr
5、ansactions,Entities: issuing institutions (or issuers), acquiring institutions (or acquirers), payment card companies, settlement banks. A payment card company: “a company which owns trademarks of payment cards and may also provide a number of marketing, processing or other services to institutions
6、issuing its cards.” US: “EPS suppliers” CN: “network operators”,Two Business Models,Four Party Model,Payment card companies own and operate the networks that connect issuers and acquirers, and process transactions made in connection with payment cards.,If the acquirer and the issuer are one and the
7、same, a transaction is referred to as an “on-us“ transaction.,Two Business Models,Three Party Model,The payment card company itself is responsible for issuing cards, handling the acquisition of transactions, and processing the transactions.,The Processing of Transactions,Front-end processing: authen
8、ticate and authorize transactions Back-end processing: clear and settle transactions Video,THE SERVICES AT ISSUE,Scope of the Services at Issue,The Services at Issue,Electronic payment services (“EPS”) for all types of Renminbi (“RMB”) payment card transactions involving bank cards issued and/or use
9、d in China.,CHINAS SPECIFIC COMMITMENTS CONCERNING THE SERVICES AT ISSUE,Subsectors identified by the parties,US:in sector 7.B, under the heading “Banking and Other Financial Services“ of Chinas GATS Schedule, China undertook market access and national treatment commitments with respect to subsector
10、 (d), which includes the EPS supplied in connection with “credit, charge and debit cards”, and other payment card transactions.,China:the US has failed to prove that any of the services at issue, much less all of them, fall within subsector (d) of its Schedule. The clearing and settlement services a
11、t issue fall under paragraph 5(a), subsector (xiv), of the GATS Annex on Financial Services.,Chinas GATS Schedule VS. GATS Annex,Subsector (xiv) in paragraph 5(a) of the Annex, under the heading “Banking and other financial services (excluding insurance)“: Settlement and clearing services for financ
12、ial assets, including securities, derivative products, and other negotiable instruments.,The Panels Conclusion,Subsector (d) of Chinas Schedule encompasses the services that are essential to the processing and completion of transactions using payment cards. Clearing and settlement of payment card tr
13、ansactions should a priori be classified under subsector (d), because they are essential services to complete a payment card transaction. Transactions based on the payment instruments listed in subsector (d), including payment cards, are not cleared and settled under subsector (xiv). The services at
14、 issue falls within sector 7.B, subsector (d) of Chinas Schedule.,MEASURES AT ISSUE,Measures at Issue,A series of requirements imposed by China and alleged by US to constitute impermissible market access restrictions or national treatment limitations on foreign suppliers of the services at issue. Re
15、quirements on issuers that payment cards issued in China bear the (China UnionPay) CUP logo (“issuer requirements“) Requirements that all ATM, and POS terminals in China accept CUP cards (“terminal equipment requirements“) Requirements on acquiring institutions to post the CUP logo and be capable of
16、 accepting all payment cards bearing the CUP logo (“acquirer requirements“) Requirements pertaining to RMB transactions involving payment cards issued in China and used in Hong Kong or Macao, and payment cards issued in Hong Kong or Macao and used in China. (“Hong Kong/Macao requirements“) Requireme
17、nts that mandate the use of CUP and/or establish CUP as the sole supplier of EPS for all domestic RMB payment card transactions (“sole supplier requirement“) Prohibitions on the use of non-CUP cards for cross-region or interbank transactions (“cross-region/inter-bank prohibitions“),Existence of the
18、Measures at Issue,THE UNITED STATES CLAIMS UNDER ART.XVI OF THE GATS,Claims of the Parties,US:China made mode 1 and mode 3 market access commitments China established and maintains a monopoly structure to ensure that CUP is the exclusive supplier of EPS for all RMB bank card transactions in China wh
19、enever a bank card is issued in China and used in China. Inconsistent with Article XVI:1 and XVI:2(a) of the GATS.,China:No market access commitment. No market access limitation. No violation of Art. XVI of GATS,(I) Did China make market access commitments in respect of the services at issue? (mode
20、1),the principle of mutual exclusivity; cross-reference,(I) Did China make market access commitments in respect of the services at issue? (mode 1),The services described in the two hyphens are separate and distinct from the services listed in the sectoral column with respect to subsectors (a) to (f)
21、. The text in the two hyphens is consistent with the view that this entry refers to the full market access commitment on mode 1 for subsectors (k) and (l) The services referred to in the two hyphens cannot constitute “elements“ of the services encompassed under subsector (d). Unbound (no commitment)
22、 for (a) (f), including (d)None (full commitment) for (k) and (l),(I) Did China make market access commitments in respect of the services at issue? (mode 1),Both parties agree that China has market access commitments in subsector (d) and mode 3 that apply to FFIs. The parties disagree on whether the
23、se commitments are limited to FFIs and on whether EPS suppliers are FFIs. China: FFIs cover only foreign banks and finance companies US: EPS suppliers are non-bank FFIs,(I) Did China make market access commitments in respect of the services at issue? (mode 3),(I) Did China make market access commitm
24、ents in respect of the services at issue? (mode 3),The Panel considers that the term “FFIs“ covers any foreign institutions that provide financial services classifiable under subsectors (a) to (f) In respect of services classified under subsector (d) and provided by FFIs, China has made a commitment
25、 on market access concerning mode 3. China is obligated to give EPS suppliers of other WTO Members access to its market, through commercial presence (mode 3), so that they may engage in local currency business in China, subject to such suppliers meeting the aforementioned qualifications requirement.
26、,(I) Did China make market access commitments in respect of the services at issue? (mode 3),Article XVI of the GATS 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 favo
27、rable than that provided for under the terms, limitations and conditions agreed and specified in its Schedule. 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 en
28、tire 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,(II) Are the measures at issue inconsistent wi
29、th Article XVI of the GATS?,(II) Are the measures at issue inconsistent with Article XVI of the GATS? (Mode 1),In relation to the United States claims concerning Chinas Sector 7.B(d) mode 1 market access commitment, the Panel finds that the issuer, terminal equipment, acquirer and Hong Kong/Macao re
30、quirements are not inconsistent with Article XVI of the GATS, as China has not undertaken a market access commitment under this mode and in this sector in respect of the services at issue in this dispute,Article XVI:2(a) Analytical Approach,The Panel considers that in the Article XVI:2 analysis of t
31、he four requirements at issue should focus on whether they constitute a limitation that is numerical and quantitative in nature - more particularly - whether they are of such a nature that they limit to one, or a small number, the number of authorized EPS suppliers in China.,(II) Are the measures at
32、 issue inconsistent with Article XVI of the GATS? (Mode 3),The issuer, terminal equipment and acquirer requirements,The Panel is unable to conclude that the imposition of issuer, acquirer and terminal equipment requirements imposes a limitation on the number of EPS suppliers in China in the form of
33、a monopoly or exclusive service supplier. These requirements, considered either separately or in combination, are not inconsistent with Article XVI:2(a) of the GATS, in respect of Chinas Sector 7.B (d) mode 3 market access commitments.,The Hong Kong/ Macao Requirements,China contends that there is n
34、o legal basis for the claims advanced in relation to Hong Kong and Macao due to their status in the WTO as separate customs territories. The Panel considers that Chinas commitment under mode 3 covers not only the supply of EPS to clients within China, but also the supply of EPS to clients located in
35、 the territory of other WTO Members. The Panel concludes that the Hong Kong/Macao requirements impose a limitation on the number of service suppliers in the form of a monopoly. The Hong Kong/Macao requirements imposed by China are inconsistent with Article XVI:2(a) of the GATS, in respect of Chinas
36、Sector 7.B (d) mode 3 market access commitments.,Chinas requirements considered jointly,It is not clear to the Panel how combining the Hong Kong/Macao requirements with any of the other requirements would have the effect of converting any of the other requirements into the type of measure referred t
37、o in Article XVI:2(a). The Panel therefore concludes that the United States has not established that the Hong Kong/Macao, issuer, terminal equipment and acquirer requirements, when considered in conjunction, give rise to a separate and independent breach of Article XVI:2(a) of the GATS.,Article XVI:
38、1 of the GATS,The Panel finds that US failed to present a prima facie case that the issuer, terminal equipment or acquirer requirements, considered either individually or jointly, are inconsistent with Article XVI:1 of the GATS in respect of Chinas Sector 7.B(d) mode 3 market access commitment The P
39、anel exercised judicial economy with respect to the USs Sector 7.B(d) mode 3 market access claims under Article XVI:1 of the GATS regarding the Hong Kong/Macao requirements.,Conclusions on the United States claims under Article XVI of the GATS Market Access,THE UNITED STATES CLAIMS UNDER ART.XVII OF
40、 THE GATS,Claims of the Parties,US:China has assumed national treatment commitments under subsector (d) and modes 1 and 3. The measures at issue treat foreign suppliers of EPS services less favorably than CUP. Chinas requirements at issue are inconsistent with Article XVII both individually and in c
41、onjunction with each other.,China:No national treatment commitment concerning the services and suppliers at issue. It reserved the right to introduce market access limitations for subsector (d) and mode 1, including limitations under Article XVI:2 that might be seen as discriminatory. No violation o
42、f Art. XVII of Gats.,Article XVII of the GATS (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 s
43、upply of services, treatment no less favorable than that it accords to its own like services and service suppliers. 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 treatm
44、ent 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 favorable if it modifies the conditions of competition in favor of services or service suppliers of the Member compared to like services or serv
45、ice suppliers of any other Member.,Analytical Approach,Examine whether (I) China has made a commitment on national treatment in the relevant sector and mode of supply, regard being had to any conditions and qualifications, or limitations, set out in its Schedule; (II) Chinas measures are “measures a
46、ffecting the supply of services“ in the relevant sector and mode of supply; (III) Chinas measures accord to services or service suppliers of any other Member treatment less favorable than that China accords to its own like services and service suppliers.,Mode 1 (Cross-border Supply),(I) Did China un
47、dertake relevant national treatment commitments? (Mode 1),The parties disagreement focuses on the effect of Chinas market access inscription of “Unbound“ on the scope of its national treatment commitment, the entry for which is inscribed as “None“. The Panel finds that Chinas market access entry con
48、cerning subsector (d) and mode 1 allows it to maintain any measures in that subsector and mode that are inconsistent with both Articles XVI and XVII.,(I) Did China undertake relevant national treatment commitments? (Mode 1),Hong Kong/Macao Requirements,The Panel finds that these requirements imposed
49、 an Article XVI:2(a)-type limitation on market access through mode 1.Due to the inscription of “Unbound“ in Chinas market access entry and Article XX:2, China is allowed to maintain the full range of limitations expressed in Article XVI:2, whether discriminatory or not.Despite the inscription of “No
50、ne“ in its national treatment column concerning subsector (d) and mode 1, China has no obligation to accord to EPS supplied through mode 1, and EPS suppliers of other WTO Members supplying through mode 1, treatment no less favorable than that it accords to its own like services and service suppliers. No violation of Article XVII to the extent that they affect the cross-border supply of EPS.,
