ds413chinaelectronicpaymentservices

World TradeOrganizationWT/DS413/R/Add.116 July 2012(123730)Original: EnglishCHINA CERTAIN MEASURES AFFECTINGELECTRONIC PAYMENT SERVICESReport of the PanelAddendumThis addendum contains Annexes A to H to the Final Report of the Panel to be found in documentWT/DS413/R._LIST OF ANNEXESANNEX AEXECUTIVE SUMMARIES OF THE FIRST WRITTENSUBMISSIONS OF THE PARTIESContentsPAGEAnnex A-1Executive summary of the first written submission of the United StatesA-2Annex A-2Executive summary of the first written submission of ChinaA-11ANNEX BORAL STATEMENTS OR EXECUTIVE SUMMARIES THEREOF, OF THE PARTIES AT THE FIRST SUBSTANTIVE MEETINGAnnex B-1Executive summary of the opening oral statement of the United States at the first substantive meetingB-2Annex B-2Closing oral statement of the United States at the first substantive meetingB-6Annex B-3Executive summary of the oral statement of China at the first substantive meetingB-7ANNEX CWRITTEN SUBMISSIONS AND ORAL STATEMENTS, OR INTERGRATEDSUMMARIES THEREOF, OF THE THIRD PARTIESAnnex C-1Integrated executive summary of the third party written submission and oral statement of AustraliaC-2Annex C-2Third party oral statement of Ecuador at the first substantive meetingC-7Annex C-3Integrated executive summary of the third party written submission and oral statement of the European UnionC-10Annex C-4Integrated executive summary of the third party written submission and oral statement of JapanC-13Annex C-5Integrated executive summary of the third party written submission and oral statement of the Republic of KoreaC-19ANNEX DEXECUTIVE SUMMARIES OF THE SECOND WRITTENSUBMISSIONS OF THE PARTIESAnnex D-1Executive summary of the second written submission of the United StatesD-2Annex D-2Executive summary of the second written submission of ChinaD-11ANNEX EORAL STATEMENTS OR EXECUTIVE SUMMARIES THEREOF, OF THE PARTIES AT THE SECOND SUBSTANTIVE MEETINGAnnex E-1Executive summary of the oral statement of the United States at the second substantive meetingE-2Annex E-2Executive summary of the oral statement of China at the second substantive meetingE-7ANNEX FREQUEST FOR A PRELIMINARY RULINGAnnex F-1Executive summary of Chinas request for a preliminary rulingF-2Annex F-2Executive summary of the United States submissions in response to Chinas request for a preliminary rulingF-3Annex F-3Executive summary of Chinas comments on the United States submissions in response to Chinas request for a preliminary rulingF-12ANNEX GEXCERPT OF CHINAS SCHEDULEAnnex G-1The Peoples Republic of China - Schedule of Specific Commitments, GATS/SC/135 - excerptG-2ANNEX HTABLE OF TRANSLATIONS OF LEGAL MEASURESAND OTHER INSTRUMENTSAnnex H-1Table of translations of legal measures and other instruments referred to by the partiesH-2ANNEX A1EXECUTIVE SUMMARIES OF THEFIRST WRITTEN SUBMISSIONS OF THE PARTIESContentsPAGEAnnex A-1Executive summary of the first written submission of the United StatesA-2Annex A-2Executive summary of the first written submission of ChinaA-11ANNEX A-1EXECUTIVE SUMMARY OF THE FIRST WRITTEN SUBMISSION OF THE UNITED STATESI.INTRODUCTION1. Operating from a protected home market monopoly position, China UnionPay, Co. Ltd. (CUP) has thrived since its creation nearly a decade ago. With competitors shut out of China, CUP has solidified its complete domestic market dominance. CUP has also experienced explosive growth abroad. While serving as Chinas domestic champion, CUP, has been expanding its payment card issuance and acceptance internationally and enjoys full and unencumbered access to the domestic payment card market in a growing number of foreign countries in which it has chosen to operate (now numbering more than 110).2. 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). EPS enable, facilitate, and manage the transfer of funds between cardholders and merchants and are essential to processing the several hundred million card-based electronic payment transactions that occur daily around the world. In the financial services sector, as set out in Chinas Schedule of Specific Commitments on Services, China undertook to provide by December 2006 both market access and national treatment for all payment and money transmission services, including credit, charge and debit cards. 3. Yet, 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 refuses to allow foreign suppliers of EPS to process payment card transactions in China denominated and paid in Chinas domestic currency, renminbi (RMB). China has also enacted and maintains numerous barriers to prevent foreign suppliers of EPS from establishing the processing infrastructure, network, rules, and procedures that are essential to the processing of card-based electronic payment transactions in China. In addition, China maintains measures that also impact the other key entities in payment card transactions, including the institutions that issue payment cards (issuing institutions), acquiring institutions (those that seek to acquire transactions using payment cards and that have relationships with merchants), and merchants in terms of requirements pertaining to payment card-processing equipment and point-of-sale (POS) terminals. 4. These measures have entrenched CUPs monopoly position in China and accord less favorable treatment to foreign suppliers of EPS.II.PROCEDURAL HISTORY5. On September 15, 2010, the United States requested consultations with China pursuant to Articles 1 and 4 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU), and ArticleXXII of the General Agreement on Trade in Services (GATS) 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. The United States and China held consultations on October 27 and 28, 2010, but those consultations did not resolve the dispute. The United States submitted its request for the establishment of a panel on February 11, 2011, the Dispute Settlement Body (DSB) established a panel on March 25, 2011, and the Panel was composed on July 4, 2011.6. On July 5, 2011 China filed a request for a preliminary ruling on the consistency of the U.S. panel request with DSU Article6.2. On July 29, 2011, the United States filed a submission in response to Chinas request for a preliminary ruling (U.S. July 29, 2011 Response). (The U.S. July 29, 2011 Response, in its entirety and including all of the exhibits attached thereto, was subsequently incorporated by express reference into the U.S. First Written Submission, dated September 13, 2011.) On September 7, 2011, the Panel issued its preliminary ruling in which it rejected all of Chinas claims that the U.S. panel request failed to satisfy the requirements of Article6.2 of the DSU. III.FACTUAL BACKGROUNDA. Electronic Payment Services for Payment Card Transactions7. Card-based electronic payments take many forms, including credit cards, charge cards, debit cards, deferred debit cards, ATM cards, prepaid cards, private label cards and other types of general-purpose and limited-use payment cards. A supplier of EPS enables cardholders banks to pay merchants banks the amount they are owed. Suppliers of electronic payment services supply, directly or indirectly, a system that typically includes the following: the processing infrastructure, network, and rules and procedures that facilitate, manage, and enable the transmission of transaction information and payments, and which provide system integrity, stability and financial risk reduction; the process and coordination of approving or declining a transaction, with approval generally permitting a purchase to be finalized or cash to be disbursed or exchanged; the delivery and transmission of transaction information among participating entities; the calculation, determination, and reporting of the net financial position of relevant institutions for all transactions that have been authorized in a given period; and the facilitation, management and/or other participation in the transfer of net payments owed among participating institutions.8. Electronic payment services provide an efficient, timely and reliable means to facilitate the transmission of funds from the holders of payment cards who purchase goods or services to the individuals or businesses that supply them. The network, rules and procedures, and operating system that are part of the EPS architecture that allow payment card transactions to be processed to enable merchants to be paid promptly the amounts they are owed, and to ensure that customers pay what they owe. EPS suppliers receive, check and transmit the information that the parties need to conduct the transactions, and manage, facilitate, and enable the transmission of funds between participating entities. The rules and procedures established by the EPS supplier give the payment system stability and integrity, and enable it to efficiently handle net flows of money among the institutions involved in card payments. EPS suppliers also provide their customers with certain guarantees to ensure the integrity of the electronic payment services, including, for example, instances where customers fail to honor payment cards or where issuers or acquirers fail to fund obligations.9. EPS, whether provided in connection with open-loop (four-party) systems or closed-loop (three party) systems, encompass both (1) front-end processing (which determines whether a payment card user has sufficient funds or is otherwise authorized to make a purchase and provides that information to the merchant or ATM owner), and (2) back-end processing (which, among other things, determines, calculates, and instructs banks regarding net payments owed among participating institutions). B. The Evolution of Chinas Payment Card System and the Creation of CUP10. Chinas payment card system was inefficient and fragmented, and limited to local regional transactions. Chinese banks independent and uncoordinated efforts undermined the efficacy of payment card use. Bank cards were inconvenient for individual consumers to use because they were not widely accepted by merchants, and the networks ad hoc development resulted in some merchants having multiple terminals and others having none. Additionally, consumers could access cash and purchase items only from the POS terminals bearing their respective banks logo. Incompatibility between the various bank networks also prevented cross-bank or inter-bank transactions at the national level. 11. Instead of allowing these market inefficiencies to be remedied with the opening of its market to competition, including from foreign suppliers of EPS consistent with its WTO commitments, the Chinese government took steps to consolidate the industry under a domestic champion. First, in January 2001, the PBOC issued a series of measures that standardized bank cards and mandated the use of the UnionPay logo. Second, in March 2002, the PBOC approved and authorized the establishment of CUP, a private limited liability corporation whose shares were primarily held by four of Chinas state-owned commercial banks. 12. From its inception, CUP was envisioned not only as a means to create a uniform national platform for electronic payment services for card-based electronic transactions, but also as a homegrown company championing a national brand. The Chinese government has taken a deep interest in the development and progress of CUP, and the corporation has hired as its top executives key former PBOC officials.13. With Chinas accession to the WTO in 2001, the Chinese government worked to build CUPs core capabilities and to prepare it for the arrival of Chinas deadline to complete liberalization of the financial sector in 2006. The Chinese governments efforts to strengthen CUP coincided with measures that resulted in the systematic exclusion of foreign suppliers of EPS from the market. 14. By 2010, CUP had grown its network outside of China, and CUP cards could be used in well over 100 countries, including in Australia, Canada, Malaysia, Singapore, the United Arab Emirates, and the United States. In the years since its inception in 2002, CUP has emerged as a dominant domestic and international player in the EPS market. CUP controls the merchant services network and owns half of the POS terminals in China. In 2007, just five years after CUP was created, PBOC reported on the companys explosive growth and its mammoth transaction volume (placing it then fourth within the world). Because of its success, CUP briefly considered an initial public offering (IPO) in 2008, with President Xu Luode stating that he remained open to considering an IPO again if the conditions were right. China continues to sustain CUPs growth and to maintain a regulatory environment that has entrenched CUPs hold over the Chinese payment card market.C. Chinas Measures That Maintain CUPs Monopoly on the Supply of EPS and that Affect the Supply of EPS By Foreign Suppliers15. China maintains the following measures: Requirements that mandate the use of CUP and/or establish CUP as the sole supplier of EPS for all domestic transactions denominated and paid in RMB. China requires that all transactions denominated and paid in RMB in China be processed and cleared in RMB through CUP, and that where there is a choice, all domestic transactions on dual currency cards be routed in RMB through CUP. See U.S. July 29, 2011 Response, sections V.B, V.C, V.D Requirements that RMB denominated payment cards issued in China bear the CUP logo. China requires that any bank cards issued in China for RMB purchases in China, including dual currency payment cards issued in China, must bear the CUP logo. This means that issuers the institutions that issue payment cards to consumers must have access to the CUP system, and must pay CUP for that access. See U.S. July 29, 2011 Response, sections V.B, V.C, V.E. Requirements that all automated teller machines (ATM), merchant card processing equipment, and POS terminals in China accept CUP cards. China requires that all ATMs, merchant card processing equipment, and POS terminals in China be capable of accepting CUP cards. There are no equivalent requirements for non-CUP cards. See U.S. July 29, 2011 Response, sections V.B, V.C, V.F. Requirements on acquiring institutions to post the CUP logo and be capable of accepting all payment cards bearing the CUP logo. China requires that all acquiring institutions the institutions that sign up merchants to accept payment cards in China post the CUP logo and be capable of accepting all payment cards bearing the CUP logo. An acquiring institution, often a bank, provides POS terminal and processing equipment to merchants so it can process payment cards, maintains the merchants account, handles relations with the merchant, and ensures that payments are properly credited to the merchant. See U.S. July 29, 2011 Response, sections V.B, V.C, V.G. Broad prohibitions on the use of non-CUP cards. China prohibits the use of domestically issued non-CUP payment cards where the issuing bank and acquiring bank are different. China also requires that all inter-bank transactions for all bank cards be handled through CUP. See U.S. July 29, 2011 Response, sections V.B, V.C, V.H. Requirements pertaining to card-based electronic transactions in China, Macao and Hong Kong. China requires that CUP be used to handle all RMB transactions in Macao or Hong Kong using bank cards issued in China. China also requires that CUP be used to handle any RMB transactions in China using RMB cards issued in Hong Kong or Macao. See U.S. July 29, 2011 Response, sections V.B, V.C, V.I.IV.CHINAS SPECIFIC COMMITMENTS IN ITS GATS SCHEDULEA. Chinas Schedule of GATS Commitments Covers All payment and money transmission services, including credit, charge and debit cards (item d) 16. In Sector 7B, under the Banking and Other Financial Services heading of Chinas Services Schedule, the services listed include:(d)All payment and money transmission services, including credit, charge and debit cards, travellers cheques and bankers drafts (including import and export settlement).17. China undertook market access and national treatment commitments with respect to all payment and money transmission services, which includes the electronic payment services supplied in connection with credit, charge and debit cards, and other payment card transactions. B. EPS Fall Within the Ordinary Meaning of All payment and money transmission services, including credit, charge and debit cards (Item d)18. Chinas commitments pertain to all payment and money transmission services, including credit, charge and debit cards, indicating that the scope of the commitment covers any service that is essential to payment and money transmission including credit, charge, and debit cards payment transactions. EPS suppliers are at the heart of this service.19. EPS are at the center of all payment card transactions and without these services the transactions could not occur. EPS fall within the ordinary meaning of payment and money transmission services, within item (d) of Chinas Schedule. The language of item (d) itself makes this abundantly clear.20. First, 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. EPS clearly fall within the ordinary meaning of payment and money transmission services as one type of all such services.21. Second, the phrase all payment and money transmission services is modified with an illustrative list that explicitly provides that it includes credit, charge and debit cards. This explicit reference is in line with the recognition that EPS are integral to the processing of credit, charge, debit and other payment card-based electronic payment transactions, and without these services, payment card transactions could not occur. EPS suppliers such as Visa, MasterCard, and American Express are names recognized around the world as credit cards and charge cards. The reference to debit cards covers suppliers of EPS for debit card transactions like Visa, MasterCard, Discover, First Data, Pulse, NYCE, STAR, and PLUS.V.CHINAS MEASURES SHOULD BE CONSIDERED BOTH INDIVIDUALLY AND IN CONJUNCTION WITH OTHER MEASURES22. China maintains a monopoly structure that ensures that CUP is the sole entity that can provide EPS for RMB transactions in China the vast majority of all transactions in China. Chinese measures that provide for the monopoly structure and restrict the supply of EPS by foreign suppliers affect every aspect of a payment card transaction and all of the key participants in such transactions.23. As the Panel confirmed in its preliminary ruling, the United States has challenged measures that establish or maintain requirements that fall within six categories. The United States requests the Panel to analyze Chinas measures both individually and in conjunction with one another as indicated by the United States.VI.CHINAS MEASURES