WTO’s Decision on China’s Card Market Leaves Issues Unresolved, But Impact Yet to Arise
August 2, 2012
Terry Xie
Mercator Advisory Group
Last month, a panel from the World Trade Organization announced its findings on alleged violations by China’s government in the domestic-payments card market.
Highlights of the key findings include:• China does not have to allow foreign electronic payment service (EPS) providers to offer services in China from overseas. But it needs to allow them to compete in the domestic market once it establishes commercial presence (i.e. incorporated locally) and meet certain requirements.
• The panel didn’t see enough evidence of China Union Pay as an across-the-board monopoly supplier for the processing of all domestic RMB payment card transactions. The monopoly exists, but only for “certain types of RMB-denominated payment card transactions.” i.e. RMB payment card issued and used within the greater China region (mainland China, Hong Kong, and Macau).
• The panel concludes that certain requirements in the domestic card market puts Union Pay in a favorable situation and is unfair to foreign competitors.
The Commercial Department of China welcomed some of the panel’s decision, but reserved comment on others. A department spokesman said it will study the panel’s report and decide what to do next according to the procedures.
Tim Reif, general counsel for the U.S. Trade Representative's office, said that “we could not have asked for more” since China will have to change the way it discriminates against foreign companies in the domestic market, even though not all U.S. claims were supported.
Union Pay, Visa, MasterCard and other card networks did not provide specific comments regarding the findings. Nobody really wants to draw the attention to themselves at this sensitive moment.
The decision came nearly two years after the U.S. requested consultations with China regarding the issues. Both China and the U.S. have 30 days to decide if they want to appeal the decisions. If they do, a final decision will be made by the end of the year. Unless China is able to overturn all of the panel’s findings, which is unlikely, the government will need to make changes.
Possible changes can have a very significant impact on the domestic market and change the way Chinese consumers select their credit cards and debit cards.