WTO’s Decision on China’s Card Market Leaves Issues Unresolved, But Impact Yet to Arise

by Terry X Xie 0

Last month, a panel from the World TradeOrganization announced its findings on alleged violations byChina’s government in the domestic-payments card market.

Highlights of the key findings include:• China does not have to allowforeign electronic payment service (EPS) providers to offerservices in China from overseas. But it needs to allow them tocompete in the domestic market once it establishes commercialpresence (i.e. incorporated locally) and meet certainrequirements.

• The panel didn’t see enough evidence of China Union Pay as anacross-the-board monopoly supplier for the processing of alldomestic RMB payment card transactions. The monopoly exists, butonly for “certain types of RMB-denominated payment cardtransactions.” i.e. RMB payment card issued and used within thegreater China region (mainland China, Hong Kong, and Macau).

• The panel concludes that certain requirements in the domesticcard market puts Union Pay in a favorable situation and is unfairto foreign competitors.
The Commercial Department of China welcomed some of the panel’sdecision, but reserved comment on others. A department spokesmansaid it will study the panel’s report and decide what to do nextaccording to the procedures.

Tim Reif, general counsel for the U.S. Trade Representative’soffice, said that “we could not have asked for more” since Chinawill have to change the way it discriminates against foreigncompanies in the domestic market, even though not all U.S. claimswere supported.

Union Pay, Visa, MasterCard and other card networks did not providespecific comments regarding the findings. Nobody really wants todraw the attention to themselves at this sensitive moment.

The decision came nearly two years after the U.S. requestedconsultations with China regarding the issues. Both China and theU.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, whichis unlikely, the government will need to make changes.

Possible changes can have a very significant impact on the domesticmarket and change the way Chinese consumers select their creditcards and debit cards.