On 16 July 2012 a WTO Panel report found that China's financial services restrictions are illegal under WTO law. The matter commenced on 15 September 2010 when the United States of America ,requested consultations with the People's Republic of China in respect to restrictions and requirements maintained by China in respect of electronic payment services. These electronic payment services related to card payment transactions and the suppliers of those services.

Specifically the United States alleged that China only permitted China UnionPay (a Chinese entity) to supply electronic payment services for payment card transactions denominated and paid in renminbi in China. Service providers from other WTO member countries were only allowed to render these electronic payment services for card payment transactions in foreign currencies. The Panel found that where specific commitments have been made on market access under the General Agreement on Trade in Services (?GATS?), a member is not allowed to limit the number of service suppliers. As China made specific market access commitments under Mode 3 for this particular type of financial services it was violating Article XVI:2(a) as China was not allowed to limit the number of service providers.

It was further alleged that China requires that all payment cards issued in China must bear the ?Yin Lain? / ?UnionPay? logo and must be interoperable with the UnionPay network. The United States also maintained that China upheld a requirement that all terminal equipment in China must be capable of accepting these ?Yin Lian?/?UnionPay? logo cards, and finally, a requirement that acquiring institutions post the ?Yin Lian?/?UnionPay? logo and be capable of accepting all payment cards bearing the ?Yin Lian?/?UnionPay? logo. China made national treatment commitments for these particular types of financial services. None of these commitments allowed it to impose the requirements outlined above. As a consequence the WTO Panel found that all of these requirements were inconsistent with China's national treatment commitments made under mode 1 and 3 for these types of financial services. China was thus not allowed to impose further national treatment restrictions after it had made commitments for these electronic payment services.

We now have to wait to see whether China decides to adhere to the decision, whether it launches an appeal to the WTO Appellate Body or whether the United States will have to take the necessary steps for making use of retaliatory action.

For more information on our WTO dispute settlement practice, kindly contract Rian Geldenhuys.

© Trade Law Chambers 2012