Both Sides Claim Victory In A US-China Banking Dispute—But Neither Wins

The World Trade organisation issued a panel ruling yesterday on the dispute between the U.S. and China over bank card services (usually referred to as “electronic payment services,” so let’s go with EPS in this post).

The case is technical and complex but basically boils down to whether China is unfairly restricting foreign EPS providers out of the market and protecting domestic provider UnionPay in ways that violate WTO law and promises made when the PRC joined the trade body over a decade ago.

Some useful links and a comment on the big picture are below, but first a brief mention of the politics of the case, which are quite amusing.

Governments feel obligated to spin anything that they touch, and trade disputes are no exception. In China, we see this through statements made by the Ministry of Commerce and in local media coverage (in English, look at Xinhua, China Daily and Global Times). If China loses a WTO case completely, the MOC will be “disappointed” or “regret the decision,” and the media will generally be silent. If China wins the case, there will be lots of self-congratulation.

But many WTO disputes are complex, involving multiple counts. This EPS case was no exception, and the U.S. brought a laundry list of complaints regarding national treatment and market access, some 24 separate items depending on how you count them. Because the panel found in favour of the U.S. on roughly half of the counts and rejected the other half, China was able to claim a kind of victory. The China Daily writeup, entitled “WTO ruling on e-payments welcomed” is typical:

China has welcomed the ruling of the World Trade organisation’s dispute settlement panel rejecting a majority of charges by the United States against China in a dispute over electronic payments, the Ministry of Commerce said on Monday.

The panel turned down 13 of the 24 points made by the US that alleged China had set restrictions on US credit-card payment processors, such as Visa and MasterCard, while China UnionPay enjoys a monopoly.

Technically true, but of course this is pure spin. China does not “welcome” this panel decision.

When lawyers write up complaints, they generally don’t err on the side of caution or brevity but rather throw in whatever they can think of. Those 24 items were not all solid, and indeed the panel rejected many of them. However, that still means that in the end, the panel found that parts of China’s EPS rules are in violation of WTO law. Beijing an hardly welcome that, but I suppose things could have been worse.

That being said, China’s typical turd polishing doesn’t come close to the ridiculous attempt by the US Trade Representative’s Office, no doubt spurred on by a White House obsessed with the presidential election, to portray this case as a win for U.S. jobs. Here’s the USTR press release:

“This decision will help U.S. companies and increase American jobs as a more efficient credit and debit payment system in China enables consumers to buy more goods, including quality, made-in-America products,” said Ambassador Kirk.

[ . . . ]

By industry estimates, the U.S. stands to gain 6,000 jobs related to EPS.

Jesus Christ, I can almost smell the bullshit emanating from my laptop just reading that.

Two things. First, you can probably guess what I think of “industry estimates” on job creation. I don’t trust those numbers for a second. I also noticed that the U.S. media has used that figure, citing it simply as an “industry estimate,” without explaining what that means or where the number comes from. I would guess that the number comes from a financial services trade association and is therefore completely useless.

Second, and this is stunningly absurd, the “logic” behind the jobs argument from USTR the White House seems to go like this:

1. UnionPay is a monopoly.

2. Monopolies are inefficient.

3. Therefore China’s current EPS system is inefficient.

4. Breaking the monopoly/reducing restrictions will lead to more consumer choice.

5. More consumer choice of service providers will mean more transactions.

6. Some of those transactions will involve purchase of American goods.

7. More sales of American products translates to more U.S. jobs.

My head hurts, and I think I threw up in my mouth a little bit just writing that.

I won’t insult your intelligence by pointing out all the logical inconsistencies and fallacies there, not to mention the questionable assumptions. I understand that no one but me is going to criticise the White House for such crapulent PR (no one else gives a shit), but I find it downright embarrassing. That’s the best they could do?

The thing is, this victory, partial though it may be, really just benefits the financial services sector which, along with a handful of other industries in the U.S. like pharma and entertainment, rocks the world of USTR, the Commerce Department, and most assuredly the White House. Among all the potential market access cases the US could have filed, why do you think they chose to go to bat for the financial services guys? Need I remind you who contributed more to President Obama’s 2008 campaign than any other industry sector?

Nobody likes the banks these days, what with the Great Recession still fresh in our minds as well as new scandals like the LIBOR price fixing case. You can understand why the White House might want to talk about jobs instead of all the benefits they just secured for American credit card companies.

But that’s just me. If you want to dig into this case yourself, here are a few useful links:

Main WTO web page with internal links to case documents.

Link to a summary of findings.

Link to the panel report (PDF). A Word formatted version is on the WTO site as well.

Who are the real winners and losers here? It’s a mixed bag. I won’t parse through all 24 of the claims. Not only would that technical discussion require thousands of words, but it also would be excruciatingly boring.

Suffice it to say that the U.S. succeeded in proving that China does impose a number of requirements on EPS suppliers that violate WTO law, paving the way for increased activity by companies like VISA and MasterCard with respect to China domestic and cross-border transactions.

At the same time, the panel rejected several U.S. claims, including that China requirements “mandate the use of [UnionPay] and/or establish [UnionPay] as the sole supplier of EPS for all domestic RMB payment card transactions” and that China “imposes broad prohibitions on the use of “non-[UnionPay]” cards for cross-region or inter-bank transactions.”

Yes, both sides can claim victory. We will probably see an appeal in this case as well, so don’t expect resolution of this issue any time soon. In the meantime, enjoy the political spin.

© Stan for China Hearsay, 2012. | Permalink [No comment [Add to
Post tags: bank card, EPS, GATS, MasterCard, UnionPay, Visa, world trade organisation, WTO

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