Wednesday, July 18, 2012

US Wins WTO credit card case against China

The WTO panel has ruled that since China UnionPay is the only company that processes yuan denominated credit/debit card payments therefore the country maintains a monopoly in this regard which is against WTO rules. However, the ruling did not go as far as to suggest that China UnionPay was an "across-the-board monopoly supplier".

Other international service providers such as Visa, Mastercard and American Express are not allowed to process Yuan payments in China. US had made an official complaint to WTO in 2010. Several US and foreign firms find it difficult to operate in China as they either have to partner with a Chinese bank or directly with China UnionPay to process yuan transactions.

Although most in North America or Europe wouldn’t have heard of China UnionPay but it is one of the leading players in card industry. It operated in more than a 100 countries and claims to be the third biggest card company in terms of amounts of transactions. Up until July last year, the company had issued 1.4 billion debit cards and was worth approximately $11 billion.

Commenting on the decision, Visa said that it is “hopeful that this ruling will pave the way for international payment companies to participate in the domestic payments marketplace in China".

Jay Carney, the White House Press Secretary was surprisingly delighted with the decision calling it a “win” against “unfair Chinese trade practices”. It is expected that the results of the WTO ruling will be used in the President’s election campaign.

China now, has a 60 day period in which it can file an appeal against the ruling. Tim Reif, general counsel for the U.S. Trade Representative's office, has said that the decision, when implemented, could potentially create 6,000 jobs. In reality, there are no guarantees as to when and how the decision will be implemented and if, it will bring any substantial change. To implement the decision, China will have to go through a lengthy legislation process which could take years.

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