WTO: China Discriminates Against US Credit Cards - Wall Street Journal

A World Trade Organization panel has determined that China’s tight control over credit- and debit-card transactions discriminates against U.S. card companies, a decision the card issuers hope will lead to new business opportunities in China’s fast-growing payments market.

The WTO dispute panel found China’s rules governing access to its domestic electronic-payments market don’t provide equal treatment to foreign credit-card and debit-card issuers.

While the global trade body didn’t fully side with the U.S.â€"dismissing U.S. claims that state-controlled China UnionPay Co. operates a monopolyâ€"it called for China to end restrictions against foreign credit-card issuers and banks that limit the issuing of cards and processing of payments.

“The WTO panel agrees that China’s pervasive and discriminatory measures deny a level playing field to American service providers,” U.S. Trade Representative Ron Kirk said in a statement.

Shen Danyang, a spokesman for China’s Ministry of Commerce said in a statement that the government will assess the report “and according to the WTO’s dispute resolution process will do appropriate follow-up work on the case.”

Either country has 60 days to appeal the WTO’s decision.

The yawning U.S. trade deficit and its impact on jobs has increasingly become a campaign issue, with President Barack Obama using a campaign stop in Ohio earlier this month to announce a new WTO action against Chinese retaliatory tariffs on U.S. auto exports. Republican challenger Mitt Romney has said the president hasn’t done enough, pledging he would declare China a currency manipulator if elected in November.

The Obama administration challenged the rules in 2010, arguing that China UnionPay had a virtual monopoly on local-currency electronic payment services to the detriment of U.S. firms such as Visa Inc. and MasterCard Inc.

But the decision to wasn’t met with universal support from U.S. firms. Many companies continued working with China UnionPay, wary of upsetting the central bank-backed company.

Still, U.S. companies welcomed the decision. A spokesman for MasterCard said the decision makes opportunities in China “all the more interesting.”

A Visa spokesman said in a statement that the company is “hopeful that this ruling will pave the way for international payment companies to participate in the domestic payments marketplace in China.”

U.S. payments networks have been trying to build a toehold in China through partnerships with China UnionPay and Chinese banks. Currently, they must partner with Chinese card issuers to offer co-branded cards, allowing China UnionPay to process domestic transactions.

Visa and MasterCard don’t issue cards; rather, they operate processing networks that handle transactions for banks that issue their cards.

There were more than 2.4 billion credit and debit cards in circulation in China at the end of 2010, more than twice as many as in the U.S., according to Mercator Advisory Group, a payments research firm. According to the People’s Bank of China, there were more than 3.1 billion bank cards outstanding at the end of March, with spending on those cards exceeding 84 trillion yuan ($13 trillion).

Sanjay Sakhrani, an analyst with Keefe, Bruyette & Woods who follows payments companies, said it remains to be seen how much impact the ruling will have on access.

“It’s obviously a big market and it’s a new opportunity, Mr. Sakhrani said. “It’s definitely an incremental opportunity for them.”

Write to Tom Barkley at tom.barkley@dowjones.com and Dinny McMahon at dinny.mcmahon@wsj.com