Questions to All Third Parties
1. With reference, inter alia, to paragraphs 22 and 27 of the European Union's third party written submission, could the Third Parties please clarify how and why clearing and settlement services involved in the trading of securities are distinct from the clearing and settlement services that are part ofpayment and money transmission services (paragraph 22)?
The term "settlement and clearing services for financial assets" as referred to in sub-paragraph 5(a)(xiv) of the Annex on Financial Services (Annex) clearly envisages services that are supplied in relation to a specific type of product - financial assets. The second part of this provision provides some examples of financial assets. On the other hand, the services described in sub-paragraph 5(a)(viii) do not refer to any specific product. As Australia noted in its written submission, the term "payment and money transmission" refers to the transmission of money from one person or entity to another. In a credit card transaction, for example, the "settlement and clearing service" relevant to such payment is an essential component of that transmission process.
Credit, charge and debit cards are included in sub-paragraph 5(a)(viii) as examples of means by which payment and money transmission services can be delivered. We note credit, charge or debit cards involve transmission of money with no extra associated rights. Settlement occurs at the moment of the transaction (which may include an electronic payment service provider negotiating the settlement between two parties/banks). For example, a banker's draft (one of the examples included under subparagraph 5(a)(viii)) involves the requester transferring funds to the issuing bank in return for the draft. The receiver of the draft knows s/he will receive payment of the amount made out on the draft upon cashing it.
In contrast, a negotiable instrument (such as a bill of exchange or a bearer bond) includes negotiable rights that extend past the point of money transaction for the instrument. For instance, in the case of securities, this includes the rights to the share and to associated rights such as voting in the company. A bond has similar rights such as being able to draw on the money with specific rates of interest etc. There are also further steps involved in these services, such as clearing houses and authorised stockbrokers that deal with equities. For example, for financial products traded on the Australian Securities Exchange, settlement is effected by a computer system called CHESS (Clearing House Electronic Subregister System). In addition to performing settlement, CHESS electronically registers the title of shares on its secure subregister. "Settlement and clearing services" for financial assets are therefore clearly distinct from the settlement and clearing activity or element that is part of payment and money transmissions such as credit card transactions.
In addition, as Australia noted in its written submission, unlike sub-paragraph 5(a)(viii), sub-paragraph 5(a)(xiv) does not make reference to "credit, charge or debit cards" in its illustration of the "financial assets" to which "settlement and clearing services" relate under that provision. Both an "ordinary meaning" reading of the terms credit, charge and debit cards, travellers cheques and bankers drafts as well as a textual interpretation of the Annex supports Australia's view that these items should not be considered "negotiable instruments" in the context of "settlement and clearing services" under sub-paragraph 5(a)(xiv). On this point Australia agrees with the EU's Third Party submission, as set out in paragraphs 22-27.
2. Could the Third Parties elaborate on the similarities and/or differences between the concept of "monopoly supplier of a service" and an "exclusive service suppliers", in particular in the light of the definitions contained, respectively, in Articles XXVIII(h) and Article VIII:5 of the GATS?
The concepts are different in so far as Article XXVIII(h) states that a monopoly is the 'sole supplier of that service' and Article VIII:5 states that an exclusive supplier of a service is a 'small number of service suppliers'.
3. Article XVI:2(a) of the GATS refers to "measures on the number of service suppliers whether in the form of numerical quotas, monopolies, exclusive supplier or the requirement of an economic needs test". The definitions for "monopoly supplier of a service" and "exclusive service suppliers" contained, respectively, in Articles XXVIII(h) and VIII:5 of the GATS both refer to suppliers which are "authorized or established formally or in effect" by a Member. Hence, while Article XVI of the GATS by its terms appears to focus only on the form, Articles XXVIII(h) and VIII:5 of the GATS refer to both form and effect. Could the Third Parties comment on this difference specifically with a view to the proper interpretation of Article XVI?
4. With respect to subsector (d) which is at issue in this dispute, the entry in China's Schedule under mode 1 reads as follows:
- Unbound except for the following:
- Provision and transfer of financial information, and financial data processing and related software by suppliers of other financial services;
- Advisory, intermediation and other auxiliary financial services on all activities listed in subparagraphs (a) through (k), including credit reference and analysis, investment and portfolio research and advice, advice on acquisitions and on corporate restructuring and strategy.
Moreover, China has listed, under subsectors (k) and (l), two subsectors whose sectoral descriptions repeat verbatim the two subsectors committed under mode 1 of subsector (d). Could the Third Parties explain whether, in their view, the two subsectors committed, respectively, under mode 1 for subsector (d) and, on the other hand, under (k) and (l) cover (i) the same services, (ii) different services? If they cover different services, what is the difference?
Our interpretation is that China's limitations listed in the market access column are on 'Advisory, intermediation and other auxiliary financial services...' as they relate to sub-sectors (a) through to (f) and not to (g) through to (l), (as the latter sub-sectors are not identified in the Schedule).
5. Should the services at issue be classified under the same item irrespective of whether they are supplied under the three-party model or the four-party model?
The services at issue should be classified under the same item irrespective of whether they are supplied under the three-party or the four-party model. For example, in Australia the relevant authorities, such as AusTRAC, define an electronic fund transfer as a transfer that takes place when an electronic communication is made between an ordering institution and a beneficiary institution.
AusTRAC lists four types of electronic fund transfers essentially covering three-party and four-party models:
- a multiple-institution person-to-person electronic funds transfer instruction; or
- a same-institution person-to-person electronic funds transfer instruction; or
- a multiple-institution same-person electronic funds transfer instruction; or
- a same-institution same-person electronic funds transfer instruction.
6. The Panel notes that China's first written submission refers to the 2001 Guidelines, while the Panel on China - Publications and Audio-Visual Products used the 1993 Guidelines. If the Panel in this case were to consider the Scheduling Guidelines, should it use the 1993 or the 2001 version of the Scheduling Guidelines, or both? Please give the reasons for your view. If the 2001 Guidelines were used, please address whether these should be considered as part of an interpretative analysis under Article 31 or Article 32 of the Vienna Convention in view of their adoption by the Council for Trade in Services (CTS).
The 2001 Guidelines apply to all Schedules drafted after the adoption of the Guidelines on 23 March 2001.1 All earlier schedules were drafted according to the 1993 Guidelines.2 Given that China acceded to the WTO on 11 December 2001, the Panel in this dispute should therefore use the 2001 Guidelines.3 The 2001 Guidelines are mostly a reproduction of the 1993 Guidelines. The few added provisions do not lead to substantive changes, except for the inclusion of certain annexes, such as the Annex on Financial Services which entered into force in 1999.4 As this dispute concerns China's scheduled commitments on financial services, it is necessary to use the 2001 Guidelines which refer to the Annex on Financial Services.
There are two recent WTO disputes in which the Appellate Body considered how the Guidelines might be used under the Vienna Convention on the Law of Treaties ("VCLT") as a means of interpreting Schedules of Specific Commitments: US-Gambling and China-Audiovisual Services. In US-Gambling, the Appellate Body held that the 1993 Scheduling Guidelines could not be used as a primary means of treaty interpretation under Article 31 of the VCLT. First, they could not be relied on as 'context' within the meaning of Article 31(2)(a) of the VCLT.5 The Appellate Body further held that the 2001 Guidelines did not constitute 'subsequent practice' within the meaning of article 31(3)(b) of the VCLT.6 Instead, the 1993 Scheduling Guidelines were held to constitute "supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion" within the meaning of Article 32 of the VCLT, that may be looked to in order to "confirm meaning resulting from an application of Article 31, or to determine meaning where the interpretation according to Article 31 leaves meaning ambiguous or obscure".7 This approach was followed by the Panel and Appellate Body in China-Audiovisual Services.8
Following the reasoning of the Appellate Body in US-Gambling (as outlined above), the fact that the 2001 Scheduling Guidelines were adopted by the Committee on Trade in Services (CTS), rather than simply drafted by the Secretariat as in the case of the 1993 Guidelines, is material. Indeed, the Appellate Body in US-Gambling explicitly rejected the argument that the 1993 Scheduling Guidelines constituted "context" under Article 31 of the VCLT because they were drafted by the GATT Secretariat, rather than by the parties to the negotiations, and due to the absence of sufficient evidence of their constituting an "agreement relating to the treaty" between the parties or of their "accept[ance by the parties] as an instrument related to the treaty".9 The need to ascertain the "common intention of Members" was similarly emphasised by the Appellate Body in China-Audiovisual Services.10 As the CTS operates under the guidance of the General Council, which consists of all WTO Members, its adoption of the 2001 Guidelines constitutes acceptance by the parties of the guidelines as an "instrument related to the treaty".11 Therefore Australia submits that the 2001 Guidelines should be considered relevant "context" under Article 31 of the VCLT, and be considered as a primary source for interpreting China's Schedule. At a minimum Australia submits that the 2001 Guidelines should be considered as a supplementary means of interpreting China's Schedule within the meaning of Article 32 of the VCLT.12
7. With reference to Article XX:2 of the GATS which was referred to by China at paragraph 154 of its first written submission, please indicate:
- Whether Article XX:2 applies in a situation where a Member's market access column states "Unbound" and its national treatment column states "None".
GATS Article XX:2 could apply in this situation. The effect would be that a Member scheduling "Unbound" for market access could impose a market access limitation, as listed in GATS Article XVI:2(a)-(f), that may also be inconsistent with national treatment (GATS Article XVII). But that Member could not impose any measure inconsistent with national treatment that was not also a market access violation.
- Whether in the situation described under (a) the Member concerned could maintain a market access limitation that at the same constitutes a national treatment limitation. Please explain whether and how Article XX:2 is relevant to answering this question.
As outlined in the answer to 7(a), the situation described in (a) means a Member may maintain a market access limitation that at the same time constitutes a national treatment limitation. This is the only type of national treatment limitation that Members may maintain based on the scheduling described in the question (where the Member schedules "Unbound" in the market access column and "None" in the national treatment column). GATS Article XX:2 states that a measure inconsistent with both market access and national treatment need only be scheduled against market access. This is because the market access inscription is interpreted to cover all instances where market access restrictions (as listed in GATS Article XVI:2(a)-(f)) may also be a considered a violation of national treatment.
- Could Third Parties comment on the argument made by China (paragraph 156 of China's First Submission) that "[c]onsistent with the order of precedence established by Article XX:2 and the principle of effet utile, [Articles XVI and XVII] must be seen as mutually exclusive in their respective spheres of applications"?
No comment on this part of the question.
8. With regard to section 5 of the Annex on Financial Services and Document W/120, please answer the following questions:
- For the purposes of applying the tools of treaty interpretation to China's financial services commitments, what is the difference, if any, between taking account of the classifications provided in section 5 of the Annex on Financial Services and those contained in Document W/120?
- Is there any difference in the scope of subsector (d) of W/120 and that of item (viii) of the Annex on Financial Services?
9. What is the impact, if any, of the fact that China's subsector (d) commitments appear under a sub-heading "Banking services" that does not include "Other Financial Services"? Would the scope of activities covered by subsector (d) be any different if subsector (d) appeared under a sub-heading that applied to both banking services and other financial services? How?
Irrespective of whether the sub-heading was 'banking services' or 'banking and other financial services', it remains our view that subsector (d) refers to a banking service.
10. With reference to paragraph 89 and footnote 58 of China's first written submission, what is the relevance, if any, of the "rule of classification" (CPC Provisional, Rules of Interpretation, Rule 1(a)) referred to by China in the interpretation of the scope of the Chinese commitments at issue?
11. In paragraphs 126 and 158 of its first written submission, China argues that China's market access entry under mode 1 for subsectors (a) through (f) is "unbound", with a "cross-reference" to subsectors (k) and (l). The latter two subsectors are then scheduled under the heading "other financial services" with a full mode 1 commitment ("none"). Could the Third Parties comment on China's argument about the so-called "cross-reference" in its specific commitments?
Our interpretation is that the limitation of 'unbound' listed in the market access column relates to banking services subsectors (a) through (f) in China's schedule, except where the service provided in banking subsectors (a) through (f) is related to a service in subsectors (k) or (l). In this case, it is unclear what the commitment is but it is not "unbound".
We note that the text of subsectors (k) and (l) from the W120 is reproduced in the market access column relating to banking services subsectors (a) through (f) in China's schedule, and that the text of subsector (l) has been listed before (k) in this instance. We note (k) and (l) are also scheduled separately in their own right, and for mode 1 China has full commitments with no limitations.
12. With reference to paragraph 141 of China's first written submission, China argues that "... China's financial services regulations define a 'foreign financial institution' as a 'financial institution that is registered outside the People's Republic of China and approved or licensed by the financial regulatory authorities of the country or region where it originated'". As a matter ofprinciple, what is the value, if any, of national legislation to define the types of suppliers referred to in a Member's Schedule? More generally, what is the value, if any, of a Member's national legislation to interpret the scope of specific commitments in that Member's Schedule?
While there must be a legislative basis for a GATS commitment, we do not see the need for GATS-specific national legislation. A Member's schedule defines the scope of their commitments. National legislation is relevant and can assist in interpretation when it is referenced in the schedule.
13. Could the Third Parties please comment on paragraphs 104 to 108 of China's first written submission, and specifically the argument that services that "manage" or "facilitate" the provision of another service or that relate to its "processing" could properly be seen as "inputs" to the provision of another service?
14. Could the Third Parties please elaborate further on the meaning of the term "negotiable instruments" in item (xiv) of the Annex on Financial Services? In your responses, please also address whether the items mentioned in the illustrative list of item (viii) (i.e. credit, charge and debit cards, travellers cheques and bankers drafts) could be considered "negotiable instruments."
Please refer to the response to question 1.
15. With reference to the discussion by some Third Parties of the term "financial assets" that appears in item (xiv) of the Annex on Financial Services, the Panel would appreciate further elaboration as follows:
- Please provide a general definition of the term "financial assets" as it is used in item (xiv).
- Please identify any assets other than those already identified in the illustrative list provided in item (xiv) that are encompassed by the term "financial assets".
Australia submits that the question the Panel should be examining here is not the "general" definition of the term "financial assets". Rather subparagraph 5(a)(xiv) is a definitional paragraph, and "financial assets" must be understood within the context of clearing and settlement services which relate to those financial assets. The definition of "financial assets" is determined with regard to the ordinary meaning of the terms in their context in light of the object and purpose of the Annex.13 The meaning of the term "financial asset" must be understood in relation to 5(a)(xiv),14 namely "securities, derivative products, and other negotiable instruments". A financial asset involves a store of value, that is, the asset represents ownership of value that can be converted into cash. Stocks, bonds, and other equities can be converted into purchasing power. A negotiable instrument (as outlined in question 1) includes negotiable rights that extend past the point of money transaction/settlement for the instrument. For instance, in the case of securities, this includes the rights to the share and to associated rights such as voting in the company. A bond has similar rights such as being able to draw on the money with specific rates of interest etc. There are also further steps involved in these services, such as clearing houses and authorised stockbrokers with licenses to deal in securities. Credit card transactions do not fall under the definition of "financial assets". Rather they fall within item 5(a)(viii) which refers to money transmissions in which the funds are in some way guaranteed for payment and are honoured at the point of being drawn directly from the financial institution.
16. With regard to "pre-paid" or stored-value bank cards (see paragraph 37 of the United States' response to China's preliminary ruling request and Exhibit US-52, Article 10), could the Third Parties provide their views as to whether such cards would constitute "financial assets" within the meaning of item (xiv) of the Annex on Financial Services?
Questions for Australia
17. With reference to paragraphs 15 to 16 of Australia's third party written submission, for those Members who did not include in their Schedules the additional words "credit, charge or debit cards", does this mean that services relating to the management and facilitation of credit and debit card transactions are not covered by subsector (d)?
Australia submits that subsector 7B(d) will capture services relating to the management and facilitation of credit card and debit card transactions, even if the Member's Schedule does not include the additional words "credit, charge or debit cards".
In paragraphs 9 to 12 of Australia's written submission, Australia noted that its analysis under Article 31 of the Vienna Convention of the ordinary meaning of the words "all payment and money transmission services", resulted in the view that this phrase encompasses services which are integral to payment and money transmission services, including services which manage and facilitate credit card based payments. In our view, Members which have included the additional words simply provide extra clarification of the intended application of subsector (d).
18. At paragraphs 22 to 27 of Australia's third party written submission Australia appears to say that China's mode 3 commitments in subsector (d) should not be understood as being limited to foreign financial institutions. Assuming this is correct, could Australia address why China's mode 3 market access entry for subsectors (a) through (f) appears to impose "qualifications" requirements on foreign financial institutions, but not for entities other than foreign financial institutions?
In paragraphs 22 to 27 of Australia's third party written submission, Australia notes that its interpretation of China's commitments under subsector (d) is that other than the prudential licensing limitations on foreign financial institutions, China's Schedule should be interpreted as "otherwise, none" as to any further limitations relating to this subsector. Australia noted that the inclusion of these limitations with respect to foreign financial institutions does not mean that China's commitments under 7B(d) are limited to foreign financial institutions. By refraining from listing "unbound except" in the "qualifications" requirement on foreign financial institutions, China's commitment should be read as no other limitations. Australia cannot answer why China did not impose these requirements on entities other than foreign financial institutions. Australia submits that the services under subsector 7B(d) are capable of being provided by both financial institutions, and non-financial institutions.
19. With reference to paragraphs 22 to 27 of Australia's third party written submission, does the fact that the words "otherwise, none" are inscribed in the national treatment column but not in the market access column call for a different interpretative approach for these two columns?
Australia submits that the fact that the words "otherwise, none" are inscribed in the national treatment column, and not in the market access column, does not in itself call for a different interpretative approach for these two columns.
In paragraph 21 of Australia's written submission, Australia has offered its views on the guiding principles to the interpretation of GATS schedules. In particular, Australia noted that the WTO Secretariat's view that all commitments in a Member's Schedule are bound unless otherwise specified.15 To this end, Australia submits that the starting point is that, unless noted otherwise in the market access and national treatment columns, commitments in a Member's Schedule are bound. Importantly, if a member wishes to remain free in a given sector and/or mode of supply (i.e. where it wishes to retain the flexibility to introduce or maintain limitations on market access or national treatment) the Member will enter the term "unbound" in its Schedule of Specific Commitments. Conversely, where a Member wishes to bind itself to a market access and/or national treatment commitment, for which it maintains no limitations, it will enter "none" with respect to the relevant sector or mode. A Member may also make a commitment with limitations by providing specific explanation in the text of the Schedule.
In Australia's view, in the absence of the words "unbound except" or "otherwise unbound", Australia submits that other than the listed limitations against mode 3, China's Schedule should be read as "otherwise none".
20. With reference to paragraphs 10 and 11 of Australia's third party written submission and paragraph 7 of Australia's oral statement, could Australia please explain the following:
- Why it is making a distinction between "payment transmission services" on the one hand and "money transmission services" on the other hand, as opposed to distinguishing between "payment services" and "money transmission services"?
- Could Australia please provide examples of "money transmission services" (as distinct from payment transmission services) performed by credit card based payment service suppliers?
- Could Australia indicate whether "clearing and settlement services as they relate to card based payments" in its view constitute "payment services" or "money transmission services"?
Australia did not intend to create a category with respect to "payment transmission services". Rather the distinction should be between "payment services" and "money transmission services". In Australia's view, the fundamental distinction between "payment services" and "money transmission services", is that with respect to "payment" money is being transmitted or transferred for the purposes of payment (i.e. money due for goods or services, or for remuneration), and with respect to "money transmission" the purposes of transmission or transfer can be for purposes other than payment.
Noting this distinction, Australia considers that "clearing and settlement services as they relate to card based payments" constitute payment services because of the payment element. If a credit card transmission of money is used for a reason other than a payment, such as a cash advance, then the clearing and settlement services would be an essential element of the money transmission.
Australia reiterates its view that settlement and clearing services for credit card based transactions, are a fundamental component of the transmission of funds between entities involved in card based transactions. To this end, Australia does not consider the clearing and settlement elements of payment and money transmission services to be divisible; rather they are both fundamental components of credit card based payment services. Indeed, these activities are essential to both "payment" and "money transmission" within the context of a credit card based transaction.
Questions for The European Union
21. With reference to paragraph 36 of the European Union's third party written submission, is it the European Union's position that since, in its view, any limitations concerning entities other than foreign financial institutions were not "explicitly included in the scheduled limitation", such entities were entitled to serve Chinese clients for, e.g., local currency business under mode 1 all along, even before December 2006 when foreign financial institutions were not yet entitled to serve all Chinese clients?
Questions for Korea
22. At paragraph 14 of its third party written submission, Korea states that credit cards or credit card transactions arguably do not carry monetary value. In Korea's view, would a credit card coupon (which shows the amount to be received by the acquiring institution) not carry any monetary value?
Questions for Japan
23. With reference to paragraph 22 of Japan's third party submission, could Japan please provide its own views:
- Regarding the scope of China's commitment for subsector (d) under mode 1?
- As to whether China's interpretation of its mode 3 commitments concerning subsector (d) is consistent with its commitments concerning "All Insurance and Insurance-Related Services" and "Securities"? Also, could Japan further explain what it means by consistency between commitments in subsector (d) and commitments under other financial services subsectors in China's Schedule?
24. With reference to paragraph 30 ofJapan's third party written submission, could Japan clarify its statement that "the possibility for a measure to violate both Article XVI and Article XVII may depend on the way of committing market access and limitations applicable to the measure at issue." In its answer, could Japan please address the relevant entries of China's Schedule?