2.1 Relevant Laws and Regulations of China and WTO
Following our analysis of the categorization of cryptocurrencies in last part, the corresponding sector in “China - Schedule of Specific Commitments” is “B. Banking and Other Financial Services (excluding insurance and securities) - (d) all payment and money transmission services, including credit, charge and debit cards, travellers cheques and bankers drafts(including import and export settlement)”(hereinafter “B(d) commitments”).
China's policy on cryptocurrencies, with the September 2019 document titled “Circular on Further Preventing and Disposing of Speculative Risks in Virtual Currency Trading” as the boundary, shifted to a total ban. In this section, we intend to focus our analysis on the legal issues that may arise from banning the payment function, the core function of cryptocurrencies, under WTO rules. It is worth mentioning that, as a relatively flexible regime, when GATS is applied, exemptions to the most-favoured nation treatment are permitted, and the national treatment principle only applies when a Member has made commitments in that specific sector. Even where Members take up commitments in services sectors, they are free to define their level of commitment (ranging from “fully liberalised” to “no commitment”), and their extent of obligation would be affected accordingly.
2.2 Most-Favored Nation, National Treatment and Market-Access Commitment
Most-favored-nation treatment in GATS Art. 2(1) requires WTO Members “shall accord immediately and unconditionally to services and service suppliers of any other Member treatment no less favourable than that it accords to like services and service suppliers of any other country.” Given China's blanket and non-discriminatory prohibition on cryptocurrencies, there is no breach of this obligation.
GATS Art. 17 define national treatment as “in the sectors inscribed in its Schedule, and subject to any conditions and qualifications set out therein, each Member shall accord to services and service suppliers of any other Member, in respect of all measures affecting the supply of services, treatment no less favourable than that it accords to its own like services and service suppliers.” In China, wherever the services and service suppliers, home and abroad, apply the same rules. The only possible exception is Central Bank Digital Currency (CBDC), whereas, just like stated above, GATS Art. 1.3(c) may indicate cryptocurrency services promoted by national governments are not regulated by GATS. Hence, there is no breach of this obligation either.
GATS Art. 16(1) prescribes “each Member shall accord services and service suppliers of any other Member treatment no less favourable than that provided for under the terms, limitations and conditions agreed and specified in its Schedule.” In the according B(d) commitments, China has committed to two exceptions in cross-border supply: “Provision and transfer of financial information, and financial data processing and related software by suppliers of other financial services”, and “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”. Actually, cryptocurrency is a type of payment service that aligned with its cross-border attributes. The Chinese government prohibits the use of cryptocurrencies as legal payment tools, which may constitute a breach of promise.
2.3 Exceptions: General Exceptions and Prudential Carve-out
GATS Art.14 includes general exceptions, allowing the Members to deviate from the substantial treaty obligations for the sake of “public morals or public order”protection. In US - Gambling case, the Panel interpreted “public morals” as “standards of right and wrong conduct maintained by or on behalf of a community or nation” and “public order” refers to “the preservation of the fundamental interests of a society, as reflected in public policy and law……related to standards of law, security and morality”. From this point, the reasons China could cite for prohibiting cryptocurrencies are as follows: money laundering, fraud, untraceable purchases due to the anonymous nature, ensuring the status of RMB, financial stability and order maintenance, investors’ rights and interests protection, and lack of reasonable alternative measures.
The prudential carve-out is a provision in the GATS Annex on Financial Services, mainly about “the protection of investors, depositors, policy holders or persons to whom a fiduciary duty is owed by a financial service supplier, or to ensure the integrity and stability of the financial system…… they shall not be used as a means of avoiding the Member's commitments or obligations under the Agreement.” Taking the Argentina – Financial Services dispute as a reference, China, as a possible respondent, may argue from measures, reasons, and non-avoidance of obligations. Based on the specific classification of cryptocurrency, the regulatory measures imposed by the Chinese government are measures affecting financial service providers, consistent with the prudential carve-out provision. For the justifiable grounds, China could refer to the financial-related reasons in the general exception part. Finally, the Annex is silent on the detailed non-avoidance of obligations, so we could elaborate on fiduciary duty to integrate the depth, breadth, and indiscrimination of the restrictions.