(Aug. 27, 2009) On August 12, 2009, a World Trade Organization (WTO) Dispute Settlement Body (DSB) panel issued a report on the dispute between the United States and the People's Republic of China over trading rights and distribution services involving publications and audio-visual products. As THE NEW YORK TIMES pointed out, “[t]he ruling goes to the heart of one of the biggest trade issues pending between China and the West: whether intellectual property, like copyrighted songs, books and movies, should be granted the same kind of protection from discriminatory trade practices as manufactured goods.” (Keith Bradsher, W.T.O. Rules Against China's Limits on Media Imports, THE NEW YORK TIMES, Aug. 12, 2009, available at http://www.nytimes.com/2009/08/13/business/global/13trade.html?_r=1.) As the panel report states,
This dispute concerns China's obligations under the WTO Agreement with respect to goods and services relating to reading materials (e.g. books, newspapers, periodicals, electronic publications), audiovisual home entertainment (AVHE) products (e.g. videocassettes, video compact discs, digital video discs), sound recordings (e.g. recorded audio tapes), and films for theatrical release.
The dispute arises over certain measures that affect (i) the importation into China of relevant goods, (ii) the distribution within China of relevant goods, and (iii) services and service suppliers in relation to certain of the above mentioned products.
The dispute originated on April 10, 2007, when the United States requested consultations with China on measures that appear to restrict trading rights with respect to the above-named types of materials, as well as on measures that appear to restrict market access for, or discriminate against, foreign suppliers of publications' distribution services and of audiovisual services (including distribution services) for AVHE products. Subsequently, on July 10, 2007, the United States requested supplemental consultations with China on market access concerns over distribution in China of imported film and sound recordings, as well as sound recording distribution services. (WTO, China – Measures Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual Entertainment Products: Report of the Panel,WT/DS633/R, Aug. 12, 2009, at1, available at http://www.wto.org/english/tratop_e/dispu_e/363r_e.doc.)
On the first point, the United States alleged that the Chinese measures “unjustifiably restrict the right of enterprises in China and foreign enterprises and individuals to import into China” the various types of materials noted above “by limiting trading rights to Chinese state-owned enterprises,” constituting a violation of WTO rules by such restrictions on those eligible to import. (Id. at 2.) On the second point, concerning distribution services for reading materials, certain AHVE products, and electronically distributed sound recordings, the United States alleged that certain Chinese measures imposed more burdensome requirements for, or market access or discriminatory limitations on, foreign service providers, thereby violating WTO rules by giving less favourable treatment to foreign distributors than to their Chinese counterparts.
In addition, the United States challenged Chinese measures that allegedly fail to provide national treatment for films, electronically distributed sound recordings, and reading materials, restricting, limiting, or discriminating against their distribution. Consultations failed to resolve the dispute, and so on October 10, 2007, the United States requested that the DSB establish a panel to examine the issues raised in the consultation requests; a panel was established on November 27, 2007. (WTO Panel Issues Report in US-China Dispute over Publications and Audiovisual Products, INTERNATIONAL LAW PROF BLOG, Aug. 12, 2009, available at http://lawprofessors.typepad.com/international_law/2009/08/wto-panel-issues-report
-in-uschina-dispute-over-publications-and-audiovisual-products.html [hereinafter BLOG].) Australia, the European Communities, Japan, the Republic of Korea, and the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu (“Chinese Taipei”) reserved third-party rights to participation in the panel proceedings.
In general, in regard to the U.S. complaint that China requires most copyrighted material to be imported through certain government-designated companies and that China restricts foreign financial news services to operating through a government-designated distributor, the panel report stated that it appears that foreign individuals and enterprises, including ones without investment or registration in China, are accorded less favorable treatment than domestic Chinese enterprises with respect to the trading rights. However, on the question of whether Chinese censorship unfairly restricted imports, the panel simply stated the matter was outside its purview; for the same reason, it “declined to rule on whether China's approval processes were too onerous for would-be distributors of imported entertainment.” (Bradsher, supra.) Under article 3.8 of the WTO's Dispute Settlement Understanding, “violation of obligations under one or more WTO Agreements constitutes a prima facie case of nullification or impairment of benefits under the Agreements,” and so, as is the normal practice, “the panel recommended that the Dispute Settlement Body … request that China bring the relevant measures into conformity with its WTO obligations.” (BLOG, supra.)
Some of the specific findings of the panel that mostly favor the United States are as follows.
Certain Chinese measures are inconsistent with China's national treatment commitments as they prohibit foreign-invested enterprises, including service suppliers of other WTO Members, from engaging in the wholesale of imported reading materials subject to subscription, the wholesale of imported reading materials subject to sales through the market; the master distribution of reading materials (in cases where master distribution involves wholesale or retail services); and the master wholesale or wholesale of electronic publications or the wholesale of imported electronic publications, while like domestic service suppliers are not similarly prohibited in regard to any of the above materials.
The requirements concerning registered capital, the operating term (a maximum of 30 years), and conditioned renewal process for foreign-invested wholesalers of reading material, including service suppliers of other Members, are inconsistent with China's national treatment commitments, in that they accord less favorable treatment to service suppliers of other Members than that accorded to like domestic suppliers.
In regard to newspapers and periodicals, trading rights are not granted to foreign-invested enterprises in China in a non-discretionary way. The panel also rejected China's arguments that a designation requirement in its Publications Regulation was necessary to protect public morals and a necessary restriction of the right to trade. The panel held that there was no need to designate individuals or entities as importers of newspapers or periodicals, because the restriction “does not appear to make an independent contribution” to the protection of public morality in China and “has a significant restrictive impact on those wishing to engage in importing – more so than would an approval requirement … .” (WTO, supra.)
China does not grant trading rights to foreign enterprises in a nondiscretionary way in regard to audiovisual products.
Chinese-foreign contractual joint ventures for the sub-distribution of audiovisual products do not have, and cannot obtain, the right to import audiovisual products; therefore China has failed to ensure that “all enterprises in China,” which includes Chinese-foreign contractual joint ventures for the sub-distribution of audiovisual products, have the right to import all goods. (Id.)
China failed to rebut the interpretation by the United States of a certain Chinese measure to the effect that the Chinese joint venture partner should hold no less than 51% of any equity in a contractual joint venture engaging in the distribution of audiovisual products, thereby limiting the foreign equity participation in terms of maximum percentage limit on foreign share holding, contrary to China's relevant GATS commitments.
Under a certain contested measure, contractual joint ventures in which the foreign partner holds the dominant position – the foreign service suppliers – are prevented from engaging in the distribution of AVHE products, unlike domestic service suppliers (wholly Chinese-owned enterprises), thereby imposing a discriminatory prohibition on the former and according them treatment less favorable than that accorded to like domestic suppliers.
FILMS FOR THEATRICAL RELEASE:
Because a certain Chinese measure provides that the business of importing films is to be conducted by the State Administration of Radio, Film, and Television-designated film import entities, and that no entity or individual may engage in such activities without being designated, the panel found that China has failed to ensure that all enterprises in China (including foreign-invested enterprises), foreign enterprises not registered in China, and foreign individuals have the right to import cinematographic films, which is inconsistent with its WTO-related obligations. As a result, “China Film can no longer be the monopoly importer,” so that other channels of film importation into China will be created, according to a U.S. official. (Chris Buckley, China “Regrets” WTO Audio-Visual Ruling, May Appeal, REUTERS, Aug. 13, 2009, available at http://www.reuters.com/article/topNews/idUSSP24039520090813?pageNumber=2
The United States did not succeed in demonstrating to the panel that certain Chinese measures prevent distributors other than two companies, China Film Group and Huaxia, from entering the imported film distribution market; it failed to show that either de jure or de facto creation by China of a distribution duopoly. “As the duopoly is not attributable to China it is not a 'measure' of another Member that can be challenged before the WTO dispute settlement system.” (WTO, supra.) The panel therefore declined to make a finding on whether the alleged discriminatory distribution duopoly is consistent with the relevant GATT article.
Certain measures are inconsistent with China's GATS national treatment commitments, in that they prohibit foreign-invested enterprises, including service suppliers of other Members, from engaging in the electronic distribution of sound recordings, while like domestic service suppliers are not similarly prohibited.
China's Ministry of Commerce indicated that it may appeal the panel's ruling. It stated, “China 'felt regret' the WTO had upheld a U.S. complaint about its import monopolies, which Washington says hurts publishers, Hollywood and entertainment multinationals.” It will assess the panel report “and does not exclude the possibility of appealing on China's points of concern.” (Buckley, supra.)