DS363: US – China Dispute of Publications and Audiovisual Products

1. DS363: US – China Dispute of Publications and Audiovisual Products Elena Novak Matt Mawhinney Matt Meldrum

2. Agenda DS 363, U.S.-China: Entertainment Products • Current State of Affairs/Historical Context • Main Thrust of Case / WTO Issue • Position of Parties • Laws and WTO Agreements • Proposed Resolution / Implementation Plans

3. Current Climate DS 363, U.S.-China: Entertainment Products Chinese government restricts the importation and distribution of several types of entertainment products including books, DVDs, and films for theatrical release For Example: China only allows 20 U.S. produced films for theatrical release each year. For a period this number dropped to 0.

4. Oct ‘07 – US requested panel Oct ‘07 – DSB deferred the establishment of panel Jul ‘07 – US / EC requested supplemental consultation Nov ‘07 – DSB established panel Apr ‘07 - EC requested to join consultations Apr ‘07 – US Files Dispute / Consultations Aug ‘09 – Panel Report Issued Oct ‘09 – US to appeal Jan ‘10 – DSB adopted the report and the panel DS363: Timeline Mar ‘08 – Panel composed Sep ‘09 – China to appeal Dec ‘09 – Report issued by Appellate Body DS 363, U.S.-China: Entertainment Products

5. Historical Cases DS 363, U.S.-China: Entertainment Products • DS285 – Measures Affecting the Cross-Border Supply of Gambling and Betting Services • Case found that US must grant full market access in gambling and betting services (Antigua / Barbuda) • US unable to invoke successfully the GATS exceptions provisions (Articles XIV(a) and XIV(c)) • US failed to show ‘necessary to protect public morals or to maintain public order’, within meaning of Article XIV(a) • DS161 – Various Measures on Beef (US / Australia / Korea) • Korea’s dual retail system (requiring imported beef to be sold in separate stores) • Dual system virtually cut off imported beef from access to the ‘normal’ distribution outlets for beef (modified the conditions of competition)

6. POSITIONS OF PARTIES: USA 1. China has not fulfilled it’s end of the agreement to the WTO when it comes to particular industries and the services and products they offer. The four sets of products and services in questions are: Reading material (i.e. newspapers, books) as well as their wholesalers Audiovisual home entertainment (AVHE) products (i.e. video cassettes, DVD’s) and its distributors Sound recordings (i.e. mobile phone ringtones, songs) and its distributors Movies targeted for theatrical release 2. China fails to meet its obligations to the WTO by: Prohibiting individuals and companies from importing the above mentioned products Placing unreasonable and unjust restrictions on the distribution of above mentioned products by any foreign entity Using a variety of measures to restrict and discriminate against such imported products DS 363, U.S.-China: Entertainment Products 6

7. China believes that the trading rights agreements it agreed to upon accession into the WTO apply only to trade goods (i.e. corn, cotton, fertilizer) and not things such as audiovisual products or films, which it considers to be services and content and thus no subject to China’s trading rights commitments. China argues that particular measures and restrictions on trade are necessary in order to preserve what it sees as the moral integrity of the Chinese population. China argues that the distribution of sound recordings through electronic means is not in violation of GATS and is not inconsistent with it’s national treatment obligations GATS Article XVII. China argues that particular measures and restrictions on trade are necessary in order to preserve what it sees as the moral integrity of the Chinese population. China argues that the distribution of sound recordings through electronic means is not in violation of GATS and is not inconsistent with it’s national treatment obligations GATS Article XVII. POSITIONS OF PARTIES: CHINA DS 363, U.S.-China: Entertainment Products 7

8. Third Parties • No third parties joined the U.S. on this WTO case • Foreign governments did not want to be associated with case (merit / timing) • Foreign policy • Other global trade considerations DS 363, U.S.-China: Entertainment Products

9. Contested Chinese Laws and Practices • The Film Regulation & The Film Enterprise Rule Restrict trading rights and market access of films for theatrical release • The Audiovisual Products Regulation & The Audiovisual Products Importation Rule Restrict trading rights and market access of audiovisual home entertainment products ( e.g. DVDs, video cassettes) and sound recordings • The Publications Regulation Restricts trading rights and market access of publications (e.g. books, newspapers, magazines, and electronic publications) DS 363, U.S.-China: Entertainment Products

10. WTO Agreements Involved • China’s Accession Protocol/Accession Working Party Report Outline of requirements for China’s accession to the WTO and report on areas where China needs to work to bring practices into compliance with WTO agreements • GATT (General Agreement on Trade and Tariffs) 1994 Agreement to reduce or eliminate tariff rates and non-tariff buriers • GATS (General Agreement on Trade in Services) Agreement to allow market access for services DS 363, U.S.-China: Entertainment Products

11. China’s Accession Protocol • Paragraph 1.2 “ The WTO Agreement to which China accedes shall be the WTO Agreement as rectified, amended or otherwise modified by such legal instruments as may have entered into force before the date of accession. This Protocol, which shall include the commitments referred to in paragraph 342 of the Working Party Report, shall be an integral part of the WTO Agreement.” DS 363, U.S.-China: Entertainment Products

12. Accession Working Party Report • Pararaph 84(b) “With respect to the grant of trading rights to foreign enterprises and individuals, including sole proprietorships of other WTO members, the representative of China confirmed that such rights would be granted in a non-discriminatory and non-discretionary way. He further confirmed that any requirements for obtaining trading rights would be for customs and fiscal purposes only and would not constitute a barrier to trade. The representative of China emphasized that foreign enterprises and individuals with trading rights had to comply with all WTO-consistent requirements related to importing and exporting, such as those concerning import licensing, TBT and SPS, but confirmed that requirements relating to minimum capital and prior experience would not apply.” DS 363, U.S.-China: Entertainment Products

13. GATS • Article XVII         “1. 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 favorable than that it accords to its own like services and service suppliers.” DS 363, U.S.-China: Entertainment Products

14. GATT 1994 • Article XX “Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures: (a)        necessary to protect public morals.” DS 363, U.S.-China: Entertainment Products

15. So, are the Chinese laws consistent with the relevant WTO agreements? DS 363, U.S.-China: Entertainment Products

16. Appellate Body Report • Upholds Panel’s conclusion that Article 30 of the Film Regulation and Article 16 of the Film Enterprise Rule are inconsistent with China’s trading rights commitments in its Accession Protocol and Accession Working Party Report • Upholds Panel’s conclusion that that Article 5 of the Audiovisual Products Regulation and Article 7 of the Audiovisual Products Importation Rule are inconsistent with paragraph 1.2 of China’s Accesssion Protocol and paragraph 84(b) of the Accession Working Party Report DS 363, U.S.-China: Entertainment Products

17. Appellate Body Report Cont’d • Found that while China may invoke Article XX(a) of GATT 19994 to justify provisions inconsistent with its obligations, China had not established that Article 42 of the Publications Regulation was “necessary” for the protection of public morals • Upholds the Panel’s conclusion that provisions of China’s measures prohibiting foreign-invested entities from engaging in the distribution of sound recordings in electronic form are inconsistent with Article XVII of the GATS DS 363, U.S.-China: Entertainment Products

18. National and International Interests Parties of Interest • Country • China • US • Private Industry • Recording Studios • Distributors • Artists • International Varying Interests • Protection of Public Morals • Restrict Public Consumption • Free Market / Trade Access • Maximize Revenue / Profits • Property Rights • Freedom of Expression • Labor DS 363, U.S.-China: Entertainment Products

19. Team Proposal • Multilateral negotiations over unilateral actions • Resolution offers the possibility of adoption of newer rules for the global trading system • Develops / clarifies rules optimal solution to trading system • Multilateral enforcement helps secure legitimacy / reduces political costs • Minimize possibility for trade war that could lead to more Chinese restrictions on U.S. multinationals (investments in China / China’s investments in U.S.) • Uphold GATT XVII • China must adhere to fair treatment policy to all distributors / suppliers • Right to trade; treatment no less favorable than domestic enterprises • Uphold GATT Article XX(a) 19994 (Public Moral Protection) • WTO must acknowledge the importance of culture / public morals • However, China failed to meet ‘necessity test’ • No reason to limit films being imported; alternate less trade-restrictive proposals • Potential solution: private firms to import / government to review content DS 363, U.S.-China: Entertainment Products

20. Conclusion • Ruling won’t radically change the way business is done in China • Ruling mainly addresses how products are distributed • Doesn’t force Beijing to let in products it deems harmful • Still no more than 20 foreign films imported per year • Unless restrictions are lifted – U.S. could begin imposing duties on Chinese goods equal to the damage caused by the restrictions • Foreign film companies potentially could distribute directly to cinemas and bypass the China Film Group (govt. run) • Ruling could mean that China has to more strictly enforce intellectual property-rights laws if it works with WTO to bring itself into conformity DS 363, U.S.-China: Entertainment Products

21. Sources • http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds363_e.htm • http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds285_e.htm • http://www.worldtradelaw.net/articles/malawerchinalitigation.pdf • http://www.nftc.org/default/trade%20matters/2010/TradeMattersV11N01.pdf • http://www.businessweek.com/globalbiz/blog/eyeonasia/archives/2009/08/hollywoods_smal.html • http://www.america.gov/st/business-english/2009/December/20091222103457DMslahrelleK0.2171137.html • http://www.ustr.gov/trade-topics/enforcement/dispute-settlement-proceedings/wto-dispute-settlement/china-%E2%80%94-measures-affe • http://www1.law.nyu.edu/journals/lawreview/issues/vol81/no2/NYU206.pdf DS 363, U.S.-China: Entertainment Products