Contributing Lawyers

Canada

Cyndee Todgham Cherniak

United States

Susan Kohn Ross

Australia

Andrew Hudson



WTO Panel Decision in China Publications & Audiovisual Case Important

On August 12, 2009, the WTO issued the DSB Panel Decision in DS363 "China — Measures Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual Entertainment Products". To obtain a copy of the Decision, please go to the following link - http://tinyurl.com/qry9eg

The WTO determined that China's limits on the importation, distribution and sale of publications and audiovisual material such as books, films and music from the U.S. violate China's Protocol of Accession to the WTO, the General Agreement of Trade in Services (GATS) and the General Agreement on Tariffs and Trade 1994 (GATT 1994). This is the third time a WTO panel had ruled against China when the case progressed to the panel stage.

As usual, the Panel findings in the complex case were nuanced. The WTO Panel gave more to the United States than to China in the split decision. The WTO agreed with China that the Chinese criminal law was strong enough to deter piracy. The WTO also agreed with some of China's censorship measures (except those that are trade barriers). Also, the WTO permitted China to make U.S. films (to be shown in Chinese cinemas) to go through one of two designated distributors, a requirement not required of Chinese movies.

However, the WTO Panel agreed with the U.S. and found, in part, that:

  • China's measures forcing American media producers to route their business in China through Chinese state-owned companies violated WTO rules/obligations;
  • China was breaking trade rules by preventing U.S. companies offering music downloads to computers and mobile phones from offering their services directly to Chinese customers;
  • China contravened the fundamental WTO rule requiring equal treatment between local and foreign businesses
  • China breached commitments made by China when it joined the WTO in 2001 to open up sales and distribution within three years.

The Panel recommended China "bring the relevant measures into conformity with its obligations." Interestingly, the panel Findings also call on China to allow U.S. companies to partner with Chinese enterprises to distribute sound recordings over the Internet. This aspect of the Panel decision may be considered to cross the line into interfering with commercial activities.

If China plays the WTO dispute settlement system, it will appeal the Panel decision to the Appellate Body hoping that the Appellate Body would reverse some or all of the parts of the decision against Chinese interests.

In another key aspect of the decision, the WTO Panel agreed that some of the arguments raised by the U.S were outside the Panel's terms of reference. For example, the Panel determined that it could not consider arguments relating to China's (1) Film Distribution and Exhibition Rule, (2) the 2001 Audiovisual Products Regulation, (3) the Audiovisual Products Importation Rule and (4) the "pre-establishment rule because China did not receive adequate notice that the rules were measures at issue. In addition, certain requirements on purchasers of imported newspapers and periodicals as well as books in a limited category in the Imported Publications Subscription Rule were not adequately identified as at issue. Finally, the Panel determined that Several Opinions and Importation Procedure and Sub-division Procedure were not measures and, therefore, they were not the proper subject manner of the dispute settlement proceedings.

These jurisdictional challenges show that China has learned lessons in the WTO litigation "game". The fact that China has won on these procedural issues is an accomplishment for a newcomer to the WTO dispute settlement process. It is possible that the U.S will appeal these aspects of the decision to the WTO Appellate Body.

One final note - the Panel Decision is an amazing reference tool for anyone interested in China's joint venture laws.

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