Dispute Resolution Case 363 U.S.

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Dispute Resolution Case 363 U.S.
ChinaPublications Audiovisual Services

• Byron Pitts
• Frantz Price, Jr.
• Scott Russell
• International Trade Relations
• ITRN 603.003
• Professor Malawer
• Fall 2011

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AGENDA

• History of Dispute
• Case Details
• Positions of the Parties
• Applicable Law
• WTO Provisions at Issue
• Facts of the Case
• Panel Decisions Appeal
• Implementation
• Summary
• Questions

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PRIOR CASES IN THE WTO

• Dispute DS161 Measures Affecting the import of
  Fresh, Chilled, and Frozen Beef
• Complainant United States
• Respondent Korea
• Third Parties Australia, Canada, New Zealand
• Issue Koreas system for selling imported beef
  limited market access to foreign companies.
• Result Decision for United States
• Dispute DS285 Measures Affecting the
  Cross-Border Supply of Gambling and Betting
  Services
• Complainant Antigua, Barbados
• Respondent United States
• Third Parties Canada, EU, Taiwan, Japan, Mexico,
  China
• Issue U.S. prohibited foreign companies access
  to gambling and betting markets.
• Result Decision for Antigua, Barbados

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HISTORY OF DISPUTE

• China had a history of restricting imports.
• In its Protocol of Accession, China agreed to
  substantial liberalization to trading rights.
• China did not adhere to the phase in schedule of
  trade rights.
• This liberalization of trade rights is reflected
  in Chinas revised Foreign Trade Law, issued in
  April 2004.
• China had not given entities other than state
  trading enterprises trading rights

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HISTORY OF DISPUTE

• Under the terms of Chinas Protocol of Accession
  to the WTO, Chinas trading rights commitments
  appear to apply fully to these products.
• The United States was under intense political
  pressure from Special Interest groups to solve
  dispute.
• China continued to wholly reserve the right to
  import products to state trading enterprises.
• The United States argued that China was trying to
  protect the revenue of state owned businesses.

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CASE DETAILS

• Complainant United States
• Respondent China
• Request for Consultations April 10, 2007 (U.S.
  requested supplemental consultations on
  July 10, 2007)
• Third Parties European Union (joined
  consultations), Japan, Australia, Korea
  and Chinese Taipei
• Panel Requested October 10, 2007

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FACTS OF THE CASE

• April 10, 2007 U.S. requested consultations
  with China concerning the following Chinese
  measures
• Trading Rights
• Laws reserved right to import movies, AV home
  entertainment products, sound recordings and
  publications, to certain Chinese state-designated
  and state-owned enterprises.
• Excluded foreign enterprises/individuals from
  being accorded import rights.
• National Treatment Issues
• Distribution Services
• Measures imposed market access restrictions or
  discriminatory limitations on foreign service
  providers trying to distribute publications and
  AV home entertainment products in China.
• National Treatment Issues

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POSITIONS OF THE PARTIES

• UNITED STATES
• The U.S. market access related WTO consultation
  request seeks to eliminate Chinese import and
  internal distribution barriers that significantly
  hamper the ability of U.S. publishers and
  producers of audio-visual products to get their
  legitimate products into the Chinese marketplace
  under normal market conditions.
•  
• The measures at issue appear to be inconsistent
  with Chinas obligations under its WTO Accession
  Protocol and under the WTO General Agreement on
  Trade in Services (GATS Agreement), to
  discriminate against U.S. companies, to cause
  significant harm to the publication and
  audio-visual industries, and to worsen the
  problems of Intellectual Property Rights piracy
  and counterfeiting in China.
• - USTR Press Release, April 2007

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POSITIONS OF THE PARTIES

• CHINA
• Invoked Public Morals provision of the GATT
  (Article XX) as defense for laws in question
  this provision states that nothing in the GATT
  shall be construed to prevent the adoption or
  enforcement by any contracting party of measures
  necessary to protect public morals.
• China claimed that only state-owned enterprises
  were capable of bearing the financial costs and
  administrative burden of content review
  (censorship).
• China also claimed that electronic distribution
  of sound recordings (i.e., over the internet) was
  not a commercial reality at the time of its WTO
  accession, and therefore, Members did not intend
  to include it within scope of Article XVII of the
  GATS and Chinas commitments under the Protocol
  of Accession.

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APPLICABLE LAW PRIOR WTO RULINGS

• TRADING RIGHTS
• Chinese laws appeared inconsistent with their
  obligations under the following
• Chinese Protocol of Accession to the WTO
• Part I, Paragraph 1.2 - China agreed to accede to
  the WTO Agreement as rectified, amended or
  otherwise modified by any legal instruments that
  may have entered into force before the date of
  its accession.
• This incorporated Paragraphs 83 and 84 of the
  Report of the Working Party on the Accession of
  China, requiring China to commit to granting all
  foreign or domestic enterprises doing business
  there, the right to trade in a non-discriminatory
  and non-discretionary manner
• Part I, Paragraphs 5.1 and 5.2 China must
  liberalize trade within its borders so that all
  enterprises doing business in China have the
  right to trade throughout their territory (with
  certain excepted goods), and be assured of
  national treatment under Article III of the
  GATT 1994.
• Article XI1 of the GATT
• No prohibitions or restrictions other than
  duties, taxes or other charges, shall be
  instituted or maintained by any contracting party
  on the importation of any product of the
  territory of any other contracting party or on
  the exportation or sale for export of any product
  destined for the territory of any other
  contracting party.

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APPLICABLE LAW PRIOR WTO RULINGS

• DISTRIBUTION SERVICES
• Chinese law appeared inconsistent with China's
  obligations under Articles XVI and XVII of the
  GATS
•  
• These provisions provide that all Members accord
  services/service suppliers of any other Member
  treatment no less favorable than that accorded to
  their own similar services/service suppliers
  (i.e., National Treatment)
• With regard to Chinese commercial reality
  argument, panel in US Gambling (2005) dispute
  stated that a market access commitment . . .
  implies the right of other Members service
  suppliers to supply a service through all means
  of delivery, whether by mail, telephone, Internet
  etc., unless otherwise specified in a Members
  Schedule.

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PANEL DECISION

• ISSUE Distribution of reading material, AVHE
  services, and sound recording
• Chinese measures prohibiting foreign-invested
  enterprises from engaging in
• the wholesale of imported reading materials,
• the master distribution (exclusive sale) of
  books, periodicals and newspapers and
• the master wholesale and wholesale of electronic
  publications
• DECISION inconsistent with China's national
  treatment commitments under Article XVII of
  the GATS

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GATS ARTICLE XVIINATIONAL TREATMENT

• No discrimination against foreign supplier
• Must be treated the same as domestic supplier
• Goods and,
• Services

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PANEL DECISION

• ISSUE Registered capital and operating terms for
  the distribution of reading
  materials.
• China's prohibition on foreign-invested
  enterprises.
• Chinese measures limiting market access.
• DECISION China's market access commitments
  inconsistent under Article XVI of the GATS
  or its national treatment commitments under
  Article XVII.

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ARTICLE XVIMARKET ACCESSAddresses

• Limitations on the number of service suppliers
  whether in the form of numerical quotas,
  monopolies, exclusive service suppliers or the
  requirements of an economic needs test.
• limitations on the total value of service
  transactions or assets in the form of numerical
  quotas or the requirement of an economic needs
  test.
• measures which restrict or require specific types
  of legal entity or joint venture through which a
  service supplier may supply a service  and
• limitations on the participation of foreign
  capital in terms of maximum percentage limit on
  foreign shareholding or the total value of
  individual or aggregate foreign investment.

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PANEL DECISION

• ISSUE Reading materials, sound recordings
  intended for electronic distribution, and
  films for theatrical release.
• China restricted distribution channels for
  certain imported reading materials by requiring
  their distribution to be conducted exclusively
  through subscription.
• China also limit the distribution of certain
  imported reading materials to wholly
  Chinese-owned enterprises.
• DECISION Inconsistent with III4 8.

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ARTICLE III 4 OF THE GATT 1994

• Must treat imported items no less favourable than
  that accorded to like products of national origin
  in respect of all laws, regulations and
  requirements affecting their internal sale,
  offering for sale, purchase, transportation,
  distribution or use.

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PANEL DECISION

• ISSUE Electronic distribution of hard-copy sound
  recordings (via the Internet) and the
  discrimination of imported films.
• Chinese Discrimination
• Imported hard-copy sound recordings
• Imported films
• DECISION The United States had not demonstrated
  that that the measures were inconsistent
  with Article III4.

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CHINA APPEALS PANEL RULING
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APPEAL TO THE APPELLATE BODY

• The Appellate Body upheld the ruling for
• Films for theatrical release and unfinished
  audiovisual products
• Import discrimination
• China may invoke Article XX(a) of the GATT 1994
• Foreign-invested entities
• Resolution
• The Appellate Body recommended that the DSB
  request China to make the necessary changes to be
  within conformity with the decision.

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IMPLEMENTATION

• 2/18/2010 China to begin implementing
  recommendations.
• 7/12/2010 Both parties agreed upon a time frame
  of 14 months to fully implement the changes.
• 3/25/2011 China reported that it had made
  efforts to implement the DSB recommendations.
• 4/12/2011- United States and China informed the
  DSB of Agreed Procedures under Articles 21 and
  22.

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WTO PROVISIONS AT ISSUEDISTRIBUTION SERVICES

• NATIONAL
• Inhibits the Chinese Government from filtering
  external media influence.
• Opens certain guarded market sectors within the
  Chinese economy causing a loss of revenue for
  government owned enterprises.
• Perceived loss of national sovereignty.
• INTERNATIONAL
• Example for other non-conforming economies that
  may need to begin initiating change.
• Opened certain markets to the United States and
  other WTO members.
• Increase of political capital for politicians in
  the United States.
• Increased difficulty for member states to
  filter media influences.
• Impact on Public Morals Exception Clause

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SUMMARY

• Unresolved issues
• China continues to drag their feet event though
  they operate under a one party system that allow
  for immediate compliance by state owned
  enterprises.
• Does United States have the political willpower
  to enforce agreement because of dependence on
  China for export.
• Beyond the desired timeline for resolution (18
  months)
• Sanctions for lack of conformity?
• Ask WTO to recommend monetary damages equal to
  amount of lost revenue.
• Impose tariffs on textiles equal to lost revenue.
  

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SOURCES

• USTR Final China Report. http//www.ustr.gov/sites
  /default/files/uploads/reports/2010/NTE/2010_NTE_C
  hina_final.pdf.
• WTO. China Publications and Audio Visual
  Products. http//www.wto.org/english/tratop_e/disp
  u_e/cases_e/1pagesum_e/ds363sum_e.pdf.
• WTO. Case summary http//www.wto.org/english/trat
  op_e/dispu_e/cases_e/ds363_e.htm) and one page
  summary (http//www.wto.org/english/tratop_e/dispu
  _e/cases_e/1pagesum_e/ds363sum_e.pdf).
• Protocol on the Accession (to the WTO) of the
  People's Republic of China and the Report of the
  Working Party to the Accession of China.
• WTO. "CHINA - MEASURES AFFECTING TRADING RIGHTS
  AND DISTRIBUTION SERVICES FOR CERTAIN
  PUBLICATIONS AND AUDIOVISUAL ENTERTAINMENT
  PRODUCTS." World Trade Organization. WTO, 12 Dec.
  2009. Web. 1 Oct. 2011.
• McGivern, Brendan. "Chinese Import Restrictions
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• United States Trade Representative (2009). 
  China Measures Affecting Trading Rights and
  Distribution Services for Certain Publications
  and Audiovisual Entertainment Products
  (AB-2009-3).  Oral Statement of the United
  States of America.  November 2, 2009.  Available
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• United States Trade Representative (2008). 
  China Measures Affecting Trading Rights and
  Distribution Services for Certain Publications
  and Audiovisual Entertainment Products
  (WT/DS363).  First Submission of the United
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