DS363: US

1
DS363 US China Dispute of Publications and
Audiovisual Products

• Elena Novak
• Matt Mawhinney
• Matt Meldrum

2
Agenda

• Current State of Affairs/Historical Context
• Main Thrust of Case / WTO Issue
• Position of Parties
• Laws and WTO Agreements
• Proposed Resolution / Implementation Plans

DS 363, U.S.-China Entertainment Products
3
Current Climate

• 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.

DS 363, U.S.-China Entertainment Products
4
DS363 Timeline
5
Historical Cases

• 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)
• Koreas 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)

DS 363, U.S.-China Entertainment Products
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POSITIONS OF PARTIES USA

• 1. China has not fulfilled its 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, DVDs) 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
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7
POSITIONS OF PARTIES CHINA

• 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
  Chinas 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
  its 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
  its national treatment obligations GATS Article
  XVII.

DS 363, U.S.-China Entertainment Products
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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

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)

10
WTO Agreements Involved

• Chinas Accession Protocol/Accession Working
  Party Report
• Outline of requirements for Chinas
  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

11
Chinas 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.

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.

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.

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.

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So, are the Chinese laws consistent with the
relevant WTO agreements?
16
Appellate Body Report

• Upholds Panels conclusion that Article 30 of the
  Film Regulation and Article 16 of the Film
  Enterprise Rule are inconsistent with Chinas
  trading rights commitments in its Accession
  Protocol and Accession Working Party Report
• Upholds Panels 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 Chinas
  Accesssion Protocol and paragraph 84(b) of the
  Accession Working Party Report

17
Appellate Body Report Contd

• 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 Panels conclusion that provisions of
  Chinas measures prohibiting foreign-invested
  entities from engaging in the distribution of
  sound recordings in electronic form are
  inconsistent with Article XVII of the GATS

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National and International Interests
Parties of Interest
Varying Interests

• Country
• China
• US
• Private Industry
• Recording Studios
• Distributors
• Artists
• International

• Protection of Public Morals
• Restrict Public Consumption
• Free Market / Trade Access
• Maximize Revenue / Profits
• Property Rights
• Freedom of Expression
• Labor

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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 / Chinas
  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

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Conclusion

• Ruling wont radically change the way business is
  done in China
• Ruling mainly addresses how products are
  distributed
• Doesnt 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

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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/malawerchina
  litigation.pdf
• http//www.nftc.org/default/trade20matters/2010/T
  radeMattersV11N01.pdf
• http//www.businessweek.com/globalbiz/blog/eyeonas
  ia/archives/2009/08/hollywoods_smal.html
• http//www.america.gov/st/business-english/2009/De
  cember/20091222103457DMslahrelleK0.2171137.html
• http//www.ustr.gov/trade-topics/enforcement/dispu
  te-settlement-proceedings/wto-dispute-settlement/c
  hina-E28094-measures-affe
• http//www1.law.nyu.edu/journals/lawreview/issues/
  vol81/no2/NYU206.pdf