China is expected to implement changes that will allow foreign distributors to import audiovisual entertainment products in China without trade being narrowed by state-owned channels after it lost its dispute case against the United States at the World Trade Organization (WTO).

The recommendations of the dispute settlement panel and the Appellate Body were adopted today by the WTO Dispute Settlement Body.

The dispute was brought by the United States over Chinese measures allegedly affecting US trading rights and distribution services for certain publications and audiovisual entertainment products. It dates back to April 2007 when the US requested consultations with China over measures that it said were restricting its trade in China.

According to the WTO dispute summary, the alleged restrictions concerned imported films for theatrical release, audiovisual home entertainment products, sound recordings and publications. The US complained that some Chinese measures limited the right to import audiovisual entertainment products and some publications to Chinese state-designated and wholly or partially state-owned companies.

The US also requested consultations on the alleged discrimination against foreign suppliers of distribution services for publications and foreign suppliers of audiovisual services for audiovisual home entertainment products. The US complained about discriminatory limitations imposed on foreign service providers.

The US claimed that those measures presented possible inconsistencies with China’s obligations as a WTO member.

On April 2007, the European Communities joined the consultations, and in October 2007, the US requested the establishment of a panel, which was established by the WTO Dispute Settlement Body in November 2007.

The WTO DSB comprises all WTO members and establishes panels of experts to consider disputes between members. It has the authority to accept or reject the panels’ findings and the results of an appeal. It also monitors the implementations of the rulings and recommendations given to the members found not compliant with their WTO obligations.

On 12 August 2009, the panel report was circulated to members. The report concluded that some Chinese measures were inconsistent with China’s WTO obligations as those measures were restricting foreign suppliers’ trade rights and did not consider that Chinese measures were contributing to protecting public morals.

In particular, the panel found that Chinese measures preventing foreign-invested companies from engaging in “the wholesale of imported reading materials, the exclusive sale of books, periodicals and newspapers, and the master wholesale and wholesale of electronic publications” are inconsistent with China’s national treatment commitments under Article XVII of the General Agreement on Trade in Services (GATS). The panel also found that “China’s measures limiting the distribution of audiovisual materials to joint ventures with Chinese majority ownership” are inconsistent with China’s commitments under GATS. The panel did not find grounds for some of the US complaints.

In September, China notified its decision to appeal to the Appellate Body and in October the US also notified its decision to appeal, both countries wishing to have “certain issues of law covered in the panel report and certain legal interpretations developed by the panel” reviewed.

On 21 December, the WTO Appellate Body issued a report. It upheld most of the panel’s conclusions. It recommended that the DSB requests that China brings in conformity the measures found to be inconsistent with its Accession Protocol, its Accession working party report, the GATS, and the GATT 1994.

The Appellate Body is a seven-member group that decides on appeals made within the WTO dispute settlement mechanism. Appellate Body reports must be accepted by the WTO Dispute Settlement Body, made up of all member governments, and afterward must be accepted by the states involved in the dispute.

On 19 January, during the DSB meeting, the US gave a statement and said that they were “pleased that the panel found in favour of the United States on the vast majority of our claims, and that the Appellate Body upheld each of the panel’s findings challenged by China.”

The US expressed disappointment, however on the panel’s decision on sound recordings. The panel did not find China’s measures inconsistent with GATT 1994.
The Chinese delegation said that they were “pleased that, in many critical respects, the panel agreed with China and rejected a large number of the claims of the US.” The delegation also said that “the cultural product is naturally embedded with not only commercial values but also cultural values,” so “the administration of trade in cultural products should be different with the regulation of general goods,” and expressed disappointment over the panel’s decision not to uphold China’s claims on trade right issues and network music issues.

The EU, standing as third party in the case called for an expeditious implementation of the panel recommendations by China and said it “remained convinced that China can develop and implement its cultural policies within the boundaries set by its WTO obligations.”

According to the WTO, China has now 30 days to inform WTO about its intentions to implement the panel and the Appellate Body recommendations.

China can ask for an implementation period, which would be discussed with parties, the WTO said.

During the DSB meeting of 19 January, on the dispute between China and US about measures affecting the protection and enforcement of intellectual property rights, China gave a status report.

The DSB adopted the panel report on this dispute on 20 March 2009 and on 29 June, China and the US agreed that “the reasonable period of time for implementation” would expire on 20 March 2010.

The Chinese delegation said that it had done substantial work so far and the “legislative proposals relating to the amendment of the copyright law of China and the regulations for customs protection” of IP rights “had already been submitted to the State Council” for examination.