1. China Dispute Settlement #DS363 Publications and Audiovisual Products International Trade Relations, ITRN 603-003 Team: Maggie McGuigan, Julie Miller, Ryan Olson 1

2.  Concerned Products  Films for theatrical release  Audiovisual home entertainment products  Sound recordings  Publications (books, magazines, etc.)  Distribution Services Dispute Overview 2

3. Context: US Perspective  50-70% of US film revenue generated in foreign markets  $12 billion US trade surplus for audiovisual services  China is second largest overseas market (next to Japan)  2.4 million American jobs in movie & t.v. industry  MPAA is giant special interest group  CEO of Motion Picture Association of America (MPAA) is former Senator Chris Dodd  MPAA members include Walt Disney Studios, Paramount Pictures, Sony Pictures, Twentieth Century Fox, Universal City, Warner Brothers 3

4. Major Case Events Timeline April 2007 US requests consultation with China regarding certain measures restricting trade of films, sound recordings, and publications AND certain measures restricting market access; 3 rd parties (European communities, Japan, Australia, South Korea, Taiwan) join consultations; US requests panel Oct 2007 4

5. Issues  “Certain Measures Restricting Trade”  Only State-designated or SOEs have right to import products  Imposition of quotas on film imports (20)  US Citations  Protocol of Accession, Paragraphs 5.1 & 5.2 (right to trade)  GATT 1994 Article XI (elimination of quantitative restrictions)  GATT 1994 Article III:4 (favorable treatment)  “Certain Measures Restricting Market Access”  Less favorable treatment to foreign distributors of sounds recordings & publications  Prohibited wholesale or distribution by foreign firms; limited distribution to JVs w/Chinese majority ownership & limited operating terms  Imposed capital & operating term req’s for reading mat’l distribution  US Citations  GATS Articles XVI (market access)  GATS Articles XVII (national treatment) 5

6. The Import Chain Warner Brothers China Films or Huaxua Film Distribution Chinese Theaters 6

7. Context: Chinese Perspective “Cultural products have both commercial and cultural value…management of trade in such products should be different from that of general goods.” -- China Chinese Journal of International Law (2010) 9 (2): 415-432. doi: 10.1093/chinesejil/jmq019 7

8. Context: Chinese Perspective  Currently a values gap in Chinese society  The government previously stressed the anti-materialistic values of Marxism  These ideas have been ideologically cannibalized by its economic reforms, and the CCP is currently trying to stress the traditional Confucianism.  But there is a fear about the legitimacy of these Confucian thoughts and its ability to bring about a “harmonious society.”  There is a feeling among the leadership that there has been a loss in the value system, and that foreign influence may infiltrate the cultural vacuum left between Marxism and Confucianism. Culture 8

9. Context: Chinese Perspective  Cultural products must be imported using State Owned Enterprises (SOEs).  These SOE are headed by individuals close to and often appointed by the Communist Party…  …and have a self interest in survival.  Therefore corruption and special interests play a huge role in this debate. Entrenched Interests Context: Chinese Perspective 9

10. Kung Fu Panda Leonardo DiCaprio VS. 10

11. Issues  China cites GATT 1994 Article XX(a) as its defense 11

12. Major Case Events Timeline April 2007: CONSULTATION Aug 2009: PANEL PROCESS Sept – Dec 2009: APPEAL PROCESS US requests consultation with China regarding certain measures restricting trade of films, sound recordings, and publications AND certain measures restricting market access; 3 rd parties (European communities, Japan, Australia, South Korea, Taiwan) join consultations; US requests panel Due to “scheduling conflicts”, panel delays issuing report by 6 months. Both parties appeal. Appellate Body report circulated 4 months later. Findings favor US and 3 rd parties (for the most part) Oct 2007: PANEL REQUESTED 12

13. PANEL & APPELLATE FINDINGS  GATT & Accession Protocol: A number of Chinese measures found to be “inconsistent with China’s obligation to grant ‘trading rights’, because such measure restricted enterprise in China…”  China’s various Film & Audiovisual Regulation and Enterprise Rules, Foreign Investment Regulation, and Catalog of Prohibited Foreign Investment Industries all found to be inconsistent with China’s Accession Protocol commitment  GATS: Prohibiting distribution by foreign-invested firms is inconsistent with GATS Article XVII National Treatment rules  China must allow foreign companies to distribute these materials, and must not favor domestic firms in its policies.  In particular, the use of SOEs is inconsistent with its WTO commitments.  U.S. was not able to prove there was a duopoly of film distributors  GATT 1994 Article XX(a) Defense: China did not establish that it was “necessary” for the protection of public morals 13

14. Major Case Events Timeline April 2007: CONSULTATION Aug 2009: PANEL PROCESS Sept – Dec 2009: APPEAL PROCESS US requests consultation with China regarding certain measures restricting trade of films, sound recordings, and publications AND certain measures restricting market access; 3 rd parties (European communities, Japan, Australia, South Korea, Taiwan) join consultations; US requests panel Due to “scheduling conflicts”, panel delays issuing report by 6 months. Both parties appeal. Appellate Body report circulated 4 months later. Findings favor US and 3 rd parties (for the most part) Oct 2007: PANEL REQUESTED DSB adopts report modified by appellate body. Parties agree on 14 months as reasonable period of time for changing China’s regulations on cultural products (expiration 3/11/2011). Jan 2010: DSB ADOPTS REPORT 14

15. IMPLEMENTATION “[compliance] with the WTO ruling would require the Chinese government to embark on serious systemic reforms. It would have to dismantle the decades-old State import monopoly and allow all domestic and foreign private entities to engage in the importation of sensitive products.” Pushing the Limits of Global Governance: Trading Rights, Censorship and WTO Jurisprudence—A Commentary on the China–Publications Case 15

16. IMPLEMENTATION  July 2010- U.S. & China agree to 14 month timeline for implementation, with deadline set for 3/19/11.  Deadline came and went without action by China. China asks for understanding as this is a sensitive and complicated issue. U.S. threatens to request authorization to suspend concessions  February 2012- US VP Joe Biden and China’s VP Xi Jinping announce in Los Angeles that they have reached an agreement regarding implementation. 16

17. IMPLEMENTATION  China exempts 14 premium format films (IMAX, 3D) from 20 film quota  US studio box office share of revenue increases from 13% to 25% Photo from “The Wrap Movies” www.thewrap.com 17

18. Major Case Events Timeline April 2007: CONSULTATION Aug 2009: PANEL PROCESS Sept – Dec 2009: APPEAL PROCESS US requests consultation with China regarding certain measures restricting trade of films, sound recordings, and publications AND certain measures restricting market access; 3 rd parties (European communities, Japan, Australia, South Korea, Taiwan) join consultations; US requests panel Due to “scheduling conflicts”, panel delays issuing report by 6 months. Both parties appeal. Appellate Body report circulated 4 months later. Findings favor US and 3 rd parties (for the most part) Oct 2007: PANEL REQUESTED Mar 2011: IMPLEMENTATION DEADLINE Post-expiration, US threatens to request authorization to suspend concessions due to lack of any apparent progress DSB adopts report modified by appellate body. Parties agree on 14 months as reasonable period of time for changing China’s regulations on cultural products (expiration 3/11/2011). Jan 2010: DSB ADOPTS REPORT Feb 2012 China completes amendments to most measures at issue and signs MOU w/US regarding measures concerning films. 18

19. CURRENT EVENTS  Jan-June 2012: “Titanic 3D” and “Mission Impossible: Ghost Protocol” crush Chinese movies at the box office 19

20. CURRENT EVENTS  Summer 2012: Despite announcing relaxed rules, China blocks summer hits to reduce imported film ticket sales  Utilizes “Double-Dating” or releasing similar films on the same day (Ice Age: Continental Drift and The Lorax)  Instituted two separate month-long blackouts of American films in Chinese theaters  September 2012: MPAA speaks out about growing tensions with China Film Group  MPAA Chief Policy Officer in talks with Obama Administration 20

21. CURRENT EVENTS  Some American producers looking to co-produce with China in order to be considered a domestic film  Iron Man 3  Oriental DreamWorks 21