1. US-China: Entertainment Products (DS 363) An Phong Le Melvin Mosely Matthew Moskitis

2. History and Context Key Facts Short Title: China – Audiovisual ServicesShort Title: China – Audiovisual Services Complainant: United States of AmericaComplainant: United States of America Respondent: ChinaRespondent: China Third Parties: Australia; European Union; Japan; Korea (Rep. of); Chinese TaipeiThird Parties: Australia; European Union; Japan; Korea (Rep. of); Chinese Taipei Agreements Cited: Services (GATS): Art. XVI, XVII; GATT 1994: Art. III:4, XI:1Agreements Cited: Services (GATS): Art. XVI, XVII; GATT 1994: Art. III:4, XI:1 Request for Consultations: 10 April 2007Request for Consultations: 10 April 2007 Panel Report: 12 August 2009Panel Report: 12 August 2009 Appellate Body Report: 21 December 2009Appellate Body Report: 21 December 2009 12 July 2010 – China & U.S. inform DSB they had agreed on a reasonable period of time for China to implement recommendations (14 months ending 19 March 2011)12 July 2010 – China & U.S. inform DSB they had agreed on a reasonable period of time for China to implement recommendations (14 months ending 19 March 2011) Source: http://www.wto.org/english/tratop_e/dispu_e/cases_2/ds363_e.htm

3. Previous Related Cases Previous disputes involving distribution date back to September 28, 1995:Previous disputes involving distribution date back to September 28, 1995: DS 16: European Communities – Regime for the Importation, Sale & Distribution of Bananas (Complainants: Guatemala; Honduras; Mexico; USA) 28 September 1995DS 16: European Communities – Regime for the Importation, Sale & Distribution of Bananas (Complainants: Guatemala; Honduras; Mexico; USA) 28 September 1995 DS 27: European Communities – Regime for the Importation, Sale & Distribution of Bananas (Complainants: Ecuador; Guatemala; Honduras; Mexico; USA) 5 February 1996DS 27: European Communities – Regime for the Importation, Sale & Distribution of Bananas (Complainants: Ecuador; Guatemala; Honduras; Mexico; USA) 5 February 1996 DS 45: Japan – Measures Affecting Distribution Services (Complainant: USA) 13 June 1996DS 45: Japan – Measures Affecting Distribution Services (Complainant: USA) 13 June 1996 DS 105: European Communities – Regime for the Importation, Sale & Distribution of Bananas (Complainant: Panama) 24 October 1997DS 105: European Communities – Regime for the Importation, Sale & Distribution of Bananas (Complainant: Panama) 24 October 1997 DS 117: Canada – Measures Affecting Film Distribution Services (Complainant: European Communities) 20 January 1998DS 117: Canada – Measures Affecting Film Distribution Services (Complainant: European Communities) 20 January 1998 DS 142: Canada – Certain Measures Affecting the Automotive Industry (Complainant: European Communities) 17 August 1998DS 142: Canada – Certain Measures Affecting the Automotive Industry (Complainant: European Communities) 17 August 1998 Source: http://www.wto.org/english/tratop_e/dispu_e/dispu_subjects_index_e.htm?id=S3#selected_subject

4. Related Cases Disputes Involving Publications DS31 Canada — Certain Measures Concerning Periodicals (Complainant: United States of America) 11 March 1996 DS363 China — Measures Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual Entertainment Products (Complainant: United States of America) 10 April 2007 Source: http://www.wto.org/english/tratop_e/dispu_e/dispu_subjects_index_e.htm?id=G8#selected_subject

5. China’s Trade with the United States ($billion) Notes: US Exports reported on FOB basis; imports on a general customs value CIF basis Source: US International Trade Commission; http://www.uschina.org/statistics/tradetable.html 2000200120022003200420052006200720082009 US exports 16.319.222.128.434.741.855.265.271.569.6 % change 24.418.315.128.522.220.632.118.19.5-2.6 US imports 100.0102.3125.2152.4196.7243.5287.8321.5337.8296.4 % change 22.32.222.421.729.123.818.211.75.1-12.3 Total116.3121.5147.3180.8231.4285.3343386.7409.2366.0 22.621.421.222.828.023.320.212.75.8-10.6 US Balance -83.7-83.0-103.1-124.0-162.0-201.6-232.5-256.3-266.3-226.8

6. China’s Trading Rights Commitments China acceded to the WTO on 11 December 2001.China acceded to the WTO on 11 December 2001. China’s Accession Protocol provides that it shall, together with certain commitments referred to in China’s Accession Working Party Report, “be an integral part of the WTO Agreement.”China’s Accession Protocol provides that it shall, together with certain commitments referred to in China’s Accession Working Party Report, “be an integral part of the WTO Agreement.” A political factor is always present where there are sovereign states, and in the manufacturing sector, trading rights and distribution are the major priorities.A political factor is always present where there are sovereign states, and in the manufacturing sector, trading rights and distribution are the major priorities.

7. Two Main WTO Issues: Trading Rights and Distribution Services On April 17, 2007, the US requested consultations with China regarding: Certain measures that restrict trading rights and reserve the right to import films for theatrical release, audiovisual (A/V) home entertainment products, sound recordings and publications to wholly or partially owned Chinese state- owned enterprises. (Restrictions also imposed on other Chinese firms that are not partially owned or state-owned.)Certain measures that restrict trading rights and reserve the right to import films for theatrical release, audiovisual (A/V) home entertainment products, sound recordings and publications to wholly or partially owned Chinese state- owned enterprises. (Restrictions also imposed on other Chinese firms that are not partially owned or state-owned.) Certain measures that impose market access restrictions on foreign service providers seeking to distribute publications and A/V home entertainment products.Certain measures that impose market access restrictions on foreign service providers seeking to distribute publications and A/V home entertainment products.

8. WTO Issue: Trading Rights Ten Chinese measures targeted by the US: 1.The Regulations on Administration of the Films Industry; 2.The Provisional Rules on the Entry Criteria for Operating Film Enterprises; 3.The Administrative Regulation on Publishing; 4.The Administrative Regulations on Audiovisual Products; 5.The Catalogue for Guidance of Foreign Investment Industries; 6.The Several Opinions of the Ministry of Culture, State Administration of Radio, Film and Television, General Administration of Press and Publication, National Development and Reform Commission and the Ministry of Commerce on Introducing Foreign Investment into the Cultural Sector; 7.The Measures for the Administration of Import of Audio and Video Products; 8.The Measures for Administration of Chinese Foreign Contractual Distribution Ventures of Audiovisual Products; 9.The Administrative Regulations on Electronic Publications; 10.The Procedure for Examination and Approval of Establishment of Publication Importation Entities. Source: WTO Request for Consultation by the United States 4/10/2007

9. WTO Issue: Trading Rights In Laymen's Terms: China only allows specially authorized partially or wholly state-run companies to import movies, DVDs, music, books, journals, and other publications to the exclusion of foreign-owned enterprises in China and other Chinese firms.China only allows specially authorized partially or wholly state-run companies to import movies, DVDs, music, books, journals, and other publications to the exclusion of foreign-owned enterprises in China and other Chinese firms. They are treated less favorably than the partially or wholly state-run companies with respect to the right to trade.They are treated less favorably than the partially or wholly state-run companies with respect to the right to trade.

10. WTO Issue: Trading Rights Regarding Trading Rights, the US Alleged the Chinese measures were inconsistent with:Regarding Trading Rights, the US Alleged the Chinese measures were inconsistent with: Paragraphs 1.2, 5.1 and 5.2 of Part 1 of the Protocol of Accession:Paragraphs 1.2, 5.1 and 5.2 of Part 1 of the Protocol of Accession: 1.2 – “The WTO agreement to which China accedes shall be the agreement as rectified, amended or otherwise modified by such legal instruments as may have entered into force before the date of accession.” Inconsistent to the extent that it incorporates commitments in paragraphs 83 and 84 of the Report of the Working Party on the Accession of China.1.2 – “The WTO agreement to which China accedes shall be the agreement as rectified, amended or otherwise modified by such legal instruments as may have entered into force before the date of accession.” Inconsistent to the extent that it incorporates commitments in paragraphs 83 and 84 of the Report of the Working Party on the Accession of China. 5.1 - “All enterprises in China shall have the right to trade in all goods throughout the customs territory of China…and all such good s shall be accorded national treatment.”5.1 - “All enterprises in China shall have the right to trade in all goods throughout the customs territory of China…and all such good s shall be accorded national treatment.” 5.2 - “All foreign individuals and enterprises, including those not invested or registered in China, shall be accorded treatment no less favorable than that accorded to enterprises in China with respect to the right to trade.”5.2 - “All foreign individuals and enterprises, including those not invested or registered in China, shall be accorded treatment no less favorable than that accorded to enterprises in China with respect to the right to trade.” Article XI: 1 GATT 1994Article XI: 1 GATT 1994 “No prohibitions or restrictions other than duties, taxes or other charges" are allowed to be established on the importation of products of other members or on the exportation any product destined for any other member. “No prohibitions or restrictions other than duties, taxes or other charges" are allowed to be established on the importation of products of other members or on the exportation any product destined for any other member.

11. WTO Issue: Distribution Services Ten Chinese measures targeted by the US: 1.The Administrative Regulation on Publishing; 2.The Administrative Regulations on Audiovisual Products; 3.The Provisions on Guiding the Orientation of Foreign Investment; 4.The Catalogue for Guidance of Foreign Investment Industries; 5.The Several Opinions of the Ministry of Culture, State Administration of Radio, Film and Television, General Administration of Press and Publication, National Development and Reform Commission and the Ministry of Commerce on Introducing Foreign Investment into the Cultural Sector; 6.The Administrative Regulations on Management of Foreign-Invested Book, Magazine and Newspaper Distribution Enterprises; 7.The Administrative Regulations on the Publication Market (revised); 8.The Administrative Regulations on Electronic Publications; 9.The Administrative Measures on Subscription of Imported Publications; 10.The Procedure for Examination and Approval of Establishment of Chinese- Foreign Entities, Cooperative Joint Ventures, and Wholly Foreign Owned Publication Distribution Enterprises; 11.The Measures for Administration of Chinese Foreign Contractual Distribution Ventures of Audiovisual Products. Source: WTO Request for Consultation by the United States 4/10/2007

12. WTO Issue: Distribution Services In Laymen's Terms: Chinese rules unfairly prohibit foreign firms from engaging in distribution activities for these goods and discriminating between foreign and domestic distributors.Chinese rules unfairly prohibit foreign firms from engaging in distribution activities for these goods and discriminating between foreign and domestic distributors.

13. WTO Issue: Distribution of Services Regarding Distribution Services for Publications and A/V Home Entertainment Products, the US Alleged: Chinese measures were inconsistent with obligations made in the Uruguay Round under Articles XVI and XVII of the General Agreement on Trade in Services (GATS).Chinese measures were inconsistent with obligations made in the Uruguay Round under Articles XVI and XVII of the General Agreement on Trade in Services (GATS).

14. Main WTO Issue: Distribution of Services Articles XVI and XVII of the General Agreement on Trade in Services (GATS).Articles XVI and XVII of the General Agreement on Trade in Services (GATS). Article XVI: Market AccessArticle XVI: Market Access “…each member shall accord services and service suppliers of any other Member treatment no less favourable than that provided for under the terms, limitations and conditions agreed and specified in its Schedule…”“…each member shall accord services and service suppliers of any other Member treatment no less favourable than that provided for under the terms, limitations and conditions agreed and specified in its Schedule…” Article XVII: National TreatmentArticle XVII: National Treatment “…each member shall accord to services and service suppliers of any other Member treatment no less favourable than that it accords to its own like services and service suppliers.”“…each member shall accord to services and service suppliers of any other Member treatment no less favourable than that it accords to its own like services and service suppliers.” Treatment to be considered less favourable if it modifies the conditions of competition in favour of its own companies.Treatment to be considered less favourable if it modifies the conditions of competition in favour of its own companies.

15. Panel Decision (1 of 3) China’s Accession Protocol: Concluded that a number of Chinese measures were inconsistent with China’s obligation to grant “trading rights” because measures restricted the right of enterprises to import reading materials, films for theatrical release, AVHE products, and sound recordings.Concluded that a number of Chinese measures were inconsistent with China’s obligation to grant “trading rights” because measures restricted the right of enterprises to import reading materials, films for theatrical release, AVHE products, and sound recordings. Article XX (a) defenceArticle XX (a) defence Panel determined that because there was at least one other reasonably available alternative, China’s measures were not “necessarily” within the meanings of Article XX (a)Panel determined that because there was at least one other reasonably available alternative, China’s measures were not “necessarily” within the meanings of Article XX (a)

16. Panel Decision (2 of 3) GATS Claims: Chinese measures prohibiting foreign invested enterprises are inconsistent with China’s national treatment commitments under Article XVI.Chinese measures prohibiting foreign invested enterprises are inconsistent with China’s national treatment commitments under Article XVI. Chinese measures imposing requirements relating to registered capital and operating terms for the distribution of reading materials are inconsistent with China’s national treatment commitments.Chinese measures imposing requirements relating to registered capital and operating terms for the distribution of reading materials are inconsistent with China’s national treatment commitments. China’s prohibition on foreign invested enterprises supply of sound recording distribution services are inconsistent with China’s national treatment commitments.China’s prohibition on foreign invested enterprises supply of sound recording distribution services are inconsistent with China’s national treatment commitments. Chinese measures limiting commercial presence for the distribution of video cassettes, DVDs, etc., are inconsistent with China’s market access commitments under Article XVI and its national treatment commitments under Article XVII.Chinese measures limiting commercial presence for the distribution of video cassettes, DVDs, etc., are inconsistent with China’s market access commitments under Article XVI and its national treatment commitments under Article XVII.

17. Panel Decision (3 of 3) GATT 1994: Chinese measures restricted distribution channels for certain imported reading materials by requiring their distribution to be conducted exclusively through subscription, and by Chinese wholly state-owned enterprises.Chinese measures restricted distribution channels for certain imported reading materials by requiring their distribution to be conducted exclusively through subscription, and by Chinese wholly state-owned enterprises. Chinese measures limit the distribution of certain imported reading materials to wholly Chinese-owned enterprises.Chinese measures limit the distribution of certain imported reading materials to wholly Chinese-owned enterprises. Panel concluded that these measures were inconsistent with China’s obligation under Article III:4 of the GATT 1994.Panel concluded that these measures were inconsistent with China’s obligation under Article III:4 of the GATT 1994. Hard-copy sound recordings – panel concluded that the U.S. had not demonstrated that the measures were inconsistent with Article III:4.Hard-copy sound recordings – panel concluded that the U.S. had not demonstrated that the measures were inconsistent with Article III:4. U.S. had not been able to demonstrate that China’s regulations and rules established, either de jure or de facto, a duopoly that would prevent other enterprises from applying for, and receiving, a license to distribute imported films. Panel found no violation in respect to this claim.U.S. had not been able to demonstrate that China’s regulations and rules established, either de jure or de facto, a duopoly that would prevent other enterprises from applying for, and receiving, a license to distribute imported films. Panel found no violation in respect to this claim.

18. Appeal to Appellate Body (1 of 3) Appellate body upheld panel’s conclusion regarding films for theatrical release and unfinished audiovisual products.Appellate body upheld panel’s conclusion regarding films for theatrical release and unfinished audiovisual products. Appellate body found that Panel did not error in findings regarding contributions made by State-ownership requirement and by provisions excluding foreign-invested enterprises engaging in the importation of products.Appellate body found that Panel did not error in findings regarding contributions made by State-ownership requirement and by provisions excluding foreign-invested enterprises engaging in the importation of products.

19. Appeal to Appellate Body (2 of 3) Appellate body found that the Panel did error in finding that the State plan requirement in Article 42 of the Publications Regulation is apt to make a material contribution to the protection of public morals.Appellate body found that the Panel did error in finding that the State plan requirement in Article 42 of the Publications Regulation is apt to make a material contribution to the protection of public morals. Appellate body upheld panel’s conclusion that China’s measures prohibiting foreign-invested entities from engaging in the distribution of sound recordings in electronic form are inconsistent with Article XVII of GATS.Appellate body upheld panel’s conclusion that China’s measures prohibiting foreign-invested entities from engaging in the distribution of sound recordings in electronic form are inconsistent with Article XVII of GATS.

20. Appeal to Appellate Body (3 of 3) Appellate body recommended that the Dispute Settlement Body (DSB) request China to bring to conformity its measures found to be inconsistent with the Accession Protocol, Working Party Report, GATS and GATT 1994.Appellate body recommended that the Dispute Settlement Body (DSB) request China to bring to conformity its measures found to be inconsistent with the Accession Protocol, Working Party Report, GATS and GATT 1994. On July 12, 2010 the United States and China agreed upon a reasonable amount of time for China to comply with DSB recommendations. To be implemented by March 19 2011, 14 months from the date of the adoption of the Appellate body report.On July 12, 2010 the United States and China agreed upon a reasonable amount of time for China to comply with DSB recommendations. To be implemented by March 19 2011, 14 months from the date of the adoption of the Appellate body report.

21. Measures found by the Panel to be inconsistent with 's WTO obligations (bold indicates at issue in this appeal) materials Audiovisu al products Films for theatrical release Electronic distributio n of sound recording s Foreign Investment Regulation Catalogue Several Opinions Publications Regulation Imported Publications Subscription Rule Publications (Sub-)Distribution Rule Publications Market Rule 1997 Electronic Publications Regulation 2001 Audiovisual Products Regulation Audiovisual Products Importation Rule Audiovisual (Sub-)Distribution Rule Circular on Internet Culture Network Music Opinions Film Regulation Film Rule Trading rights and GATS Trading rights only GATS only GATS and 1994 Panel Findings

22. Sources: Protocol on the Accession of the People's Republic of China, WT/L/432, 23 November 2001 (the "Accession Protocol").Protocol on the Accession of the People's Republic of China, WT/L/432, 23 November 2001 (the "Accession Protocol"). WTO Request for Consultation by the United States 4/10/2007WTO Request for Consultation by the United States 4/10/2007 US International Trade Commission, http://www.uschina.org/statistics/tradeable.htmlUS International Trade Commission, http://www.uschina.org/statistics/tradeable.html World Trade Law, http://www.worldtradelaw.net/reports/wtoab/china- publications%28ab%29.pdfWorld Trade Law, http://www.worldtradelaw.net/reports/wtoab/china- publications%28ab%29.pdf WTO Summary of Panel Findings, http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds363_e.htmWTO Summary of Panel Findings, http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds363_e.htm