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World Trade Organization Report Upholds U.S. Trade Claims Against China

WASHINGTON, D.C. - U.S. Trade Representative Ron Kirk welcomed the results of a World Trade Organization (WTO) dispute settlement panel report made public today. The report found that major Chinese restrictions on the importation and distribution of copyright-intensive products such as theatrical films, DVDs, music, books and journals are inconsistent with China's WTO obligations.

The WTO panel called on China to come into compliance with its obligations to allow U.S. companies to import these products into China and to eliminate the discriminatory requirements faced by imported products and their U.S. distributors in China.

"Today, a WTO panel handed a significant victory to America's creative industries," said Ambassador Kirk. "These findings are an important step toward ensuring market access for legitimate U.S. products in the Chinese market, as well as ensuring market access for U.S. exporters and distributors of those products. We will work tirelessly so that American companies and workers can fully realize the market opening benefits that this decision signals."

The United States initiated the WTO dispute process against China because of serious concerns about shortcomings in China's legal regime governing the importation and distribution of copyright-intensive products. After unsuccessful consultations, the United States moved to institute panel proceedings. The result of those proceedings, released in today's WTO report, clearly addresses these shortcomings.

In addition to addressing discriminatory requirements on American importers and distributors, the findings also call on China to allow U.S. companies to partner with Chinese enterprises in joint ventures to distribute sound recordings over the Internet.

Ambassador Kirk noted, "This decision promises to level the playing field for American companies working to distribute high-quality entertainment products in China, so that legitimate American products can get to market and beat out the pirates. To me, that is a clear win. We believe that this report will help pave the way toward more open trade between China and America."

The WTO report is available here.

BACKGROUND

The United States initiated this WTO dispute in April 2007. Consultations throughout the spring and summer failed to resolve U.S. concerns, and a panel was established to examine the matter in November 2007.

In this dispute, the United States sought to address three significant market access concerns. The United States claimed that the measures at issue were inconsistent with China's obligations under China's WTO Protocol of Accession, the General Agreement on Trade in Services (GATS) and/or the General Agreement on Tariffs and Trade 1994 (GATT 1994).

First, the WTO panel examined prohibitions on the rights of foreign companies and individuals to import products including reading material, audiovisual home entertainment products, sound recordings, and films for theatrical release into China. The WTO panel report found that China's key importation restrictions on foreign reading materials, films, DVDs and sound recordings are inconsistent with its obligations under its Accession Protocol.

Second, the WTO panel addressed prohibitions and restrictions on the rights of foreign suppliers to distribute most of these products in China. The WTO report found that China's key prohibitions and discriminatory operating requirements imposed on foreign-invested distributors of reading materials, DVDs and sound recordings are inconsistent with China's obligations under the GATS. However, the panel also found that certain restrictive procedures included in China's discriminatory measures noted in the U.S. complaint, such as burdensome approval processes requirements for foreign distributors, were not within the panel's terms of reference and therefore issued no finding with respect to those requirements.

Third, the WTO panel reviewed discriminatory treatment of imports of most of these products in China's market. The panel found that China discriminates against imported reading materials in several significant ways in breach of the national treatment obligation in the GATT 1994. However, the panel also found that certain claims relating to this issue were outside the scope of the panel's review. For example, the panel found that China's restrictions on subscribers of imported reading materials, as well as its restrictions on imported electronic publications, were not within the scope of the panel's review. In addition, the panel found that there was not enough evidence to demonstrate that China's censorship regime for music transmitted over the Internet discriminates against the imported hard copy CDs from which the electronically-transmitted music is derived, or that China offered fewer distribution opportunities for imported films than for domestic films.

Both the United States and China have an opportunity to appeal today's report.