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WTO Appellate Body Confirms Finding Against China’s Treatment Of Certain Copyright-Intensive Products

FINDING IS A VICTORY FOR AMERICA'S CREATIVE INDUSTRIES

WASHINGTON - U.S. Trade Representative Ron Kirk announced today that the WTO Appellate Body has confirmed that China's restrictions on the importation and distribution of certain copyright-intensive products are inconsistent with China's WTO obligations. The products at issue include films for theatrical release, DVDs, music, books and journals.

"Today America got a big win. We are very pleased that the WTO has found against China's import and distribution restrictions on U.S. movies, music, DVDs and publications," Ambassador Kirk said. "The Appellate Body's findings are key to ensuring full market access in China for legitimate, high-quality entertainment products and the exporters and distributors of those products. U.S. companies and workers are at the cutting edge of these industries, and they deserve a full chance to compete under agreed WTO rules. We expect China to respond promptly to these findings and bring its measures into compliance."

Today's Appellate Body report and the WTO panel report released on August 12, 2009 call on China to allow U.S. companies to import into China films for theatrical release; audiovisual entertainment products, such as DVDs; music and other sound recordings; and reading materials. They also call on China to eliminate the discriminatory treatment that U.S. distributors of certain products face - such as discriminatory operating term and capital requirements - as well as to allow U.S. companies to partner with Chinese enterprises in joint ventures to distribute music and other sound recordings over the internet.

"This case is also an important part of our efforts to combat intellectual property piracy," Ambassador Kirk noted. "The panel and Appellate Body findings ensure that legitimate American products are granted market access so that they can get to market and beat out the pirates. This finding helps to ensure that America's creative ingenuity and innovation are protected abroad."

BACKGROUND

The United States initiated this WTO dispute in April 2007.

In this dispute, the United States sought to address three significant market access concerns.

First, China prohibits foreign enterprises and individuals from importing reading materials, audiovisual home entertainment products such as DVDs, music and other sound recordings, and films for theatrical release. The WTO panel report found that China's key importation restrictions on these products are inconsistent with its obligations under its Accession Protocol. The panel also found that China's restrictions were not justified by the exception in the GATT 1994 related to the protection of public morals.

Second, China prohibits foreign enterprises from distributing certain reading materials and from distributing music electronically. China also imposes discriminatory operating requirements on foreign-invested distributors of reading materials and DVDs. The WTO panel report found that these prohibitions and discriminatory operating requirements are inconsistent with China's obligations under the GATS.

Third, certain imported products face more burdensome requirements before they may be distributed in China than domestic products. The panel found that because of these requirements, China discriminates against imported reading materials in several significant ways in breach of the national treatment obligation in the GATT 1994.

On appeal, China asserted three claims. First, China contended that its restrictions on importation of the products at issue are justified by an exception related to the protection of public morals. Second, China claimed that while it had made commitments to allow foreign enterprises to partner in joint ventures with Chinese enterprises to distribute music, those commitments did not cover the electronic distribution of music. Third, and finally, China claimed that its import restrictions on films for theatrical release and certain types of sound recordings and DVDs were not inconsistent with China's commitments related to the right to import, because those products were not goods and therefore were not subject to those commitments.

The WTO Appellate Body rejected each of China's claims and upheld the panel's findings with respect to each claim.

The WTO Dispute Settlement Body is expected to adopt the Appellate Body report and the panel report within the next 30 days. Within 30 days following adoption, China must announce its intentions with respect to implementation of the WTO's rulings.