[A2k] W.T.O. Rules Against China’s Limits on Media Imports

[Meredith Filak]

http://www.nytimes.com/2009/08/13/business/global/13trade.html?_r=1&hp

August 13, 2009
W.T.O. Rules Against China’s Limits on Media Imports
By KEITH BRADSHER

HONG KONG — A World Trade Organization panel ruled on Wednesday that
China had violated international free trade rules by limiting imports of
books and movies, in a decision that buttresses growing complaints from
the United States and Europe about Chinese trade policies.

The W.T.O. decision in Geneva is a victory for the United States at a
time when a growing number of business executives and politicians
perceive China as becoming increasingly nationalistic in its trade policies.

The restrictions also required foreign financial news services to
operate through a government-designated distributor.

Ron Kirk, the United States trade representative, praised the panel’s
legal finding. “This decision promises to level the playing field for
American companies working to distribute high-quality entertainment
products in China,” Mr. Kirk said, “so that legitimate American products
can get to market and beat out the pirates.”

The Bush administration filed the original complaint more than two years
ago, partly to head off possible legislation in Congress requiring a
more confrontational trade policy toward China. The Obama administration
now faces pressure from the Democratic majority in Congress to take more
assertive action in response to China’s trade surplus during the current
recession, and could use the ruling as evidence that the issue is
already being addressed.

The Chinese government had no immediate reaction to the decision, which
was released late at night Beijing time. Chinese state media also
initially ignored the decision. Chinese officials sometimes wait a day
or two to respond to adverse trade developments.

Wednesday’s ruling goes to the heart of one of the biggest trade issues
pending between China and the West: whether intellectual property, like
copyrighted songs, books and movies, should be granted the same kind of
protection from discriminatory trade practices as manufactured goods.

China has enjoyed double-digit economic growth through most of the last
three decades in part because of rapid expansion of exports, virtually
all of which have been manufactured goods. But Chinese imports have
grown much more slowly, particularly if imports of goods for re-export
are excluded, like computer chips from Japan that are assembled in China
into consumer electronics for shipment to the United States.

One reason for the slow growth in imports has been China’s web of
restrictions on imported books, movies and other intellectual content.
The demand is met instead by pirated copies made in China; the latest
Hollywood movies are available on DVD on street corners across China
within days of their release, at a cost of $1 or less — much less for
the buyer who bargains aggressively or is making a purchase in an inland
city.

The cost of pirated copies is so low that American movie companies sell
authorized DVDs of their movies for much less in China than the United
States — and still struggle to find buyers. Chinese consumers are so
accustomed to paying very little for DVDs, or downloading pirated movies
or songs free on the Internet, that Western companies could face an
uphill challenge to sell more even if China does make changes in
response to the W.T.O. report.

In its petition to the W.T.O., the United States particularly criticized
China’s requirement that most copyrighted material be imported through a
few government-designated companies, which tend to be wholly owned or
majority-owned by the government.

The panel condemned this, saying in its report that “it also appears
that foreign individuals and enterprises, including those not invested
or registered in China, are accorded treatment less favorable than that
accorded to enterprises in China with respect to the right to trade.”

Like the United Nations, the W.T.O. has limited power to enforce its
decisions. But an adverse decision at the W.T.O. can shame countries,
and panel rulings against other countries have frequently become the
basis for bilateral or multilateral negotiations that result in policy
changes.

China in particular has been an enthusiastic supporter of the W.T.O.
since its admittance in 2001, because the group’s free-trade rules have
made it hard for other countries to impose antidumping and antisubsidy
limits on Chinese exports. But the Chinese government has not removed
heavy taxes on imported auto parts that were condemned by another W.T.O.
panel in July 2008.

In recent months, the Chinese government has taken a series of actions
that have alarmed trade negotiators and other officials in Western capitals.

Economic planners in Beijing have ordered government agencies not to buy
imported goods for the country’s nearly $600 billion stimulus program
except when no domestically produced goods are available. The government
has set high domestic content requirements for the wind and solar power
industries, and has rejected bids even by multinationals that erected
factories in China to supply the local market.

Chinese security forces have also detained four Rio Tinto employees in
Shanghai; they were formally arrested on Wednesday on suspicion of
commercial bribery and trade secrets infringement, although more serious
charges of theft of state secrets were not brought against them.

The American business community in China has become wary of recent
Chinese moves, and welcomed the W.T.O. ruling.

“The W.T.O. decision is a firm step toward common sense,” said Richard
Vuylsteke, the president of the American Chamber of Commerce in Hong
Kong. “We don’t want to go to the W.T.O. for these decisions, it
shouldn’t have to go that far.”

Responding to a petition filed by the United States in early April 2007,
and joined two weeks later by the European Union, the panel urged China
to remove its extensive administrative restrictions on the import and
distribution of a wide range of books, movies, DVDs and music
recordings. So while the United States has been much more vocal on this
issue, in many ways this is a victory for the United States and Europe.

Many of these restrictions, like limiting the number of foreign movies
that can be shown each year in Chinese theaters, have been aimed partly
at limiting foreign influence in China but also at sheltering domestic
industries.

The panel stopped short of endorsing an American requests for a ruling
on whether Chinese censorship had unfairly restricted imports. The panel
said that this question was outside its purview; for the same reason,
the panel also declined to rule on whether China’s approval processes
were too onerous for would-be distributors of imported entertainment.

Either side may appeal the panel’s ruling. Several procedural hurdles
make it difficult, although not impossible, for a panel’s decision to
eventually clear the way for the petitioning country to impose trade
sanctions on the country that broke the rules.

Chinese officials have defended their restrictions on imports of news
and entertainment as necessary to protecting their culture; France has
used a similar argument over the years to try, with limited success, to
defend its film industry against Hollywood’s offering.

But the W.T.O. and its predecessor, the General Agreement on Tariffs and
Trade, have moved gradually in the last two decades toward a narrower
interpretation of how far countries can go to limit trade in the name of
cultural preservation.


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Meredith Filak
Research Associate, Intellectual Property Policy Committee
Trans-Atlantic Consumer Dialogue
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