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Complaint by the United States.
On 10 April 2007, the United States requested consultations with China concerning: (1) certain measures that restrict trading rights with respect to imported films for theatrical release, audiovisual home entertainment products (e.g. video cassettes and DVDs), sound recordings and publications (e.g. books, magazines, newspapers and electronic publications); and (2) certain measures that restrict market access for, or discriminate against, foreign suppliers of distribution services for publications and foreign suppliers of audiovisual services (including distribution services) for audiovisual home entertainment products.
- Regarding trading rights, the United States seeks consultations on various Chinese measures that reserve, to certain Chinese state-designated and wholly or partially state-owned enterprises, the right to import films for theatrical release, audiovisual home entertainment products, sound recordings and publications;
- Regarding distribution services, the United States seeks consultations on various Chinese measures that impose market access restrictions or discriminatory limitations on foreign service providers seeking to engage in the distribution of publications and certain audiovisual home entertainment products.
The United States claims that in relation to the two above-mentioned categories of measures possible inconsistencies with the Protocol of Accession, the GATT 1994 or the GATS arise as follows:
- Regarding trading rights, the measures at issue appear not to allow all Chinese enterprises and all foreign enterprises and individuals the right to import the products into the customs territory of China. It also appears that foreign individuals and enterprises, including those not invested or registered in China, are accorded treatment less favourable than that accorded to enterprises in China with respect to the right to trade. Accordingly, the measures at issue appear to be inconsistent with China's obligations under the provisions of paragraphs 5.1 and 5.2 of Part I of the Protocol of Accession, as well as China's obligations under the provisions of paragraph 1.2 of Part I of the Protocol of Accession (to the extent that it incorporates commitments in paragraphs 83 and 84 of the Report of the Working Party on the Accession of China). Furthermore, to the extent that the measures at issue impose prohibitions or restrictions other than duties, taxes or other charges, on the importation into China of the Products, these measures appear to be inconsistent with China's obligations under Article XI:1 of the GATT 1994.
- Regarding the measures affecting distribution services for publications, these appear to accord less favourable treatment to foreign suppliers of distribution services for publications than that accorded to Chinese suppliers. Accordingly, the measures at issue appear to be inconsistent with China's obligations under Articles XVI and XVII of the GATS. Similarly, the measures affecting distribution services for audiovisual home entertainment products appear to accord less favourable treatment to foreign suppliers of audiovisual distribution services than that accorded to Chinese suppliers, and to impose restrictions on market access on foreign suppliers of audiovisual distribution services for audiovisual home entertainment products. The measures at issue appear to be inconsistent with China's obligations under Articles XVI and XVII of the GATS.
On 25 April 2007, the European Communities requested to join the consultations. Subsequently, China informed the DSB that it had accepted the request of the European Communities to join the consultations.
On 10 July 2007, the United States requested supplemental consultations. On 20 July 2007, the European Communities requested to join the supplemental consultations.
On 10 October 2007, the United States requested the establishment of a panel. At its meeting on 22 October 2007, the DSB deferred the establishment of a panel.
Panel and Appellate Body proceedings
At its meeting on 27 November 2007, the DSB established a panel. The European Communities and Japan reserved their third-party rights. Subsequently, Australia, Korea and Chinese Taipei reserved their third-party rights.
On 17 March 2008, the United States requested the Director-General to determine the composition of the Panel. On 27 March 2008, the Director-General composed the panel.
On 22 September 2008, the Chairman of the panel informed the DSB that the panel would not be able to issue its report within six months due to scheduling difficulties. The panel estimated that it would issue its final report to the parties in February 2009.
On 12 August 2009, the panel report was circulated to Members. With regard to the US claims under China's Accession Protocol, the panel concluded that a number of Chinese measures were inconsistent with China's obligation to grant “trading rights”, because such measures restricted the right of enterprises in China, and in some cases foreign enterprises not registered in China and foreign individuals, to import reading materials, films for theatrical release, AVHE products, and sound recordings. At the same time, with regard to some of the measures at issue, the panel did not find that China acted inconsistently with the Protocol. Regarding China's Article XX(a) defence, which concerned reading materials and finished audiovisual products, the panel determined that, because there was at least one other reasonably available alternative, China's measures were not “necessary” within the meaning of Article XX(a). In view of this conclusion, the panel did not rule on whether China's recourse to Article XX(a) was even permissible with respect to the Protocol obligations invoked.
The US claims under the GATS concerned various Chinese measures relating to the distribution of reading materials, AVHE distribution services, and sound recording distribution services. The panel found that Chinese measures prohibiting foreign-invested enterprises from engaging in: (i) the wholesale of imported reading materials, (ii) the master distribution (exclusive sale) of books, periodicals and newspapers and (iii) the master wholesale and wholesale of electronic publications are inconsistent with China's national treatment commitments under Article XVII of the GATS. The panel further found that Chinese measures imposing requirements relating to registered capital and operating terms for the distribution of reading materials are, likewise, inconsistent with China's national treatment commitments. In addition, the panel concluded that China's prohibition on foreign-invested enterprises with regard to the supply of sound recording distribution services are inconsistent with China's national treatment commitments. Furthermore, the panel found that Chinese measures limiting commercial presence for the distribution of videocassettes, DVDs, etc. to joint ventures with Chinese majority ownership, and measures limiting the operating term for joint ventures, but not for wholly Chinese-owned enterprises, are inconsistent with China's market access commitments under Article XVI of the GATS or its national treatment commitments under Article XVII.
The United States also claimed that China did not provide national treatment for imported reading materials, sound recordings intended for electronic distribution, and films for theatrical release. Regarding reading materials, the panel found that 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, unlike for like domestic reading materials. Similarly, the panel found that Chinese measures limit the distribution of certain imported reading materials (which can be distributed other than through subscription) to wholly Chinese-owned enterprises, while the distribution of like domestic reading materials can be effected by other types of enterprises, including foreign-invested ones. The panel concluded that these measures were inconsistent with China's obligations under Article III:4 of the GATT 1994. With regard to hard-copy sound recordings intended for electronic distribution (e.g., through the Internet), the United States claimed that Chinese measures discriminate against imported hard-copy sound recordings by subjecting them to more burdensome content review regimes than like domestic products. The panel concluded, however, that the United States had not demonstrated that that the measures were inconsistent with Article III:4. In respect of films for theatrical release, the United States claimed that China discriminated against imported films by limiting their distribution to two state-owned enterprises, while like domestic products could be distributed by any licensed distributor operating in China, including privately owned ones. The panel found, however, that the United States 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 licence to distribute imported films. Accordingly, the panel found no violation in respect of this claim.
On 22 September 2009, China notified its decision to appeal to the Appellate Body certain issues of law covered in the panel report and certain legal interpretations developed by the panel. On 5 October 2009, the United States notified its decision to appeal to the Appellate Body certain issues of law covered in the panel report and certain legal interpretations developed by the panel.
On 17 November 2009, the Chairman of the Appellate Body informed the DSB that due to the time required for the completion and translation of the report, the Appellate Body will not be able to circulate its report within 60 days. It estimated that the report would be circulated no later than 21 December 2009.
On 21 December 2009, the Appellate Body report was circulated to Members. With respect to China's measures pertaining to films for theatrical release and unfinished audiovisual products, the Appellate Body upheld the panel's conclusions that Article 30 of the Film Regulation and Article 16 of the Film Enterprise Rule are subject to these provisions are inconsistent with China's trading rights commitments in its Accession Protocol and Accession Working Party Report. The Appellate Body also upheld the Panel's conclusion that Article 5 of the 2001 Audiovisual Products Regulation and Article 7 of the Audiovisual Products Importation Rule are inconsistent with China's obligation, in paragraph 1.2 of China's Accession Protocol and paragraph 84(b) of China's Accession Working Party Report, to grant in a non-discretionary manner the right to trade.
The Appellate Body also found that China may invoke Article XX(a) of the GATT 1994 to justify provisions found to be inconsistent with China's trading rights commitments under its Accession Protocol and Working Party Report. With respect to the Panel's analysis of the contribution made by the relevant provisions of China's measures to the protection of public morals within the meaning of Article XX(a), the Appellate Body found that the Panel did not err in its findings regarding the contributions made by the State-ownership requirement in Article 42 of the Publications Regulation and by the provisions excluding foreign-invested enterprises from engaging in the importation of the relevant products. The Appellate Body found, however, that the Panel erred 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 and that, in the absence of a reasonably available alternative, it can be characterized as “necessary” to protect public morals in China. The Appellate Body further upheld the Panel's conclusion that China has not demonstrated that the relevant provisions are “necessary” to protect public morals, within the meaning of Article XX(a) of the GATT 1994 and that, as a result, China has not established that these provisions are justified under Article XX(a).
The Appellate Body also upheld the panel's conclusion that the provisions of China's measures prohibiting foreign-invested entities from engaging in the distribution of sound recordings in electronic form are inconsistent with Article XVII of the GATS.
The Appellate Body recommended that the DSB request China to bring its measures found to be inconsistent with China's Accession Protocol, China's Accession Working Party Report, the GATS and the GATT 1994 into conformity with China's obligations thereunder.
At its meeting on 19 January 2010, the DSB adopted the Appellate Body report and the panel report, as modified by the Appellate Body report.
Reasonable period of time
At the DSB meeting on 18 February 2010, China informed the DSB of its intention to implement the DSB recommendations and rulings. This dispute involved many important regulations on culture products. China, therefore, would need a reasonable period of time to implement the DSB recommendations and rulings. On 12 July 2010, China and the United States informed the DSB that they had agreed that the reasonable period of time for China to implement the recommendations and rulings of the DSB shall be 14 months from the date of adoption of the Appellate Body and panel reports. Accordingly, the reasonable period of time expired on 19 March 2011.
At the DSB meeting on 25 March 2011, China reported that it had made efforts to implement the DSB recommendations and had completed amendments to most measures. Given the complexity and sensitivity of the dispute, China hoped that Members would understand the difficulty it was facing in the implementation process. In China's view, the matter would be resolved properly through joint efforts and mutual co-operation of the relevant parties. The United States expressed concern over the lack of any apparent progress by China in bringing its measures into compliance. The United States was in discussion with China on how to handle any eventual requests for a compliance proceeding and for authorization to suspend concessions under Article 22.6.
On 13 April 2011, the United States and China informed the DSB of Agreed Procedures under Articles 21 and 22 of the DSU.
At the DSB meeting on 22 February 2012, China reported that it had completed amendments to most measures at issue and had recently signed a Memorandum of Understanding with the United States regarding measures concerning films. The United States said that it looked forward to the formal signing of the Memorandum of Understanding and would continue to monitor the situation.
At the DSB meeting on 23 March 2012, China stated that it had ensured full implementation of the DSB recommendations and rulings except for those concerning films for theatrical release. As regards the measures concerning films for theatrical release, China had been discussing with the United States and had recently reached an agreement towards resolving this matter which would soon be signed and notified to the DSB. The United States said that it was not in a position to conclude that China had fully implemented the DSB recommendations and rulings in all areas other than for films for theatrical release and that it continued to review the steps that China had taken in those areas.
On 9 May 2012, China and the United States informed the DSB of key elements relating to films for theatrical release as set forth in the Memorandum of Understanding mentioned at the DSB meeting on 22 February 2012.
At the DSB meeting on 24 May 2012, China said that it had taken all necessary steps and had thus complied with the DSB recommendations. The United States said that the Memorandum of Understanding represented significant progress but not a final resolution.
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