Impact of China on AVHE Products Trade

The Republic of China denotes one of the most energetic economies when it comes to international trade. Ranking second in the world with respect to world trade it plays a dominant role in shaping the trade structure of the whole world. It provides shelter to one-fifth of the world’s population thus representing market for millions of consumers. As the Chinese economy is expanding day by day, this group of consumers are becoming increasingly sophisticated and are improving on their living standards.

Similarly, with respect to audio-visual services China “is the most difficult market” to crack through for the US motion picture industry with extremely high rate of piracy and huge limitations imposed on the number of screens available to foreign films. Similar condition also prevails for music cassettes and audio books.

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With China becoming a member of the WTO, it brought positive hopes among the producers and distributors of newspapers, periodicals, DVDs and theatrical films. With China increasing the market access of all these products there exists a high possibility of knowledge exchange and an opportunity for China’s competitors to undertake commercial business. But China could not fulfil the commitments of the WTO in numerous aspects. The measures of trade that are prevalent within the Chinese economy affected four sets of industries, their services and their products. These industries include (1) reading materials like newspapers, periodicals and e-books (2) audio-visual home entertainment products (AVHE products) like the VCDs and the DVDs (3) sound recordings and films for theatrical release. China could not comply with the WTO rules on the following grounds:

• It prohibits foreign companies as well as private enterprises within China to import reading materials, audio-visual products, sound recordings and theatrical films.
• There exists unfair restrictions upon the foreign distributors of reading material and AVHE products and prevents foreign distributors from taking electronic distribution of sound recordings in China.
• There exists a number of measures that discriminate against the imported reading materials, sound recordings and theatrical films for release in China.

China limits the rights to import the above mentioned items only to state-owned Chinese enterprises thus preventing the foreign investors settled in China as well as private enterprises in China from importing the items. For some of these products the state-owned enterprises require a approval from the relevant regulatory agency while for the other products the regulatory agency identifies some of the state-owned enterprises to carry on the import services of these products.

The restrictive measures followed by China in order restrict the importation of AVHE products, sound recordings and films are: (1) the Catalogue, (2) the Foreign Investment Regulation, (3) the Several Opinions, (4) the Publications Regulation, and (5) the Importation Procedure. The first two measures – the catalogue and the foreign investment regulations prevent foreign investments in enterprises involving themselves in the importation of any of the products. The last two measures – the publication regulation and the importation procedure which covers all the items except the films for theartrical release limits the import of sound recordings, AVHE products only to certain state-owned enterprises. Another restrictive measure used by China only with respect to reading materials is the 1997 Electronics Publications Regulations. This rule implements the restrictive approval and the licensing procedure of the Publications Regulation and the importation Procedure and further reconfirms the prohibition by any foreign enterprise, privately-owned Chinese enterprise from importing electronic reading materials.

There exist various restrictive measures prevalent in China specifically for the AVHE products. They are (1) the 2001 Audiovisual Products Regulation, (2) the Audiovisual Products Importation Rule, and (3) the Audiovisual (Sub-) Distribution Rule. The importation of AVHE products within China depends on if the audiovisual product is finished or unfinished. For the finished AVHE products, they are produced and compiled outside China and require no further production or compilation before being delivered to the consumers of China and with respect to unfinished goods, they serve as master copies to be used to manufacture copies for sale in China. China has appointed only one state-owned enterprise-CNPIEC for the importation of finished audiovisual products.

Coming to the importation of sound recordings, China did not set different rules but incorporated the imports of sound recordings within rules that are there for the audiovisual products i.e. the Catalogue, the Several Opinions, the Publications Regulation, the Importation Procedures, the 2001 Audiovisual Products Regulation, the Audiovisual Products Importation Rule, and the Audiovisual (Sub-)Distribution Rule. In order to confirm that these rules incorporate the sound recordings, the term “audiovisual products” is defined by China. The catalogue and the several opinions rules prevent any kind foreign investments in the importation of sound recordings whereas the publication rules and the importation procedure allow only the state-owned enterprises to import the audiovisual product and the sound recordings.

Apart from the catalogue and the several options rules there are certain other measures that are applicable to the importation of films for theatrical release. They are (1) the Film Regulation, (2) the Film Distribution and Exhibition Rule, and (3) the Film Enterprise Rule. China has appointed only one state-owned enterprise – the China film import and export corporation- for importing films meant for theatrical release.

In order to support the domestic industries, China has several requirements for the distribution of imported films, audiovisuals and sound recordings. The subscription regime of China enjoys the monopoly for being the only distribution channel for the imported reading materials into China whereas the domestic reading materials do not have all these restrictions. In case of imported sound recordings which are meant for electronic distribution, must require the approval of the MOC before the distribution procedure but with respect to domestically produced sound recording no such restriction exist. For the distribution of imported films for theatrical release there exist only two state-owned enterprises which are solely responsible for the distribution of imported films in China but in case of domestically produced goods, can be distributed by a full range of distributors in China as well as by the production studios of the films. For the distribution of the imported reading materials, there exist subscriptions and certain requirements to the subscribers of these imported reading materials which do not exist for those who subscribe to equivalent domestic reading materials.

THE US China DISPUTE REGARDING THE AUDIOVISUAL SERVICES.

On April 10^th,2007 the United States requested to have a consultation with the government of China with regard to Article 4 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (“DSU”), Article XXII of the General Agreement on Tariffs and Trade 1994 (“GATT 1994”), and Article XXII of the General Agreement on Trade in Services (“GATS”) because the (1) US felt that China has certain measures that is restricting the trading rights of US with regard to sound recordings, AVHE products and films meant for theatrical release (2) China is prohibiting market access for the foreign suppliers and distributors of audiovisual services and reading materials.

On the 25^th April of the same year, the European Communities requested to join in the consultation that was previously requested by US and the Chinese government accepted the plea. After this, in the month of October of the same year US requested the Dispute Settlement Body (DSB) to set up a panel in order to settle the dispute and in the very next year US requested the Director-General to determine the composition of the panel to which the Director-General appointed Mr. Florentino P. Feliciano as the chairman and Mr. Juan Antonio Dorantes &Mr. Christian Häberli as its members. The panel delivered its interim report on 20^th April, 2009 and gave its final report on 23^rd June, 2009.

US requested the panel to look into the following obligations bought China:

• The following measures are inconsistent with Article XVI of the GATS: the Audiovisual (Sub-) Distribution Rule; the Catalogue; the Foreign Investment Regulation; and the Several Opinion.
• The following measures are inconsistent with Article XVII of the GATS: the Publications Regulation; the Publications Market Rule; the Publications (Sub-) Distribution Rule; the Sub-Distribution Procedure; the Imported Publications Subscription Rule; the 1997 Electronic Publications Regulation.
• The following measures are inconsistent with Article III:4 of the GATT 1994: the Imported Publications Subscription Rule; Publications (Sub-)Distribution Rule; the Network Music Opinions; the Internet Culture Rule; the 2001 Audiovisual Products Regulation; the Audiovisual Products Importation Rules; the Film Regulation; the Film Enterprise Rule; and the Film Distribution and Exhibition Rule.
• With respect to National Treatment obligations for products the following measures are inconsistent: the Imported Publications Subscription Rule; the Publications (Sub-)Distribution Rule; the Network Music Opinions; Internet Culture Rule; the 2001 Audiovisual Products Regulation; the Audiovisual Products Importation Rules; the Film Regulation.

With respect to the propositions bought in by US against China, China asks the panel to reject the claims as the issues are consistent with WTO rules and regulations. It further argues that the US claim under Article III:4 of the GATT 1994 is outside the Panel’s terms of reference because it was not included in the consultations request. Finally, China asks the Panel not to examine certain measures because they are only internal guidance and cannot serve as the basis for administrative acts.