Alert 335 China - Important WTO decision regarding China's controversial media market access barriers


In a ruling released on 12 August 2009, the World Trade Organisation (WTO) found that  certain Chinese restrictions on the importation and distribution of copyright-intensive products such as films, DVDs, music, books and journals are inconsistent with China's WTO accession obligations.  The detailed findings are contained in a lengthy Dispute Settlement Panel (DSP) report.

Background
In October 2007, the United States (US) filed a fourth WTO complaint against China, alleging that Beijing unfairly restricts the importation of films, music, books and other copyright-protected goods. The case focused on Chinese rules that permit the importation of US books, music, videos and other protected goods into China only   through state-approved or state-run companies.  It was alleged that this was in breach of China's WTO obligations to free up such trading rights for non-Chinese companies.  These issues differed from those raised in an earlier intellectual property rights (IPR) WTO case which considered inter alia whether China was providing adequate criminal remedies for IPR violation - China won that case. However, the US argues that the effect of market access barriers is that pirates are able to exploit the market illegally.

Decision
The WTO panel focused on three main market access concerns, deciding each one in favour of the US:

  • import restrictions on foreign media products
  • discriminatory operating requirements imposed on foreign-invested distributors
  • discriminatory treatment of imported reading material

The DSP calls on China to bring its import and distribution regulations into compliance with its WTO obligations.

The DSP declined to rule on other elements of the complaint, citing insufficient evidence in some areas, while finding that others were outside the scope of their review. These elements include the approval processes for distributors, restrictions on subscription systems and electronics reading materials, and censorship of music sold over the Internet.

Our Comment
The creative industries have long claimed that the lack of a free market reduces and distorts competition, restricts access to genuine products, and fuels the market for pirated goods. They say an open market would provide a fair playing field allowing legitimate product distribution to flourish and compete commercially with the distribution of pirated product.

Relaxing restrictions could improve access to content for both foreign rights holders and private Chinese enterprises alike. We have certainly seen how the lack of a fair market leaves the publishing and music industries struggling against endemic piracy with one hand tied behind their backs. Similar problems afflict the film industry, which has had only limited avenues for theatrical and DVD distribution in China.

Rouse Associate Josh Mandell said: "This will not solve the massive piracy problem in China in the short term, but increased access will give foreign companies a chance to compete for their rightful share of the market and give the pirates a run for their money."

"With piracy rates running at over 90% in the music industry, this is a step in the right direction but addresses only one aspect of a multi-faceted problem," added Tim Smith, Rouse's Deputy International Service Head for Asia Litigation.