In a ruling that the U.S. Trade Office is hailing as groundbreaking, the World Trade Organization (WTO) has decided that China must ease restrictions on the importation and distribution of copyright-intensive products like films, DVDs, music and books. In a complaint that began in April 2007, the U.S. argued that China's restrictions encouraged pirating, hurting U.S. firms that produced these products. I dug into the WTO's report (opens 491 page .pdf) and spoke to U.S. Trade officials to figure out what this ruling really means for U.S. business.
The U.S. asserted that China's discriminatory requirements regarding foreign importation and distribution of certain products violate its obligations under WTO rules. The WTO mostly agreed. The WTO requires that its members allow their trading partners access to their market. China was making it too difficult for certain U.S. copyright-intensive products to get in.
This ruling should help to open up China's huge consumer market to America's creative industries. U.S. Trade Representative Ron Kirk said in a press release:
"These findings are an important step toward ensuring market access for legitimate U.S. products in the Chinese market, as well as ensuring market access for U.S. exporters and distributors of those products. We will work tirelessly so that American companies and workers can fully realize the market opening benefits that this decision signals."
How It Works Now
Before explaining the major outcomes of the ruling, I thought it might be helpful to first describe how the process of getting these U.S. products into China works. So let's say a U.S. firm wants to sell its DVDs in China. First, it must go through a Chinese importer to get those products in the country. Then, someone must distribute those products in China so that its people can purchase them.
China has a sole state-owned importer for all products to go through. On the distribution side, foreign distributors were subject to significant barriers and sometimes kept out of the market entirely. Tough restrictions were in place regarding the service of distribution itself and the products being distributed.
The ruling had three very important outcomes regarding importation and distribution:
First, it forces China to loosen its grip on how entertainment products are imported. This ruling should result in U.S. firms gaining the opportunity to utilize multiple importers, instead of just one state-owned importer.
Second, it orders that China relax its restrictions on foreign distributors. Through this ruling, foreign firms can distribute most entertainment products in China with fewer barriers. Those products include reading materials, DVDs and sound recordings. For films, China has two distributors, which the WTO said was sufficient for the time being. But USTR officials told me that the WTO ruled that way because China implied that it would allow more ample distribution of foreign films going forward.
However, this aspect of the ruling was not a complete slam dunk for the U.S. The WTO also found that some of China's discriminatory policies were okay. It can still subject foreign distributors to a difficult approval process. So the U.S. firms might get access, but it won't be easy.
Third, the ruling had implications for the distribution of some of the products themselves. China's discriminatory practices regarding reading materials, in particular, were found to violate WTO standards. For most other entertainment products, China can continue to make matters difficult, but probably not systematically impossible.
So what does this say about China's censorship goals? Very little directly. U.S. entertainment products will continue to be subject to China's content reviews. That wasn't being challenged by the U.S. here. So could China just use censorship as a crutch to continue to prevent U.S. entertainment products from hitting its market? Maybe, but U.S. trade officials did not believe that censorship was the motive behind China's discriminatory practices regarding these products.
Will It Stick?
Obviously, China was not thrilled with the ruling. Could it ignore the changes that the WTO calls for? Maybe, but as China's prominence as a WTO member grows, so should the pressure it feels to follow the rules. China does still have the option of repealing the decision, and it may.
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