6. US Wins on Key Points in China Media Market Access Case

7 September 2009

Setting a high threshold for a defence based on the ‘public morals' exception, a dispute settlement panel ruled in August that many of China's restrictions on the import and distribution of media products were inconsistent with its WTO commitments.

The case, initiated by the US in 2007, concerned China's allowing only wholly state-owned Chinese companies to import foreign reading materials (books, periodicals and newspapers), audiovisual home entertainment products, sound recordings and films for theatrical release, as well as limiting the right to distribute such materials within China to domestic service providers.

In its Accession Protocol, China had committed to progressively liberalise "the availability and scope of the right to trade, so that, within three years after accession [i.e. by December 2004], all enterprises in China shall have the right to trade in all goods." This provision was, however, preceded by the caveat that the commitment was made "without prejudice to China's right to regulate trade in a manner consistent with the WTO Agreement." China also promised that "all foreign individuals and enterprises, including those not invested or registered in China, shall be accorded treatment no less favourable than that accorded to enterprises in China with respect to the right to trade."

The panel found that many trade-restrictive measures still in place violated the commitments China had made under its Accession Protocol, and were inconsistent with China's obligations under GATT Article  III.4 (national treatment), as well as the national treatment provisions embodied in Articles XVI and XVII of the General Agreement on Trade in Services. Under the national treatment principle, WTO Members must treat goods and services/service providers from other countries no less favourably than they do ‘like' domestic goods, services or service providers.

High Threshold for Public Morals Exemption

China built the bulk of its defence of import restrictions on audiovisual and written products on its right to "regulate trade in a manner consistent with the WTO Agreement." It argued that the Chinese media censorship system, or ‘content review mechanism', was aimed at protecting public morals, and therefore required a selection of limited, ‘appropriately geographically located' import entities having an appropriate organisational structure and reliable, competent and capable personnel. As the measures found inconsistent were necessary to meet the high public morals standard chosen by the country, they were covered by the exception under GATT Article XX(a), China maintained.

China argued extensively on the necessity of the content review mechanism to protect national values and the appropriate threshold for such censorship. The United States, however, did not contest either the level of protection of public morals sought by China, or China's right to regulate in the public interest. What it did contest was the means China had chosen to reach its objective.

Specifically, the US maintained that the measures taken by China were unnecessary in the meaning of Article XX(a) and inconsistent with the Chapeau of Article XX, which calls on WTO Members not to apply measures in a discriminatory manner or as a ‘disguised restriction on international trade'. The US alleged that feasible, less trade-restrictive and WTO-consistent alternatives were available to China and that the measures currently applied constituted an ‘arbitrary or unjustified discrimination' and a ‘disguised restriction on international trade'. In particular, the United State argued that an efficient review system did not require a monopoly on importation, and that the censorship function could be delinked from importation rights, allowing both private and foreign companies to engage in these business activities.

By adopting the well established Article XX necessity test, the panel concluded with a thorough analysis on available alternatives for those measures that had been found to contribute to the objective of protecting public morality. It eventually agreed with the US that suitable alternatives in the meaning of Article XX existed. In particular, the panel singled out the US suggestion that the Chinese government take over all aspects of the content review mechanism, instead of assigning preliminary review functions to staff in government-owned import companies. "If the Chinese government had sole responsibility for content review, this would, in our view, ensure that no products with prohibited content are imported into China," the panel wrote. In addition the panel noted that "the US proposal would not result in any restriction of the right to import. It would thus not produce any of the adverse effects on imports which the restriction of the right to trade would produce."

The existence of at least one ‘reasonable, WTO-consistent alternative' brought the panel to conclude that China's current import restrictions could not be justified under GATT Article XX(a).

Extent of Article XX Application Still Unclear

Since the panel had found that the measures found inconsistent did not violate just GATT provisions but also the Chinese Accession Protocol, it faced the highly disputed question of whether Article XX is applicable to agreements other than GATT. However, by following the Appellate Body's decision in US-Customs Bond Directive to "examine first, on an arguendo basis, whether the measure at issue was justified under Article XX before turning to the question of whether Article XX was applicable" (para 7.740), the panel escaped a ruling on the controversial issue, leaving it once more unanswered.

China Likely to Appeal

Chinse Ministry of Commerce spokesperson said on 17 August that China was preparing the ‘necessary documents' and was not ‘ruling out the possibility of an appeal'. He added that the country needed to protect its market for cultural products since the competitiveness of the domestic industry was ‘still pretty weak'.

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