USA Today / AP
August 12, 2009

GENEVA (AP) — The United States has defeated China in a wide-ranging ruling at the World Trade Organization that could provide massive market opportunities for American makers of everything from CDs and DVDs to music downloads and books.
The verdict Wednesday finds definitively against China for forcing American media producers to route their business in China through Chinese state-owned companies. It could also set a larger precedent for others such as U.S. automakers claiming to be hampered by cumbersome distribution rules in the communist country.

The WTO victory comes as President Obama is being pressed to be tough on trade rules with China, which many Democrats in the U.S. Congress blame for America’s soaring trade deficits and lost manufacturing jobs.

The Associated Press reported the main findings of the then-confidential ruling last month, but the public release of the 464-page document on Wednesday revealed dozens of smaller decisions that support the complaints of trade associations representing record labels such as EMI and Sony BMG; publishers including McGraw Hill and Simon & Schuster; and, to a lesser extent, the major Hollywood studios of Warner Bros., Disney, Paramount, Universal and 20th Century Fox.

It also offers hopes of greater business for Apple Inc.’s iTunes store, finding that China was breaking trade rules by preventing companies offering music downloads to computers and mobile phones from offering their services directly to Chinese customers.

The ruling stopped short of a complete U.S. victory as the three-member panel delivered mixed findings on Chinese censorship rules that apply to American-made goods, but not to Chinese products. It also permitted China to make U.S. films go through one of two designated distributors to be shown in Chinese cinemas, a requirement not required of Chinese movies.

The Chinese Commerce Ministry could not immediately be reached, but U.S. Trade Representative Ron Kirk called the ruling a "significant victory to America’s creative industries."

"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," Kirk said in a statement. "We will work tirelessly so that American companies and workers can fully realize the market opening benefits that this decision signals."

The panel found that "China has acted inconsistently with provisions" of the agreement it made with all WTO members when it joined the global trade body in 2001, as well as the General Agreement on Trade in Services and General Agreement on Tariffs and Trade that governs trade between all WTO members.

It instructed Beijing to "bring the relevant measures into conformity with its obligations under those agreements."

Despite the looming WTO decision, there has been no indications in China of an internal debate on the issue of relaxing restrictions on imports. This is an extremely sensitive issued for the ruling Communist Party, which seeks to keep out content deemed politically or socially objectionable, as well as to protect Chinese filmmakers and other content producers from foreign competition.

However, China has committed itself to the WTO process, so there’s little chance that a verdict can be completely ignored. One possible outcome is that the government will come up with a compromise, perhaps setting up new regulations and procedures for vetting and approving cultural imports that would allow a marginally wider opening of the market.

That may not be enough for American record labels, film studios and publishers, who could ask the Office of the U.S. Trade Representative to pressure China into full compliance by threatening retaliatory trade sanctions. The WTO can authorize higher tariffs and other measures against countries failing to adhere to the rules, but generally only after years of litigation.

China can appeal the ruling, but officials at the country’s WTO mission in Geneva declined to comment.