WORLD TRADE  
ORGANIZATION  WT/DS363/R 
12 August 2009 
 (09-3798) 
 Original:   English 
  
 
     
CHINA – MEASURES AFFECTING TRADING RIGHTS 
AND DISTRIBUTION SERVICES FOR CERTAIN 
PUBLICATIONS AND AUDIOVISUAL  
ENTERTAINMENT PRODUCTS  
 
 
Report of the Panel   
 
 
  WT/DS363/R 
 Page i 
 
 
 
 TABLE OF CONTENTS 
Page  
I. INTRODUCTION ................................................................................................................... .1 
II. FACTUAL ASPECTS ..............................................................................................................2  
A. MEASURES AT ISSUE ...................................................................................................................2  
B. TRANSLATION OF CHINA 'S MEASURES ........................................................................................4  
III. PARTIES' REQUESTS FOR FIND INGS AND RECOMMENDATIONS.........................4  
IV. ARGUMENTS OF THE PARTIES ........................................................................................5  
A. FIRST WRITTEN SUBMISSION OF THE UNITED STATES ................................................................6  
1. Introduction................................................................................................................... ............6  
2. Factual background............................................................................................................. .....6 
(a) China's measures addressi ng trading rights ................................................................................6  
(b) China's measures addr essing distribution ...................................................................................8  
(c) China's treatment of imported produc ts compared to domestic products ...................................9  
3. China's measures regarding trading rights are inconsistent with China's 
obligations under the Accession Protocol and the Working Party Report........................10  
4. China's measures regarding distribution services are inconsistent with China's 
obligations under the GATS ..................................................................................................13  
5. China's measures regarding product distribution are inconsistent with China's obligations under Article III:4 of the GATT 1994...............................................................16
 
6. China's measures regarding product distribution are inconsistent with China's 
obligations under the Accession Protocol .............................................................................18  
7. Conclusion ..................................................................................................................... ..........18  
B. FIRST WRITTEN SUBMISSION OF CHINA ....................................................................................18  
1. Introduction................................................................................................................... ..........18  
2. Trading rights ................................................................................................................. ........19  
(a) Motion pictures for theatrical release........................................................................................1 9 
(b) Audiovisual products used for publication ...............................................................................20  
(c) Reading materials and audiovisual pr oducts, including sound recordings ...............................21  
3. Distribution services .......................................................................................................... .....22  
(a) Reading materials .............................................................................................................. .......23  
(i) Alleged discriminatory prohibitions .........................................................................................23  
(ii) Alleged discriminatory requirements........................................................................................24  
(b) Audiovisual products ........................................................................................................... .....25  
(i) The US claim under Article XVI of the GATS...........................................................................25  
(ii) The US claims under Artic le XVII of the GATS ........................................................................25  
(c) Sound recordings ............................................................................................................... .......26  WT/DS363/R 
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 4.
 Product distribution........................................................................................................... .....28  
(a) Reading materials .............................................................................................................. .......28  
(b) Sound recordings ............................................................................................................... .......29  
(c) Motion pictures for theatrical release........................................................................................3 0 
5. Conclusion ..................................................................................................................... ..........31  
C. ORAL STATEMENT OF THE UNITED STATES AT THE FIRST SUBSTANTIVE MEETING OF 
THE PANEL ............................................................................................................................... .31 
1. Introduction................................................................................................................... ..........31  
2. Trading rights: films for theatrical release, unfinished AVHE products and 
unfinished sound recordings are goods subject to China's trading rights 
commitments .................................................................................................................... .......32  
3. Trading rights:  China's measures are inconsistent with its trading rights 
commitments and are not justified under any exceptions...................................................33  
4. Trade in services:  China's measures pr ohibiting foreign-invested enterprises 
from engaging in master distribution, master wholesale and wholesale of reading 
materials are inconsistent with  Article XVII of the GATS .................................................34  
5. Trade in services:  China's services commitments cover the electronic 
distribution of sound recordings............................................................................................34  
6. Trade in goods:  China's measures regarding the distribution of hard-copy sound recordings intended for electronic distribution are inconsistent with 
Article III:4 of the GATT 1994..............................................................................................36
 
7. China's measures are properly before the Pa nel and are within the Panel's terms 
of ref erence ................................................................................................................... ...........36  
D. ORAL STATEMENT OF CHINA AT THE FIRST SUBSTANTIVE MEETING OF THE PANEL ................38  
1. Introduction................................................................................................................... ..........38  
2. Products/service at issue and applicable rules .....................................................................38  
(a) The importation of motion pictures for theatrical release.........................................................38  
(b) The distribution of motion pictures for theatrical release .........................................................39  
(c) Audiovisual products used for publication ...............................................................................39  
(d) Network music services ......................................................................................................... ...40 
(e) Distribution of sound recordings intended for so-called "electronic distribution" ...................41  
3. China's right to regulate trade in cultural goods.................................................................41  
4. Understanding of the Chinese legislatio n and regulatory framework applicable 
to cultural goods and services ................................................................................................4 2 
(a) No less favourable treatment for the distri bution of imported reading materials under 
Article III:4 of the GATT 1994 ................................................................................................4 2 
(b) Distribution services of reading materials under Article XVII of the GATS ...........................42  
(c) No market access issue or less favourable treat ment for the distribution of audiovisual 
products....................................................................................................................... ..............43   WT/DS363/R 
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 5. Conclusion ..................................................................................................................... ..........43  
E. SECOND WRITTEN SUBMISSION OF THE UNITED STATES ..........................................................43  
1. Introduction................................................................................................................... ..........43  
2. China's measures regarding trading rights are inconsistent with China's 
obligations under the Accession Protocol and Working Party Report ..............................44  
(a) Goods versus  services.......................................................................................................... .....44  
(b) China's measures are not justified under its right to regulate trade in a manner 
consistent with the WTO Agreement or  Article XX(a) of the GATT 1994 .............................46  
3. China's measures regarding distribution services are inconsistent with China's 
obligations under the GATS ..................................................................................................47  
(a) Reading materials .............................................................................................................. .......48  
(i) Discriminatory prohibitions.................................................................................................... ..48 
(ii) Discriminatory requirements.................................................................................................... 49 
(b) AVHE products.................................................................................................................. .......50  
(i) Article XVI .................................................................................................................... ............50  
(ii) Article XVII ................................................................................................................... ............51  
(c) Sound recordings ............................................................................................................... .......52  
4. China's measures regarding the internal  sale, offering for sale, purchase, 
distribution and use of products are inconsistent with China's obligations under Article III:4 of the GATT 1994..............................................................................................53
 
(a) Reading materials .............................................................................................................. .......53  
(b) Sound recordings ............................................................................................................... .......54  
(c) Films for theatrical release................................................................................................... .....55  
5. China's measures regarding the internal  sale, offering for sale, purchase, 
distribution and use of products are inconsistent with China's obligations under the Accession Protocol ......................................................................................................... ...56
 
6. The Panel's terms of reference...............................................................................................56  
7. Conclusion ..................................................................................................................... ..........57  
F. SECOND WRITTEN SUBMISSION OF CHINA ................................................................................57  
1. Introduction................................................................................................................... ..........57  
2. Terms of reference ............................................................................................................. .....58  
3. Trading rights ................................................................................................................. ........59  
(a) Motion pictures for theatrical release........................................................................................5 9 
(i) The United States should not be permitted to change the subject of its claim..........................59  
(ii) The Chinese measures should only be scru tinized under the GATS, not under WTO 
disciplines on goods........................................................................................................... .......60  
(b) Reading materials and audiovisual pr oducts, including sound recordings ...............................61  
(i) China's right to invoke Article XX of the GATT to justify limitations on trading rights...........61  WT/DS363/R 
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 (ii)
 The Chinese measures meet the requirements of Article XX of the GATT................................63  
4. Distribution services .......................................................................................................... .....65  
(a) The United States has put forward contradict ory definitions and aims to broaden the 
scope of the present dispute ................................................................................................... ...65 
(b) The scope of "sound recordings distribution services" in China's GATS schedule is 
limited to the distribution of sound recordings in physical form..............................................66  
(c) Network music services are distinct from the distribution of sound recordings in 
physical form .................................................................................................................. ..........66  
(i) Operational characteristics .................................................................................................... ..67 
(ii) End-uses and consumers' perceptions ......................................................................................67  
(iii) International classifications.................................................................................................. ....68  
5. Product distribution........................................................................................................... .....68  
(a) Sound recordings ............................................................................................................... .......68  
(b) Motion pictures for theatrical release........................................................................................6 9 
6. Conclusion ..................................................................................................................... ..........70  
G. ORAL STATEMENT OF THE UNITED STATES AT THE SECOND SUBSTANTIVE MEETING 
OF THE PANEL ...........................................................................................................................70  
1. Introduction................................................................................................................... ..........70  
2. Trading rights:  films for theatrical release, unfinished AVHE products and 
unfinished sound recordings are goods subject to China's trading rights commitments .................................................................................................................... .......70
 
3. Trading rights:  China's measures regarding reading materials, finished AVHE 
products and finished sound recordings are not justified under its right to 
regulate trade in a manner consistent wi th the WTO Agreement or Article XX of 
the GATT 1994.................................................................................................................. ......71  
4. Trade in services:  China's services commi tments cover the master distribution 
of reading materials ........................................................................................................... .....73  
5. Trade in services:  China's services commitments cover the electronic 
distribution of sound recordings............................................................................................73  
6. Trade in goods:  China's measures regarding  the internal sale, offering for sale, 
purchase, distribution and use of the products are inconsistent with Article III:4 of the GATT 1994............................................................................................................... .....75
 
(a) Sound recordings intended for electronic distribution..............................................................75  
(b) Films for theatrical release................................................................................................... .....76  
7. China has not sustained its claim under Article 6.2 of the DSU with respect to 
the Panel's terms of reference................................................................................................7 6 
(a) China's Film Distribution and Exhibition Rule , 2001 Audiovisual Products 
Regulation and the Audiovisual Products Importation Rule are within the Panel's 
terms of reference ............................................................................................................. ........76  
(b) China's discriminatory requirements and different distribution opportunities are 
within the Panel's terms of reference ........................................................................................77   WT/DS363/R 
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 8. Translation .................................................................................................................... ..........77  
H. ORAL STATEMENT OF CHINA AT THE SECOND SUBSTANTIVE MEETING OF THE PANEL ............77  
1. Introduction................................................................................................................... ..........77  
2. Terms of reference ............................................................................................................. .....78  
3. Trading rights ................................................................................................................. ........79  
(a) Motion pictures for theatrical release........................................................................................7 9 
(b) China is entitled to put in place a system a llowing it to review the content of imported 
cultural products .............................................................................................................. .........80  
4. Distribution services .......................................................................................................... .....81  
(a) Zong Pi Fa  no longer exists......................................................................................................81  
(b) Alleged discriminatory requirements........................................................................................81  
(c) Network music services are not covered by  China's commitments under the GATS...............81  
5. Product distribution under Article III:4 of the GATT 1994...............................................82  
(a) Reading materials .............................................................................................................. .......82  
(i) Newspapers, periodicals, books and electr onic publications in the "restricted 
category"...................................................................................................................... .............82  
(ii) Newspapers and periodicals in th e unrestricted category........................................................83  
(b) Sound recordings intended for electronic distribution..............................................................83  
(c) Motion pictures for theatrical release........................................................................................8 3 
6. Conclusion ..................................................................................................................... ..........84  
V. ARGUMENTS OF THE THIRD PARTIES ........................................................................84  
A. AUSTRALIA ............................................................................................................................... 84 
1. Introduction................................................................................................................... ..........84  
2. "Films for theatrical release" and "unfinished audiovisual products".............................84  
3. "China's right to regulate trade in a manner consistent with the WTO 
Agreement" vis-à-vis "the right to trade"............................................................................85  
4. The applicability and scope of the "public morals" exception of Article XX of the GATT....................................................................................................................... ..........85
 
5. China's GATS obligations......................................................................................................8 6 
6. Article III:4 of  the GATT...................................................................................................... .88 
B. EUROPEAN COMMUNITIES ........................................................................................................88  
1. Introduction................................................................................................................... ..........88  
2. Trading rights and China's WTO Accession protocol ........................................................88  
3. China's commitments in the distribution sector under the GATS and its schedule 
of specific commitments ........................................................................................................ .89 
4. "Technological neutrality" under the GATS and the reading of China's 
Schedule of Specific Commitments  on Audiovisual Services..............................................89  WT/DS363/R 
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 5.
 The classification on "videos, including  entertainment software and distribution 
services"...................................................................................................................... .............90  
6. Applicability of Article III.4 of the GATT 1994 to services ................................................90  
C. JAPAN ............................................................................................................................... .........90  
1. Article III:4 of the GATT 1994 is applicable to the measures challenged by the 
United States.................................................................................................................. ..........90  
2. It is unclear whether China has demonstrated that its restrictions on trading 
rights are "necessary to protect public morals" ..................................................................91  
3. Commitments on "sound recording di stribution services" include the 
distribution of digital recordings over the Internet .............................................................92  
D. REPUBLIC OF KOREA .................................................................................................................93  
1. Introduction................................................................................................................... ..........93  
2. Legal arguments................................................................................................................ ......93  
(a) The challenged measures at issue seem to affect both trade in goods and trade in 
services, and thus could be cove red by both GATT and GATS ...............................................93  
(b) The measures appear to constitute a viol ation of national treatment as provided in 
Article III of the GATT and it is not enti rely clear whether the measures can be 
justified under  Article XX of the GATT..................................................................................94  
(c) China's argument based on UNESCO Cultural Diversity Convention and its various 
domestic legislation is misplaced.............................................................................................. 94 
(d) The challenged measure constitutes a violation of Article XVII of the GATS ........................94  
VI. INTERIM REVIEW...............................................................................................................95  
A. BACKGROUND ...........................................................................................................................95  
B. PARTIES ' REQUESTS FOR CHANGES TO THE INTERIM REPORT ...................................................95  
1. Terms of reference ............................................................................................................. .....95  
(a) Comments by the United States................................................................................................95  
(b) Comments by China.............................................................................................................. ....97  
2. US claims regarding China's trading rights commitments.................................................99  
(a) Comments by the United States................................................................................................99  
(b) Comments by China.............................................................................................................. ..110  
3. Claims under the GATS .......................................................................................................116  
(a) Comments by the United States..............................................................................................116  
(b) Comments by China.............................................................................................................. ..117  
4. Claims under Article III:4 of the GATT 1994....................................................................118  
(a) Comments by the United States..............................................................................................118  
(i) Reading materials .............................................................................................................. .....118  
(ii) Sound recordings ............................................................................................................... .....119  
(iii) Films for theatrical release................................................................................................... ..120   WT/DS363/R 
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 (b) Comments by China.............................................................................................................. ..121  
(i) Sound recordings ............................................................................................................... .....121  
(ii) Films for theatrical release................................................................................................... ..122  
5. Other changes to th e Interim Report ..................................................................................124  
VII. FINDINGS....................................................................................................................... ......124  
A. GENERAL ISSUES .....................................................................................................................124  
1. Burden of proof................................................................................................................ .....124  
2. Treaty interpretation.......................................................................................................... ..125  
B. PRELIMINARY ISSUES ..............................................................................................................126  
1. Article 6.2 of  the DSU ......................................................................................................... ..126  
(a) Identify the specific me asure at issue .....................................................................................127  
(b) Provide a brief summary of the le gal basis of the complaint..................................................128  
(c) Sufficient to present th e problem clearly ................................................................................128  
(d) Relationship between the panel request a nd the Panel's terms of reference ...........................129  
2. Measures China alleges are outside the Panel's terms of reference .................................130  
(a) Whether the Film Distribution and Exhibition Rule  is within the Panel's terms of 
reference...................................................................................................................... ............131  
(i) The narrative.................................................................................................................. .........132  
(ii) Adequate notice................................................................................................................ .......134  
(b) Whether the 2001 Audiovisual Products Regulation  and the Audiovisual Products 
Importation Rule  are within the Panel's terms of reference ....................................................136  
(i) The narrative.................................................................................................................. .........136  
(ii) Adequate notice................................................................................................................ .......139  
3. Certain requirements China alleges are ou tside the Panel's terms of reference.............141  
(a) Distribution services for reading materials .............................................................................144  
(b) Distribution services for AVHE products...............................................................................144  
(c) Conclusion ..................................................................................................................... .........145  
4. The US claim with respect to reading  materials under Article III:4 of the 
GATT 1994 ...................................................................................................................... ......145  
(a) The lack of consultations ...................................................................................................... ..145  
(b) Electronic publications........................................................................................................ ....151  
(c) Subscription requirements ...................................................................................................... 154 
5. 'Measures' China argues the Pa nel should not examine ...................................................156  
(a) The Several Opinions ..............................................................................................................158  
(b) The Importation Procedure  and the Sub-Distribution Procedure ..........................................161  
(i) Importation Procedure.......................................................................................................... ..162  WT/DS363/R 
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 (ii)
 Sub-Distribution Procedure....................................................................................................1 64 
6. Summary of conclusions.......................................................................................................16 6 
C. US CLAIMS  REGARDING  CHINA'S  TRADING  RIGHTS  COMMITMENTS ..................167  
1. US claims of violation of China's Accession Protocol........................................................167  
(a) Paragraphs 1.2, 5.1 and 5.2 of the Accession Protocol...........................................................168  
(i) Paragraph 5.1 of th e Accession Protocol ...............................................................................169  
(ii) Paragraph 5.2 of th e Accession Protocol ...............................................................................181  
(iii) Paragraph 83(d) of the Working Party Report.......................................................................187  
(iv) Paragraph 84(a) of the Working Party Report.......................................................................188  
(v) Paragraph 84(b) of the Working Party Report.......................................................................189  
(b) Consistency of the challenged Chinese meas ures with the cited paragraphs of the 
Accession Protocol............................................................................................................. .....191  
(i) Catalogue...................................................................................................................... ..........193  
Paragraphs 5.1, 83(d) an d 84( a) ................................................................................................ ............ 196  
Paragraphs 5.2 and 84(b)....................................................................................................... ................ 198  
(ii) Foreign Investment Regulation...............................................................................................198  
(iii) Several Opinions............................................................................................................... ......199  
Paragraphs 5.1, 83(d) an d 84( a) ................................................................................................ ............ 201  
Paragraphs 5.2 and 84(b)....................................................................................................... ................ 202  
(iv) Publications Regulation........................................................................................................ ..202  
Article  43..................................................................................................................... .......................... 204  
Article  42..................................................................................................................... .......................... 205  
Article  41..................................................................................................................... .......................... 214  
(v) Importation Procedure.......................................................................................................... ..215  
(vi) 1997 Electronic Publications Regulation ...............................................................................216  
Article 8...................................................................................................................... ........................... 219  
Articles 50-51................................................................................................................. ....................... 220  
Articles 52-55................................................................................................................. ....................... 223  
(vii) Film Regulation ................................................................................................................ ......225  
Appli cability .................................................................................................................. ........................ 234  
Consistency .................................................................................................................... ....................... 242  
(viii) Film Enterprise Rule........................................................................................................... ....245  
Appli cability .................................................................................................................. ........................ 246  
Consistency .................................................................................................................... ....................... 246  
(ix) Film Distribution and Exhibition Rule ...................................................................................250  
(x) 2001 Audiovisual Produc ts Regulation...................................................................................250   WT/DS363/R 
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 Article  27..................................................................................................................... .......................... 254  
Article 5...................................................................................................................... ........................... 255  
Article  28..................................................................................................................... .......................... 260  
(xi) Audiovisual Products Importation Rule..................................................................................260  
Article 7...................................................................................................................... ........................... 262  
Article 8...................................................................................................................... ........................... 264  
Article 9...................................................................................................................... ........................... 265  
Article  10..................................................................................................................... .......................... 266  
(xii) Audiovisual (Sub-) Distribution Rule......................................................................................266  
Paragraphs 5.1, 83(d) an d 84( a) ................................................................................................ ............ 267  
Paragraphs 5.2 and 84(b)....................................................................................................... ................ 267  
(xiii) Summary of conclusions ......................................................................................................... 267 
Catalogue  (Articles X.2-X.3) and Foreign Investment Regulation  (Articles 3-4) ................................ 267  
Several Opinions  (Article 4).................................................................................................................. 2 68 
Publications Regulation  (Articles 41-43).............................................................................................. 268  
Importation Procedure  (paragraphs 2 and 8) ........................................................................................ 268  
1997 Electronic Publications Regulation  (Articles 8 an d 50-55).......................................................... 269  
Film Regulation  (Articles 5 and 30) ...................................................................................................... 269  
Film Enterprise Rule  (Articles 3 and 16) .............................................................................................. 269  
Film Distribution and Exhibition Rule  (Article II)................................................................................ 270  
2001 Audiovisual Products Regulation  (Articles 5, 27-28)................................................................... 270  
Audiovisual Products Importation Rule  (Articles 7-10)........................................................................ 270  
Audiovisual (Sub-) Distribution Rule  (Article 21) ................................................................................ 270  
2. China's defence based on the "right to regulate trade" and Article XX(a) of the 
GATT 1994 ...................................................................................................................... ......271  
(a) Measures claimed to be jus tified by Arti cle XX(a) ................................................................274  
(b) Applicability of Article XX(a)................................................................................................2 76 
(c) Application of Article XX(a) to China's measures .................................................................278  
(i) Provisional justification of the measu res at issue under sub-paragraph (a) of 
Article XX..................................................................................................................... ...........278  
Link between import entities, content review  and the protection of  public mo rals............................... 278  
"Necessity" of the measures at issu e to protect pub lic morals............................................................... 284  
(ii) Compliance with the requirements of the chapeau of Article XX ...........................................309  
(d) Conclusion ..................................................................................................................... .........309  
3. Overall conclusions ............................................................................................................ ...310  
D. CLAIMS UNDER THE GATS .....................................................................................................310  
1. Distribution of reading materials:  claims under Article XVII of the GATS..................311  WT/DS363/R 
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 (a)
 Prohibitions on foreign-invested enterprises...........................................................................313  
(i) Prohibition on the wholesale of  imported reading materials .................................................313  
Whether China has undertaken national treatment commitments with respect to the wholesale 
of imported reading materials throug h commercial presence (mode 3) ................................................ 314  
Whether the measures at issue are inconsistent  with China's national treatment commitments 
under Article XVII of the GATS................................................................................................. .......... 318  
Conclusion..................................................................................................................... ........................ 326  
(ii) Prohibition on the "master distribution" (Zong Fa Xing) of books, newspapers and 
periodicals .................................................................................................................... ..........326  
Claim with respect to w holesale trad e services ................................................................................. .... 326  
Claim with respect to retail services.......................................................................................... ............ 333  
(iii) Prohibition on the "master wholesale" (Zong Pi Fa) and wholesale of electronic 
publications................................................................................................................... ..........336  
Preliminar y matte r............................................................................................................. .................... 337  
Whether China's commitments on wholesale tr ade services cover master wholesale and 
wholesale of elect ronic publi cations ........................................................................................... .......... 337  
Whether the measures at issue are inconsistent  with China's national treatment commitments 
under Article XVII of the GATS................................................................................................. .......... 338  
Conclusion..................................................................................................................... ........................ 344  
(b) Discriminatory requirements applying to  foreign-invested enterprises ..................................344  
(i) Registered capital requirement...............................................................................................34 5 
(ii) Operating term requirement ...................................................................................................34 8 
(iii) Conclusion ..................................................................................................................... .........352  
2. Distribution of sound recordings in electronic form: claims under Article XVII 
of the GATS.................................................................................................................... .......352  
(a) Whether China has undertaken GATS commitments for the distribution of sound 
recordings in electronic form .................................................................................................. 353 
(i) Services at issue .............................................................................................................. ........353  
(ii) Sectoral scope of "sound recording distribution services".....................................................354  
(iii) Interpretation of GATS Schedules ..........................................................................................357  
Ordinary meaning............................................................................................................... ................... 358  
Context ........................................................................................................................ .......................... 360  
Object an d purpos e............................................................................................................. ................... 368  
Preliminary conclusion......................................................................................................... ................. 368  
Supplementary means of interpretation.......................................................................................... ....... 369  
Other arguments – "techn ological neutrality" and "r elevant fact ors".................................................... 376  
Conclusion..................................................................................................................... ........................ 379  
(b) Whether the measures at issue are incons istent with China's national treatment 
commitments (Article XVII)...................................................................................................37 9  WT/DS363/R 
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 (i) Requirements of Article XVII..................................................................................................3 80 
Whether the services at issue are within the sc ope of services listed in China's Schedule.................... 380  
Whether the measures at issue are "affecting" trade in services............................................................ 380  
Extent of China's national treatment commitmen t for "sound recording distribution services" 
supplied through comm ercial presence ........................................................................................... ...... 381  
Interpretative issues on the trea tment of like serv ice suppliers ............................................................. 38 2 
(ii) Measures at issue.............................................................................................................. ......383  
Coverage of electronic distribution ot her than through the Internet...................................................... 383  
Specific m easures.............................................................................................................. .................... 385  
(c) Conclusion ..................................................................................................................... .........387  
3. Distribution of AVHE products in physical form:  claims under Articles XVI 
and XVII of the GATS..........................................................................................................3 87 
(a) Whether China has undertaken GATS commi tments for the distribution of AVHE 
products in phy sical form...................................................................................................... ..388  
(i) Services at issue .............................................................................................................. ........388  
Sectoral scope of China's entry on "Video s, including entertainment software and 
(CPC 83202), distri bution serv ices"............................................................................................ .......... 388  
Ordinary meaning............................................................................................................... ................... 390  
Preliminary view based on ordinary meaning ..................................................................................... .. 392 
Context ........................................................................................................................ .......................... 392  
Object an d purpos e............................................................................................................. ................... 394  
(ii) Conclusion ..................................................................................................................... .........395  
(b) Whether the measures at issue are inco nsistent with China's market access 
commitments (Article XVI)....................................................................................................39 5 
(i) Requirements of Article XVI:2(f) ............................................................................................395  
Extent of China's commitments on market  access for the servi ces at issue........................................... 396  
(ii) The measures at issue .......................................................................................................... ...397  
Audiovisual (Sub-)Distribu tion Rule (Ar ticle 8.4).............................................................................. .. 397 
Catalogue  (Article VI:3) and Foreign Invest ment Regulation (A rticle 8) ............................................ 401  
Several Opinions  (Article 1).................................................................................................................. 4 03 
(iii) Conclusion ..................................................................................................................... .........404  
(c) Whether the measures at issue are incons istent with China's national treatment 
commitments (Article XVII)...................................................................................................40 4 
(i) Requirements of Article XVII..................................................................................................4 05 
Whether the services at issue are within the sc ope of services listed in China's Schedule.................... 405  
Whether the measures at issue are "affecting" trade in services............................................................ 405  
Extent of China's commitments on national treatment for the serv ices at issue.................................... 405  
(ii) Measures at issue.............................................................................................................. ......406  WT/DS363/R 
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 Measures limiting foreign equity par ticipation ................................................................................. .... 406  
Measures requiring an operating term........................................................................................... ........ 408  
(iii) Conclusion ..................................................................................................................... .........409  
4. Summary of conclusions.......................................................................................................40 9 
(a) Distribution of reading materials ............................................................................................40 9 
(b) Electronic distribution of sound recordings............................................................................410  
(c) Distribution of AVHE products..............................................................................................410  
E. US CLAIMS UNDER ARTICLE  III:4 OF THE GATT  1994 ...........................................................411  
1. Article III:4 of the GATT 1994............................................................................................411  
(a) Like products .................................................................................................................. ........412  
(b) "[L]aws, regulations, or requirem ents affecting ... distribution".............................................413  
(i) Laws, regulations, or requirements ........................................................................................413  
(ii) "[A]ffecting".................................................................................................................. ..........413  
(iii) Distribution................................................................................................................... ..........413  
(c) Less favourable treatment ...................................................................................................... .416 
2. Reading materials .............................................................................................................. ...418  
(a) Like products .................................................................................................................. ........418  
(i) Traditional analysis ........................................................................................................... .....418  
(ii) The Imported Publications Subscription Rule ........................................................................419  
(iii) Publications (Sub-)Distribution Rule .....................................................................................422  
(b) Laws, regulations, or requirements affecting  ... distribution...................................................424  
(i) Laws, regulations, or requirements ........................................................................................424  
(ii) Affecting ... distribution ..................................................................................................... .....425  
(c) Less favourable treatment ...................................................................................................... .426 
(i) Imported Publications Subscription Rule ...............................................................................427  
(ii) Publications (Sub-)Distribution Rule .....................................................................................429  
3. Sound recordings ............................................................................................................... ...430  
(a) Like products .................................................................................................................. ........431  
(i) Traditional analysis ........................................................................................................... .....432  
(ii) Internet Culture Rule .......................................................................................................... ....432  
(iii) Network Music Opinions......................................................................................................... 434 
(b) Laws, regulations, or requirements affecting  ... distribution...................................................437  
(i) Laws, regulations or requirements .........................................................................................437  
(ii) Affecting ..................................................................................................................... ............438  
Is "use" within the Pane l's terms of reference?................................................................................ ...... 440   WT/DS363/R 
 Page xiii 
 
 
 
 Distribu tion ................................................................................................................... ........................ 442  
4. Films for theatrical release................................................................................................... 451 
(a) What creates the "duopoly" for the dist ribution of imported films for theatrical 
release?....................................................................................................................... .............451  
(i) Do China's rules and regulations create  a de jure distribution duopoly?..............................454  
(ii) Do China's rules and regulations create a de facto distribution duopoly? ............................457  
5. Summary of conclusions.......................................................................................................45 8 
(a) Reading materials .............................................................................................................. .....458  
(b) Sound recordings ............................................................................................................... .....458  
(c) Films for theatrical release................................................................................................... ...458  
F. THE US CLAIM ON PARAGRAPHS 5.1 AND 1.2 OF THE ACCESSION PROTOCOL .......................459  
1. Whether China's measures are inconsistent  with paragraphs 5.1 and 1.2 of the 
Accession Protocol ............................................................................................................. ...459  
2. Summary of conclusions.......................................................................................................46 0 
VIII.  CONCLUSIONS AND RECOMMENDATIONS..............................................................461  
1. China's terms of ref erence objections .................................................................................461  
2. China's commitments on trading righ ts in its Accession Protocol ...................................462  
3. China's national treatment and market  access commitments under the GATS.............466  
4. China's national treatment obligations under Article III:4 of the GATT 1994 ..............468  
5. China's national treatment commitments under paragraphs 5.1 and 1.2 of the 
Accession Protocol ............................................................................................................. ...469  
6. Nullification and impairment...............................................................................................469  
7. Recommendations................................................................................................................ .469 
 WT/DS363/R 
Page xiv  
 
 
 ANNEX A 
 
CONTENTS PAGE 
Annex A-1 Translation Differences in  the Report – Summary Table  A-2 
Annex A-2 Short Title of Measures A-4 
 
  WT/DS363/R 
 Page xv 
 
 
 
 TABLE OF WTO CASES CITED IN THIS REPORT 
 
Short Title Full case title and citation 
Argentina – Footwear (EC) 
 Panel Report, Argentina – Safeguard Measures on Imports of Footwear , 
WT/DS121/R, adopted 12 January 2000, as modified by Appellate Body Report 
WT/DS121/AB/R, DSR 2000:II, 575 
Argentina – Hides and 
Leather Panel Report, Argentina – Measures Affecting the Export of Bovine Hides and 
Import of Finished Leather , WT/DS155/R and Corr.1, adopted 16 February 
2001, DSR 2001:V, 1779  
Brazil – Aircraft Appellate Body Report, Brazil – Export Financing Programme for Aircraft , 
WT/DS46/AB/R, adopted 20 August 1999, DSR 1999:III, 1161 
Brazil – Desiccated Coconut Appellate Body Report, Brazil – Measures Affecting Desiccated Coconut , 
WT/DS22/AB/R, adopted 20 March 1997, DSR 1997:I, 167  
Brazil – Retreaded Tyres  Appellate Body Report, Brazil – Measures Affecting Imports of Retreaded Tyres , 
WT/DS332/AB/R, adopted 17 December 2007 
Brazil – Retreaded Tyres Panel Report, Brazil – Measures Affecting Imports of Retreaded Tyres , 
WT/DS332/R, adopted 17 December 2007, as modified by Appellate Body Report WT/DS332/AB/R 
Canada – Autos  Appellate Body Report, Canada – Certain Measures Affecting the Automotive 
Industry , WT/DS139/AB/R, WT/DS142/AB/R, adopted 19 June 2000, 
DSR 2000:VI, 2985.  
Canada – Autos Panel Report, Canada – Certain Measures Affecting the Automotive Industry , 
WT/DS139/R, WT/DS142/R, adopted 19 June 2000, as modified by Appellate 
Body Report WT/DS139/AB/R, WT/DS142/AB/R, DSR 2000:VII, 3043 
Canada – Dairy (Article 21.5 
New Zealand and US II) Appellate Body Report, Canada – Measures Affecting the Importation of Milk 
and the Exportation of Dairy Products – Second Recourse to Article 21.5 of the 
DSU by New Zealand and the United States , WT/DS103/AB/RW2, 
WT/DS113/AB/RW2, adopted 17 January 2003, DSR 2003:I, 213 
Canada – FIRA  GATT Panel Report, Canada – Administration of the Foreign Investment 
Review Act , adopted 7 February 1984, BISD 30S/140. 
Canada – Periodicals Appellate Body Report, Canada – Certain Measures Concerning Periodicals , 
WT/DS31/AB/R, adopted 30 July 1997, DSR 1997:I, 449. 
Canada – Periodicals  Panel Report, Canada – Certain Measures Concerning Periodicals , WT/DS31/R 
and Corr.1, adopted 30 July 1997, as modified by Appellate Body Report, WT/DS31/AB/R, DSR 1997:I, 481 
Canada – Wheat Exports and 
Grain Imports  Panel Report, Canada – Measures Relating to Exports of Wheat and Treatment 
of Imported Grain , WT/DS276/R, adopted 27 September 2004, upheld by 
Appellate Body Report, WT/DS276/AB/R, DSR 2004:VI, 2817 
Chile – Price Band System Appellate Body Report, Chile – Price Band System and Safeguard Measures 
Relating to Certain Agricultural Products , WT/DS207/AB/R, adopted 
23 October 2002, DSR 2002:VIII, 3045 (Corr.1, DSR 2006:XII, 5473) 
China – Auto Parts  Appellate Body Reports, China – Measures Affecting Imports of Automobile 
Parts , WT/DS339/AB/R, WT/DS340/AB/R, WT/DS342/AB/R, adopted 
12 January 2009 
China  – Auto Parts  Panel Reports, China – Measures Affecting Imports of Automobile Parts , 
WT/DS339/R, WT/DS340/R, WT/DS342/R and Add.1 and Add.2, adopted 12 January 2009, as upheld (WT/DS339/R) , and as modified (WT/DS340/R, 
WT/DS342/R) by Appellate Body Reports WT/DS339/AB/R, WT/DS340/AB/R, 
WT/DS342/AB/R WT/DS363/R 
Page xvi  
 
 
 Short Title Full case title and citation 
China – Intellectual Property 
Rights Panel Report, China – Measures Affecting the Protection and Enforcement of 
Intellectual Property Rights , WT/DS362/R, adopted 20 March 2009 
Dominican Republic – 
Cigarettes  Appellate Body Report, Dominican Republic – Measures Affecting the 
Importation and Internal Sale of Cigarettes , WT/DS302/AB/R, adopted 
19 May 2005, DSR 2005:XV, 7367 
EC – Approval and Marketing 
of Biotech Products Panel Report, European Communities – Measures Affecting the Approval and 
Marketing of Biotech Products , WT/DS291/R, WT/DS292/R, WT/DS293/R, 
Add.1 to Add.9, and Corr.1, adopted 21 November 2006, DSR 2006:III-VIII 
EC – Asbestos  Appellate Body Report, European Communities – Measures Affecting Asbestos 
and Asbestos-Containing Products , WT/DS135/AB/R, adopted 5 April 2001, 
DSR 2001:VII, 3243 
EC – Bananas III Appellate Body Report, European Communities – Regime for the Importation, 
Sale and Distribution of Bananas , WT/DS27/AB/R, adopted 25 September 1997, 
DSR 1997:II, 591 
EC – Bananas III Panel Report, European Communities – Regime for the Importation, Sale and 
Distribution of Bananas, Complaint by the United States , WT/DS27/R/USA, 
adopted 25 September 1997, as modified by Appellate Body Report, 
WT/DS27/AB/R, DSR 1997:II, 943 
EC – Bananas III (Article 21.5 – Ecuador II) / 
EC – Bananas III  
(Article 21.5 – US)  Appellate Body Reports, European Communities – Regime for the Importation, 
Sale and Distribution of Bananas – Second Recourse to Article 21.5 of the DSU 
by Ecuador, WT/DS27/AB/RW2/ECU, adopted 11 December 2008, and Corr.1 / 
European Communities – Regime for the Importation, Sale and Distribution of Bananas – Recourse to Article 21.5 of the DSU by the United States, 
WT/DS27/AB/RW/USA and Corr.1, adopted 22 December 2008. 
EC – Chicken Cuts  Appellate Body Report, European  Communities – Customs Classification of 
Frozen Boneless Chicken Cuts , WT/DS269/AB/R, WT/DS286/AB/R, adopted 
27 September 2005, and Corr.1, DSR 2005:XIX, 9157 
EC  – Computer Equipment Appellate Body Report, European Communities – Customs Classification of 
Certain Computer Equipment , WT/DS62/AB/R, WT/DS67/AB/R, 
WT/DS68/AB/R, adopted 22 June 1998, DSR 1998:V, 1851 
EC – Hormones Appellate Body Report, EC Measures Concerning Meat and Meat Products 
(Hormones) , WT/DS26/AB/R, WT/DS48/AB/R, adopted 13 February 1998, 
DSR 1998:I, 135 
EC – Poultry Appellate Body Report, European Communities – Measures Affecting the 
Importation of Certain Poultry Products , WT/DS69/AB/R, adopted 23 July 
1998, DSR 1998:V, 2031 
EC – Trademarks and 
Geographical Indications (Australia) Panel Report,  European Communities – Protection of Trademarks and 
Geographical Indications for Agricultural Products and Foodstuffs, Complaint by Australia , WT/DS290/R, adopted 20 April 2005, DSR 2005:X, 4603 
EC – Trademarks and 
Geographical Indications 
(US) Panel Report,  European Communities – Protection of Trademarks and 
Geographical Indications for Agricultural Products and Foodstuffs, Complaint 
by the United States , WT/DS174/R, adopted 20 April 2005, DSR 2005:VIII, 
3499 
Egypt – Steel Rebar  Panel Report, Egypt – Definitive Anti-Dumping Measures on Steel Rebar from 
Turkey , WT/DS211/R, adopted 1 October 2002, DSR 2002:VII, 2667 
Guatemala – Cement I Appellate Body Report, Guatemala – Anti-Dumping Investigation Regarding 
Portland Cement from Mexico , WT/DS60/AB/R, adopted 25 November 1998, 
DSR 1998:IX, 3767  WT/DS363/R 
 Page xvii 
 
 
 
 Short Title Full case title and citation 
India – Additional Import 
Duties Panel Report, India – Additional and Extra-Add itional Duties on Imports from 
the United States , WT/DS360/R, adopted 17 November 2008, reversed by 
Appellate Body Report WT/DS360/AB/R 
India – Autos  Panel Report, India – Measures Affecting the Automotive Sector , WT/DS146/R, 
WT/DS175/R and Corr.1, adopted 5 April 2002, DSR 2002:V, 1827 
India – Patents (US) Appellate Body Report, India – Patent Protection for Pharmaceutical and 
Agricultural Chemical Products , WT/DS50/AB/R, adopted 16 January 1998, 
DSR 1998:I, 9 
Indonesia – Autos  Panel Report, Indonesia – Certain Measures Affecting the Automobile Industry , 
WT/DS54/R, WT/DS55/R, WT/DS59/R, WT/DS64/R and Corr.1 and 2, adopted 23 July 1998, and Corr. 3 and 4, DSR 1998:VI, 2201 
Italy – Agricultural 
Machinery GATT Panel Report, Italian Discrimination Against Imported Agricultural 
Machinery, adopted 23 October 1958, BISD 7S/60 
Japan – Agricultural 
Products II Appellate Body Report, Japan – Measures Affecting Agricultural Products , 
WT/DS76/AB/R, adopted 19 March 1999, DSR 1999:I, 277 
Japan  – Alcoholic Beverages II Appellate Body Report, Japan – Taxes on Alcoholic Beverages , WT/DS8/AB/R, 
WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996, DSR 1996:I, 97  
Japan  – Alcoholic 
Beverages II 
 Panel Report, Japan – Taxes on Alcoholic Beverages , WT/DS8/R, WT/DS10/R, 
WT/DS11/R, adopted 1 November 1996, as modified by Appellate Body Report 
WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, DSR 1996:I, 125 
Japan – Film Panel Report, Japan – Measures Affecting Consumer Photographic Film and 
Paper , WT/DS44/R, adopted 22 April 1998, DSR 1998:IV, 1179 
Korea  – Alcoholic Beverages  Panel Report, Korea – Taxes on Alcoholic Beverages , WT/DS75/R, 
WT/DS84/R, adopted 17 February 1999, as modified by Appellate Body Report 
WT/DS75/AB/R, WT/DS84/AB/R, DSR 1999:I, 44 
Korea – Various Measures on 
Beef  Appellate Body Report, Korea – Measures Affecting Imports of Fresh, Chilled 
and Frozen Beef , WT/DS161/AB/R, WT/DS169/AB/R, adopted 10 January 
2001, DSR 2001:I, 5 
Korea – Various Measures on Beef
  Panel Report, Korea – Measures Affecting Imports of Fresh, Chilled and Frozen 
Beef, WT/DS161/R, WT/DS169/R, adopted 10 January 2001, as modified by 
Appellate Body Report WT/DS161/AB/R, WT/DS169/AB/R, DSR 2001:I, 59 
Korea – Dairy Appellate Body Report, Korea – Definitive Safeguard Measure on Imports 
of Certain Dairy Products , WT/DS98/AB/R, adopted 12 January 2000, 
DSR 2000:I, 3 
Korea – Commercial Vessels Panel Report, Korea – Measures Affecting Trade in Commercial Vessels , 
WT/DS273/R, adopted 11 April 2005, DSR 2005:VII, 2749 
Mexico – Anti-Dumping 
Measures on Rice Appellate Body Report, Mexico – Definitive Anti-Du mping Measures on Beef 
and Rice, Complaint with Respect to Rice , WT/DS295/AB/R, adopted 
20 December 2005, DSR 2005:XXII, 10853 
Mexico – Anti-Dumping 
Measures on Rice Panel Report, Mexico – Definitive Anti-Dumping Measures on Beef and Rice, 
Complaint with Respect to Rice , WT/DS295/R, adopte d 20 December 2005, 
as modified by Appellate Body Repor t WT/DS295/AB/R, DSR 2005:XXIII, 
11007 
Mexico – Corn Syrup 
(Article 21.5 – US) Appellate Body Report, Mexico – Anti-Dumping Investigation of High Fructose 
Corn Syrup (HFCS) from the United States – Recourse to Article 21.5 of the 
DSU  by the United States , WT/DS132/AB/RW, adopted 21 November 2001, 
DSR 2001:XIII, 6675 WT/DS363/R 
Page xviii  
 
 
 Short Title Full case title and citation 
Mexico – Taxes on Soft 
Drinks Panel Report, Mexico – Tax Measures on Soft Drinks and Other Beverages , 
WT/DS308/R, adopted 24 March 2006, as modified by Appellate Body Report WT/DS308/AB/R, DSR 2006:I, 43 
Thailand – H-Beams Appellate Body Report, Thailand – Anti-Dumping Duties on Angles, Shapes and 
Sections of Iron or Non-Alloy Steel and H-Beams from Poland , 
WT/DS122/AB/R, adopted 5 April 2001, DSR 2001:VII, 2701 
US – Carbon Steel Appellate Body Report, United States – Countervailing Duties on Certain 
Corrosion-Resistant Carbon Steel Flat Products from Germany , 
WT/DS213/AB/R and Corr.1, adopted 19 December 2002, DSR 2002:IX, 3779 
US – Continued Suspension Appellate Body Report, United States – Continued Suspension of Obligations 
in the EC – Hormones Dispute , WT/DS320/AB/R, adopted 14 November 2008 
US – Continued Zeroing Appellate Body Report, United States – Continued Existence and Application  
of Zeroing Methodology , WT/DS350/AB/R, adopted 19 February 2009 
US  – Corrosion-Resistant 
Steel Sunset Review Appellate Body Report, United States – Sunset Review of Anti-Dumping Duties 
on Corrosion-Resistant Carbon Steel Flat Products from Japan , 
WT/DS244/AB/R, adopted 9 January 2004, DSR 2004:I, 3 
US  – DRAMS Panel Report, United States – Anti-Dumping Duty on Dynamic Random Access 
Memory Semiconductors (DRAMS) of One Megabit or Above from Korea , 
WT/DS99/R, adopted 19 March 1999, DSR 1999:II, 521 
US – Export Restraints  Panel Report, United States – Measures Treating Export Restraints as Subsidies , 
WT/DS194/R and Corr. 2, adopted 23 August 2001, DSR 2001:XI, 5767 
US – FSC Appellate Body Report, United States – Tax Treatment for "Foreign Sales 
Corporations" , WT/DS108/AB/R, adopted 20 March 2000, DSR 2000:III, 1619 
US  – FSC Panel Report, United States – Tax Treatment for "Foreign Sales Corporations" , 
WT/DS108/R, adopted 20 March 2000, as modified by Appellate Body Report 
WT/DS108/AB/R, DSR 2000:IV, 1675 
US – FSC (Article 21.5 – EC) Appellate Body Report, United States – Tax Treatment for "Foreign Sales 
Corporations" – Recourse to Article 21.5 of the DSU by the European Communities , WT/DS108/AB/RW, adopted 29 January 2002, DSR 2002:I, 55 
US – Gambling  Appellate Body Report, United States – Measures Affecting the Cross-Border 
Supply of Gambling and Betting Services , WT/DS285/AB/R, adopted 20 April 
2005, DSR 2005:XII, 5663, and Corr.1 
US – Gambling  Panel Report, United States – Measures Affecting the Cross-Border Supply of 
Gambling and Betting Services , WT/DS285/R, adopted 20 April 2005, as 
modified by Appellate Body Report, WT/DS285/AB/R, DSR 2005:XII, 5797 
US – Gasoline  Appellate Body Report, United States – Standards for Reformulated and 
Conventional Gasoline , WT/DS2/AB/R, adopted 20 May 1996, DSR 1996:I, 3 
US – Gasoline Panel Report, United States – Standards for Reformulated and Conventional 
Gasoline , WT/DS2/R, adopted 20 May 1996, as modified by Appellate Body 
Report WT/DS2/AB/R, DSR 1996:I, 29 
US – Oil Country Tubular 
Goods Sunset Reviews Appellate Body Report, United States – Sunset Reviews of Anti-Dumping 
Measures on Oil Country Tubular Goods from Argentina , WT/DS268/AB/R, 
adopted 17 December 2004, DSR 2004:VII, 3257 
US – Section 337 GATT Panel Report, United States Section 337 of the Tariff Act of 1930 , 
adopted 7 November 1989, BISD 36S/345  WT/DS363/R 
 Page xix 
 
 
 
 Short Title Full case title and citation 
US – Shrimp Appellate Body Report, United States – Import Prohibition of Certain Shrimp 
and Shrimp Products , WT/DS58/AB/R, adopted 6 November 1998, 
DSR 1998:VII, 2755 
US – Shrimp (Thailand) /  
US –  Customs Bond Directive Appellate Body Report, United States – Measures Relating to Shrimp from 
Thailand / United States – Customs Bond Directive for Merchandise Subject to 
Anti-Dumping/Countervailing Duties , WT/DS343/AB/R, WT/DS345/AB/R, 
adopted 1 August 2008  
US – Softwood Lumber IV Appellate Body Report, United States – Final Countervailing Duty 
Determination with Respect to Certain Softwood Lumber from Canada , 
WT/DS257/AB/R, adopted 17 February 2004, DSR 2004:II, 571 
US – Superfund GATT Panel Report, United States – Taxes on Petroleum and Certain 
Imported Substances , adopted 17 June 1987, BISD 34S/136 
US – Upland Cotton Appellate Body Report, United States – Subsidies on Upland Cotton , 
WT/DS267/AB/R, adopted 21 March 2005, DSR 2005:I, 3 
US – Upland Cotton Panel Report, United States – Subsidies on Upland Cotton , WT/DS267/R, 
Corr.1, and Add.1 to Add.3, adopted 21 March 2005, as modified by Appellate 
Body Report WT/DS267/AB/R, DSR 2005:II, 299 
US – Wool Shirts and Blouses Appellate Body Report, United States – Measure Affecting Imports of Woven 
Wool Shirts and Blouses from India , WT/DS33/AB/R, adopted 23 May 1997, 
and Corr.1, DSR 1997:I, 323  
 
  WT/DS363/R 
Page xx  
 
 
 LIST OF ABBREVIATIONS 
 
1993 Scheduling Guidelines 1993 Guidelines for the Scheduling of Specific Commitments 
under the GATS (Document MTN.GNS/W/164) 
AVHE audiovisual home entertainment  
CD compact disc  
CNPIEC China National Publications Import and Export Corporation 
(Group) 
CPC 1991 United Nations Provisiona l Central Product Classification  
DSB Dispute Settlement Body 
DSU Understanding on Rules and Pro cedures Governing the Settlement 
of Disputes 
DVD digital video disc 
EC European Communities 
GAPP General Administration of Press and Publication 
GATS General Agreement on Trade in Services 
GATT 1994 General Agreement on Tariffs and Trade  1994  
HS Harmonized Commodity Description and Coding System 
ICP Internet Culture Provider 
MCP Mobile Content Provider 
MOC Ministry of Culture  
MOFCOM Ministry of Commerce 
SARFT State Administration on Radio, Film and Television 
UNESCO United Nations Educational, Sc ientific and Cultural Organization 
UNOG United Nations Office at Geneva 
UNON United Nations Office at Nairobi 
US United States  
VCD video compact disc 
W/120 Services Sectoral Classification List   
(Document MTN.GNS/W/120) 
  WT/DS363/R 
 Page 1 
 
 
  I. INTRODUCTION 
1.1 On 10 April 2007, the United States requested c onsultations with the Government of China 
pursuant to Article 4 of the Understanding on Ru les and Procedures Governing the Settlement of 
Disputes ("DSU"), Article XXII of the Ge neral Agreement on Tariffs and Trade 1994 
("GATT 1994"), and Article XXII of the General Agreement on Trade in Services ("GATS") with 
respect to (1) certain measures that appear to restrict trading rights with respect to imported films for 
theatrical release, audiovisual home entertainment products, sound recordings , and publications, and 
(2) certain measures that app ear to restrict market access for, or discriminate against, foreign suppliers 
of distribution services for publications and forei gn suppliers of audiovisual services (including 
distribution services) for audiovisual home entert ainment products.  The request was circulated on 16 
April 2007.1 
1.2 On 25 April 2007, the European Communities request ed to join in the consultations requested 
by the United States.2  China accepted the European Communities' request.3   
1.3 Consultations were held on 5-6 June 2007.  Th ose consultations did not resolve the dispute. 
1.4 On 10 July 2007, the United States requested supplemental consultations with China pursuant 
to Articles 1 and 4 of the DSU, Article XXII of  the GATT 1994, and Article XXII of the GATS with 
respect to certain market access concerns related to the distribution of imported films for theatrical 
release and the distribution of imported sound recordings, as well as sound recording distribution services, specifically, (1) certain measures that appear to provide less favourable distribution 
opportunities for imported films for theatrical release than for like domestic films, and (2) certain 
measures that appear to provide less favourable op portunities for foreign suppliers of sound recording 
distribution services and for the distribution of impor ted sound recordings in physical form than are 
provided to like service suppliers and like produc ts.  This request supplemented the request for 
consultations circulated as WT/DS363/1.  It was circulated on 16 July 2007.
4   
1.5 On 20 July 2007, the European Communities requested to join in the supplemental 
consultations requested by the United States.5  Further consultations were  held on 31 July 2007, but 
these did not resolve the dispute.   
1.6 On 10 October 2007, the United States requested  that the Dispute Settlement Body ("DSB") 
establish a panel to examine the matters raised in th e consultation requests, pursuant to Article 6 of 
the DSU, with the standard terms of refere nce as set out in Article 7.1 of the DSU.6  At its meeting of 
27 November 2007, the DSB established a Panel with the following terms of reference: 
"To examine, in the light of the relevant provisions of the covered agreements cited 
by the United States in document WT/DS363/5,  the matter referred to the DSB by the 
United States in that document, and to ma ke such findings as will assist the DSB in 
making the recommendations or in giving the rulings provided for in those agreements."
7 
                                                      
1 WT/DS363/1. 
2 WT/DS363/2. 
3 WT/DS363/3. 
4 WT/DS363/1/Add.1. 
5 WT/DS363/4. 
6 United States' panel request WT/DS363/5. 
7 WT/DS363/6, para. 2. WT/DS363/R 
Page 2  
 
  1.7 On 17 March 2008, the United States requested  the Director-General to determine the 
composition of the Panel, pursuant to paragraph 7 of  Article 8 of the DSU.  On 27 March 2008, the 
Director-General accordingly composed the Panel as follows:
8  
 Chairman: Mr. Florentino P. Feliciano  
 
 Members: Mr. Juan Antonio Dorantes 
   Mr. Christian Häberli  1.8 Australia, the European Communities, Japan, the Republic of Korea ("Korea"), and the 
Separate Customs Territory of Taiwan, Penghu, Kinm en and Matsu ("Chinese Taipei") reserved their 
rights to participate in the Panel proceedings as third parties.
9 
1.9 The Panel met with the United States and China (the "parties") on 22 and 23 July 2008.  It 
also met with the third parties on 23 July 2008.  The Panel met again with the parties on 23 and 
24 September 2008. 
1.10 The European Communities, Kor ea, and Japan presented third-party submissions before the 
first substantive meeting of the Panel.  Australia , the European Communities, Japan, and Korea made 
oral statements during the first s ubstantive meeting of the Panel. 
1.11 The Panel issued its Interim Report to the partie s on 20 April 2009.  The Panel issued its Final 
Report to the parties on 23 June 2009. 
II. FACTUAL ASPECTS 
A. MEASURES AT ISSUE  
2.1 This dispute concerns China's obligations under the WTO Agreement  with respect to goods 
and services relating to reading materials (e .g. books, newspapers, periodicals, electronic 
publications), audiovisual home entertainment (AVH E) products (e.g. videocassettes, video compact 
discs, digital video discs), sound recordings (e.g. recorded audio tapes), and films for theatrical 
release.   
2.2 The dispute arises over certain measures that affect (i) the importation into China of relevant 
goods, (ii) the distribution within China of releva nt goods, and (iii) services and service suppliers in 
relation to certain of the above mentioned products.   
2.3 More specifically, this dispute involves the US claims of violation with respect to:    
(a) Chinese measures that are alleged to unjustifia bly restrict the right of enterprises in 
China and foreign enterprises and individuals to import into China reading materials, 
AVHE products, sound recordings, and films for theatrical release by limiting trading 
rights to Chinese state-owned enterprises;   
(b) Chinese measures relating to the distribution of reading materials, AVHE distribution 
services, and sound recording distribution services.  More specifically, the United States is challenging Chinese measures that allegedly:  
                                                     
 
8 WT/DS363/6, para. 4. 
9 Ibid., para. 5.  WT/DS363/R 
 Page 3 
 
 
  - prohibit foreign-invested enterprises fro m engaging in the master distribution 
of reading materials, the master wholesale and wholesale of electronic publications, and the distribution of imported reading material;  
- impose, on foreign-invested enterpri ses permitted to engage in the sub-
distribution of reading materials, requirements that are more burdensome 
than those applicable to wholly Chinese-owned distributors.  Such 
requirements relate to registered capita l, operating terms, pre-establishment 
legal compliance, examination and ap proval process, and decision-making 
criteria;  
- limit commercial presence for the distribution of AVHE products to Chinese-
foreign contractual joint-ventures with  majority Chinese ownership;    
- as regards the sub-distribution of AVHE products, discriminate against 
Chinese-foreign contractual joint ventures by imposing on them certain requirements that are more burdensome than those that apply to wholly Chinese-owned enterprises.  These requirements relate to operating terms, 
pre-establishment legal compliance, examination and approval process, and 
decision-making criteria; 
- prohibit foreign-invested enterpri ses, but not wholly Chinese-owned 
enterprises, from engaging in the electronic distribution of sound recordings, e.g. through the Internet and mobile telecommunications networks. 
(c) Chinese measures that allegedly do not provide national treatment for imported 
reading materials, sounds recordings inte nded for electronic distribution, and films 
for theatrical release.  More specifically , the United States is challenging Chinese 
measures that allegedly: 
- restrict distribution channels for certain imported reading materials by 
requiring their distribution to be conduc ted exclusively through subscription, 
by Chinese wholly state-owned enterprises,  and only to subscribers that have 
been examined and approved by the Chinese government;  unlike the 
situation for similar domestic reading materials;    
- limit the distribution of certain impor ted reading materials (which can be 
distributed other than through subscription) to wholly Chinese-owned enterprises, while the distribution of similar domestic reading materials can 
be effected by other types of enterp rises, including foreign-invested ones; 
- discriminate against imported sound recordings intended for electronic 
distribution by subjecting them to mo re burdensome content review regimes 
than similar domestic products;  
- discriminate against imported films for theatrical release by limiting their 
distribution to two state-owned enterp rises, while similar domestic products 
can be distributed by any distributor operating in China.   WT/DS363/R 
Page 4  
 
  B. T
RANSLATION OF CHINA 'S MEASURES  
2.4 Regarding China's measures at issue, the Unite d States put forward its translations of the 
measures into English as part of the exhibits it submitted with its first written submission.  China also submitted translations of some provisions as part of its  exhibits attached to its first written submission. 
2.5 At the second substantive meeting with the parti es, the Panel identified a variety of provisions 
where the parties had provided different translations  of China's measures or disputed the meaning of 
particular terms.  The Panel requested the parties to  attempt to bilaterally agree on a single translation 
of the provisions, and to provide, should the parties not be able to agree on the translation of all 
provisions, a joint suggestion as to the procedures that  could be used to arrive at a single definitive 
translation of these provisions.   
2.6 On 9 and 20 October 2008, the parties jointly communicated to the Panel that they had 
resolved a number of the translation differences by either agreeing on a translation or by agreeing that 
the differences in translation were not significant and therefore suggesting that the Panel might choose 
either one for the purpose of its work.  With regard  to the translation differences that could not be 
agreed, the parties jointly suggested, on 20 Octobe r 2008, that each party provide the Panel with a 
concise rationale explaining its views on each tran slation difference and that the Panel then seek 
translation of the outstanding provisi ons from an independent source.    
2.7 On 22 October 2008, the Panel proposed to appr oach the United Nations Office at Geneva 
(UNOG) to assess its availabilit y to serve as an independent translator in this dispute.
10  This course of 
action was agreed to by the parties.  On 14 Novemb er 2008, the Panel informed the parties that, due to 
current workload and resource constraints, UNOG woul d be unable to finalize the translations in the 
near future.  On 20 November 2008, the US expressed  concerns regarding delays to the Panel's work 
that might result from the use of translation servi ces provided by UNOG.  Should UNOG be unable to 
provide a revised, shorter timeframe, the US proposed that a private translation company be contracted to perform the relevant translations .  On 24 November 2008, China expressed concerns 
with respect to the alternative put forward by the US.   
2.8 On 12 December 2008, the Panel informed the parties that the United Nations Office at 
Nairobi (UNON) was able and willing to undertak e the assignment sooner than UNOG.  The Panel 
suggested that this avenue be pursued, and the parties did not object.  On 19 December 2008, the 
Panel asked the translation services of UNON to  provide the relevant translations.   
2.9   The Panel and the parties received the tran slations from UNON on 10 February 2009.  The 
parties then provided comments on the transla tions performed by UNON, and subsequently 
commented on each others' comments.   Throughout this Report, the Panel will refer to UNON as the 
Panel's "independent translator".  Annex A-1 su mmarizes the translation issues arising in these 
proceedings.   
III. PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS 
3.1 The United States  requests the Panel to find that:  
(a) With respect to China's trading right s obligations, the following measures are 
inconsistent with paragra phs 5.1 and 5.2 of the Accession Protocol, as well as 
paragraph 1.2 of the Accession Protocol to the extent that it incorporates the commitments referred to in paragraphs 83 and 84 of the Working Party Report: the 
Publications Regulation ;  the Importation Procedure ;  the Catalogue ;  the Foreign 
                                                     
 
10 Both the United States and China are members of the United Nations.  WT/DS363/R 
 Page 5 
 
 
  Investment Regulation ;  the Several Opinions ; the 1997 Electronic Publications 
Regulation ;  the 2001 Audiovisual Products Regulation ;  the Audiovisual Products 
Importation Rule ;  the Audiovisual (Sub-)Distribution Rule ;  the Film Regulation ;  the 
Film Enterprise Rule ;  and the Film Distribution and Exhibition Rule ; 
(b) 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 Opinions ;  
(c) 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 Internet Culture 
Rule;  the Circular on Internet Culture ;  the 2001 Audiovisual Products Regulation ;  
the Audiovisual (Sub-)Distribution Rule ;  the Network Music Opinions ;  the 
Catalogue ;  the Foreign Investment Regulation ;  and the Several Opinions ; 
(d) 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 . 
(e) With respect to China's national treatment  obligations for products, the following 
measures are inconsistent w ith paragraphs 5.1 of the Accession Protocol as well as 
paragraph 1.2 of the Accession Protocol to the extent that it incorporates the 
commitments referred to in paragraph 22 of the Working Party Report:  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 ;  the 
Film Enterprise Rule ;  and the Film Distribution and Exhibition Rule . 
3.2 The United States further requests, pursuant to  Article 19.1 of the DSU, that the Panel 
recommend that China bring its measures into c onformity with its obligations under the Accession 
Protocol, the GATS, and the GATT 1994.  
3.3 China  asks the Panel to reject the claims raised  by the United States.  It argues that the 
measures at issue are consistent with its WTO oblig ations.  In addition, China argues that certain  
measures challenged by the United States in its firs t written submission are outside the Panel's terms 
of reference because they were not identified in the panel request.  China also 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.  Finall y, China asks the Panel not to examine certain 
measures because they are only internal guidance and cannot serve as the basis for administrative acts. 
IV. ARGUMENTS OF THE PARTIES 
4.1 This section is based on executive summaries of the parties' submissions and statements and 
does not include summaries of the parties' answers to  questions posed by the Panel in the context of 
the first and second substantive meetings or summaries of the parties' comments on each other's answers to those questions. WT/DS363/R 
Page 6  
 
  A. F
IRST WRITTEN SUBMISSION OF THE UNITED STATES  
1. Introduction 
4.2 China's accession to the WTO offered real promise for the producers and distributors of 
books, newspapers, periodicals, DVDs, music and theatrical films.  China's commitments to 
significantly enhance access to th e Chinese market for these goods and services opened the prospect 
of more liberal and efficient markets, greater  educational exchange, and stronger commercial 
opportunities for highly successful global competitors. 
4.3 Unfortunately, China has failed to fulfil its WTO commitments in numerous respects.  The 
Chinese measures at issue in this dispute affect four sets of industries, their services and their 
products.  These products include reading materi als (including books, newspapers, periodicals and 
electronic publications); audiovisual home ente rtainment products ("AVHE products") (including 
videocassettes, video compact discs (VCDs) and digital video discs (DVDs)); sound recordings 
(including songs, "ringtones"  and "ringback tones"); and films for theatrical release (collectively, the 
"Products").  The affected service suppliers include  AVHE products and sound recording distributors, 
as well as reading material wholesalers. 
4.4 China acts inconsistently with its WTO obliga tions in the following three areas: (1) China 
prohibits foreign companies and individuals, as we ll as private enterprises inside China, from 
importing reading materials, AVHE products, sound recordings and films for theatrical release; (2) China places unfair restrictions on foreign distributors of reading materials and AVHE products and prevents foreign distributors from engaging in the electronic distribution of sound recordings in China; and (3) China uses an array of restrictiv e measures to discriminate against imported reading 
materials, sound recordings, and films for theatrical release in China. 
2. Factual background 
(a) China's measures addressing trading rights 
4.5 China limits the right to import reading ma terials, AVHE products, sound recordings, and 
films for theatrical release to cer tain Chinese state-owned enterpri ses, prohibiting foreign-invested 
enterprises and privately-owned Chinese enterprise s from engaging in these import activities.  To 
import some of these Products, Chinese state-owned importers are required to obtain approval from 
the relevant regulatory agency.  For other Pr oducts, the Chinese state-owned importer must be 
"designated" by the Government of China, a pro cess whereby the relevant regulatory agency appoints 
one state-owned enterprise or an exclusive set of  state-owned enterprises – of that agency's own 
choosing in the exercise of its discretion – to im port a particular type of product or products. 
4.6 China maintains its regime for the importation of reading materials, AVHE products, sound 
recordings, and films for theatrical release through  numerous measures.  Some of these measures 
apply broadly to all (or almost all) of the Produc ts, and other measures apply more specifically to 
particular categories of the Products.  The broadly applicable measures include:  the Catalogue , the 
Foreign Investment Regulation , the Several Opinions , the Publications Regulation , and the 
Importation Procedure . 
4.7 The general measures establish overarching rules governing, inter alia , the right to import the 
Products into China.  They do so in two r espects.  First, two of these measures – the Catalogue  and 
the Several Opinions  – forbid foreign investment in enterprises engaging in the importation of any of 
the Products.  Second, the two other general measures – the Publications Regulation
 and the 
Importation Procedure  – which cover all of the Products except films for theatrical release, further 
limit the importation of reading materials, AVHE products, and sound recordings to certain Chinese  WT/DS363/R 
 Page 7 
 
 
  wholly state-owned enterprises.  Other film-specific measures impose parallel restrictions on who is 
entitled to import films for theatrical release. 
4.8 China maintains one additional measure focused on only one subset of reading materials – i.e. 
the 1997 Electronic Publications Regulation  – which controls the right to import certain reading 
materials known as electronic publications.  Th e United States understands that electronic 
publications include only books, periodicals, newspa pers, and audio books saved as digital codes on 
the media forms set out above, but do not incl ude AVHE products and sound recordings.  The 1997 
Electronic Publications Regulation  implements the restrictive approval and licensing requirements 
contained in the Publications Regulation  and the Importation Procedure , and reconfirms the 
prohibition on any foreign-invested enterprise or fo reign individual, or any privately-owned Chinese 
enterprise, engaging in the importation of electronic publications.  
4.9 Chinese measures also strictly control the importation of AVHE products.  Several sector- 
specific measures provide for trading ri ghts restrictions on AVHE products: the 2001 Audiovisual 
Products Regulation , the Audiovisual Products Importation Rule , and the Audiovisual 
(Sub-)Distribution Rule . 
4.10 China regulates imported audiovisual produc ts, including AVHE products, according to 
whether they are finished or unfinished.  Fini shed AVHE products are legitimately produced and 
replicated outside of China and require no additiona l production or replication in China before being 
made available to consumers.  Unfinished AVHE pro ducts are master copies to be used to publish and 
manufacture copies for sale in China.  China has designated only one enterprise to import finished 
audiovisual products:  CNPIEC, which is a wholly st ate-owned enterprise.  Likewise, with respect to 
unfinished audiovisual products, only Chinese wholly state-owned enterprises are permitted to engage 
in their importation. 
4.11 Rather than providing for a sui generis  system of trading rights for sound recordings, China 
includes sound recordings within the legal regime  governing the importation of AVHE 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 all of these measures, China defines the term "audiovisual 
products" to encompass sound recordings – e.g., reco rded audio tapes, records, and audio CDs.  
4.12 The Catalogue  and the Several Opinions  forbid foreign investment in the importation of 
sound recordings.  In addition, the Publications Regulation  and the Importation Procedure  provide 
that only wholly state-owned enterprises are allowe d to import audiovisual products, and thus, sound 
recordings into China.  For finished sound reco rdings, CNPIEC (a Chinese wholly state-owned 
enterprise) is the only entity designated to engage in the importation of finished sound recordings in 
physical form (e.g., CDs).  For unfinished sound r ecordings (e.g., master recording discs) only wholly 
state-owned enterprises are permitted to import such sound recordings. 
4.13 In addition to the Catalogue  and the Several Opinions , the measures that maintain the trading 
rights restrictions applicable to film s for theatrical release include: the Film Regulation , the Film 
Distribution and Exhibition Rule , and the Film Enterprise Rule . 
4.14 Under this Chinese regime, China has designate d only a single wholly state-owned entity – 
the China Film Import and Export Corporation, a subsidiary of China Film Group – to import films for theatrical release.  This monopoly applies to all films for theatrical release, regardless of whether a 
film is imported on a revenue-sharing basis or a flat-fee basis. WT/DS363/R 
Page 8  
 
  (b) China's measures addressing distribution 
4.15 Distribution activities are identified and segmented in numerous ways by the Chinese 
measures.  Key activities that are covered by these measures and that are relevant to this dispute are:  master distribution ( Zong Fa Xing ), the sale of, e.g. a reading ma terial, exclusively by a single 
distributor; distribution ( Fa Xing ), which includes master distribution, wholesale, retail, leasing, and 
exhibition for sale; sub-distribution ( Fen Xiao ), which includes wholesale and retail;  master 
wholesale ( Zong Pi Fa ), which is synonymous with master distribution;  wholesale ( Pi Fa ), i.e. the 
sale of products to businesses that are not ultimate consumers;  and retail ( Ling Shou ), i.e. the sale of 
products to ultimate consumers. 
4.16 China prohibits foreign-invest ed enterprises from engaging in, inter alia , the master 
distribution of all reading materials as well as the master wholesale and wholesale of electronic 
publications.  China also prohibits foreign-invested  enterprises from engaging in the distribution of 
any imported reading materials.  In addition, wh ere foreign-invested enterprises are permitted to 
engage in the distribution of reading materials,  the measures at issue impose requirements on those 
foreign-invested enterprises that are more burdensom e than those applicable to wholly Chinese-owned 
distributors of reading materials. 
4.17 China maintains its regime for the distri bution of reading materials through measures 
including: the Publications Market Rule , the Publications (Sub-)Distribution Rule , the Sub-
Distribution Procedure , the Imported Publications Subscription Rule , the 1997 Electronic 
Publications Regulation , the Several Opinions , the Foreign Investment Regulation , and the 
Catalogue . 
4.18 China permits foreign-invested enterprises to e ngage in only one type of reading materials 
distribution – i.e., the sub-distribution of books, ne wspapers and periodicals published in China.  To 
engage in such sub-distribution, foreign-invested  enterprises must satisfy requirements different from 
those applicable to wholly Chinese- owed enterprises also engaged in the same distribution activities.  
These differential requirements apply with respect  to registered capital, operating terms, pre-
establishment violations, and approval processes. 
4.19 China's regulatory regime governing the distri bution of AVHE products in China imposes a 
number of restrictions on distribution by foreign-invested enterprises, including the form of the enterprise (i.e., only be Chinese-foreign contract ual joint ventures) and the share of foreign 
investment (i.e., majority Chinese owned).  As a re sult, Chinese-foreign contractual joint ventures, in 
which the Chinese party owns the majority of the shares, are the only foreign-invested enterprises 
permitted to engage in audiovisual distribution services.  In addition,  China discriminates against even 
Chinese-foreign contractual joint ventures by imposi ng on them certain requireme nts that are different 
from those that apply to wholly Chinese-owned en terprises engaging in the sub-distribution of AVHE 
products. 
4.20 With respect to China's limitations on cor porate form and on foreign participation in 
audiovisual product sub-distribution enterprises, there are four relevant measures:  (1) the 2001 
Audiovisual Products Regulation ;  (2) the Audiovisual (Sub-)Distribution Rule ;  (3) the Catalogue ;   
and (4) the Several Opinions . 
4.21 Even after limiting the sub-distribution of AVHE products only to Chinese-foreign 
contractual joint ventures, China then imposes numer ous other requirements not applicable to wholly 
Chinese-owned enterprises.  These requirements come  in the form of operating term limitations, pre-
establishment violation conditions, and approval process obligations.  WT/DS363/R 
 Page 9 
 
 
  4.22 China greatly limits the ability of foreign-invest ed enterprises to engage in the distribution of 
sound recordings by prohibiting th ese enterprises from engaging in their electronic distribution – i.e. 
the distribution of sound recordings using any electromagnetic means, (i.e. not physical copies), including distribution to other distributors or to  end users over, e.g. the Internet or mobile 
telecommunications networks.  China maintains th ese restriction through four measures:  (1) the 
Internet Culture Rule ;  (2) the Circular on Internet Culture ;  (3) the Network Music Opinions ;  and the 
Several Opinions .  This prohibition does not extend to  wholly Chinese-owned enterprises. 
(c) China's treatment of imported produc ts compared to domestic products 
4.23 China maintains requirements for the distribution of imported reading materials, sound 
recordings, and films for theatrical release that disad vantage these products relative to their domestic 
counterparts.  First, China's subscription regime ope rates as the sole distribution channel for a large 
proportion of reading materials imported into China.   Domestic reading materials are free of these 
restrictions.  Second, imported sound recordings intended for electronic distribution must receive 
prior approval from MOC before distribution.  Dom estic sound recordings, in contrast, require no 
such approval from MOC;  they need only be registered with MOC.   
4.24 Third, China requires the distribution of imported films for theatrical release to occur through 
one of two Chinese state-controlled distributor s assigned by the Chinese Government.  These two 
distributors use identical form contracts and allow no negotiation of key terms.   By contrast, domestic 
films for theatrical release can be distributed by the full range of film distributors in China, with that 
distribution occurring on the basis of commercially ne gotiated terms covering a ll relevant aspects of 
the film's technical preparation, as well as its mark eting and distribution.  Moreover, domestic films 
for theatrical release may be distributed by their pr oduction studios, as is common throughout the rest 
of the world. 
4.25 China restricts distribution channels for many kinds of imported reading materials by 
requiring their distribution to be conducted excl usively through subscription and then imposing 
requirements on subscribers to these imported publicati ons that do not apply to those that subscribe to 
equivalent domestic reading materials.   
4.26 The Imported Publications Subscription Rule  is a key measure implementing this restricted 
distribution system.  Under this measure, all im ported newspapers and pe riodicals, and imported 
books and electronic publications in the limited distribution category, can only be distributed through subscription by Chinese wholly state-owned enterprises.  While imported books and electronic publications in the non-limited distribution category can be distributed through sales on the market, 
these reading materials may only be distributed  by wholly Chinese-owned enterprises.   
4.27 Domestic books, newspapers and periodicals, on the other hand, can be sub-distributed by 
foreign-invested enterprises, and distributed by  wholly Chinese-owned enterprises (including Chinese 
privately-owned enterprises), and Chinese state-owne d enterprises, through a variety of channels, 
including but not limited to subscription.  The Publications (Sub-)Distribution Rule  authorizes 
foreign-invested enterprises to engage in the su b-distribution of books, ne wspapers and periodicals 
published in China. 
4.28 China requires all sound recordings, including sound recordings intended for electronic 
distribution, to undergo content review.  The nature  of that review, however, varies substantially 
depending on whether the sound recording is impor ted or domestic.  China's measures require 
imported sound recordings to undergo content review  and approval by the Chinese Government prior 
to their electronic distribution.  In contrast, domes tic sound recordings do not have to receive prior 
approval from the Chinese Government.  Instead, they  undergo internal company content review, and 
they simply are registered with the Mi nistry of Culture.  Measures including the Network Music WT/DS363/R 
Page 10  
 
  Opinions  and the Internet Culture Rule  give specific effect to this two-tier regime for sound 
recordings intended for electronic distribution.  In addition, the 2001 Audiovisual Products Regulation  
and the Audiovisual Products Importation Rule , make clear that imported and domestic sound 
recordings are subject to diffe rent content review regimes. 
4.29 China maintains a dual distribution system for imported and domestically produced films for 
theatrical release.  Imported films can be distributed only by two state-owned enterprises – China 
Film Distribution Company, a subsidiary of Ch ina Film Group, and Huaxia Film Distribution 
Company ("Huaxia").  Furthermore, commercial negotiations do not determine the terms for the 
distribution or which of these two distributors will handle the imported film.  Rather, China Film Group determines both the distributor and the basic distribution conditions for all imported films.  
4.30 Domestic films, by contrast, have access to a far more open distribution system.  The two 
state-controlled enterprises authorized to distribut e imported films, as well as many other enterprises, 
including the film's producer, and many other distri butors, both private and state-owned, operating on 
a local, provincial or national basis, all can co mpete to distribute a domestic film on commercial 
terms.  Several measures implement this dual distribution regime, including:  the Film Regulation , the 
Film Enterprise Rule , and the Film Distribution and Exhibition Rule . 
3. China's measures regarding trading rights are inconsistent with China's obligations 
under the Accession Protocol and the Working Party Report 
4.31 During its accession to the WTO, China committed to  provide all enterprises in China and all 
foreign enterprises and foreign individuals the right to trade in all goods except those listed in Annex 
2A or Annex 2B of China's Accession Protocol.  Th ese commitments extend to all of the Products, as 
none of the Products is listed in either Annex.  China's "trading rights" commitments are expressed in 
Part I, paragraphs 5.1 and 5.2 of the Accession Prot ocol, as well as in Part I, paragraph 1.2 of the 
Accession Protocol, to the extent that it incorpor ates the commitments referred to in paragraphs 83 
and 84 of the Working Party Report.     
4.32 Through a variety of measures, however, China refuses to permit any foreign enterprises or 
foreign individuals to import the Pr oducts, and likewise only allows a subset of enterprises in China – 
i.e. wholly state-owned Chinese enterprises approve d or designated by the Chinese Government – to 
import the Products.  The measures establishing China' s current trading rights regime for the Products 
are, therefore, inconsistent with China's obligations contained in Part I, paragr aphs 5.1, 5.2 and 1.2 of 
the Accession Protocol, as well as in paragra phs 83 and 84 of the Working Party Report. 
4.33 Read together, these provisions establish that all enterprises in China, all foreign enterprises 
and all foreign individuals shall have the right to  import the Products into China following a transition 
period.  That transition period ended on December 11, 2004, more than three years ago.  Moreover, 
none of the Products is among those goods listed in Annex 2A of the Accession Protocol that are 
excluded from China's trading rights commitments. 
4.34 China first committed to providing all enterprises in China the right to trade in the Products 
via paragraph 5.1 of the Accession Protocol and pa ragraphs 83(d) and 84(a) of the Working Party 
Report. 
4.35 Paragraph 83(d) confirms the ob ligation contained in paragraph 5.1 of the Accession Protocol 
– i.e. that China committed to provide trading rights to  all enterprises in China by December 11, 2004.  
Paragraph 84(a) likewise confirms China's obligations  with respect to trading rights, as set forth in 
paragraph 5.1 of the Accession Protocol.  WT/DS363/R 
 Page 11 
 
 
  4.36 As a result of paragraph 5.2 of the Accession Prot ocol and paragraphs 84(a) and 84(b) of the 
Working Party Report, China furt her committed to extend to all fo reign enterprises and all foreign 
individuals, including sole proprieto rships of other WTO Members, the same right to import all goods 
into China as is accorded to a ll enterprises in China.   
4.37 Paragraph 84(a) of the Working Party Report c onfirms and elaborates on paragraph 5.2 of the 
Accession Protocol.  It provides expressly that Ch ina shall permit all foreign enterprises and all 
foreign individuals, including sole proprietorshi ps, to import goods, including the Products, into 
China.  Paragraph 84(b) of the Working Party Re port also confirms and elaborates on paragraph 5.2 
of the Accession Protocol.  Paragraph 84(b) explains that not only are trading rights to be granted to 
foreign individuals and enterprises, but that these rights shall be granted in a "non-discriminatory and 
non-discretionary" way. 
4.38 Despite China's trading rights commitments, Ch ina permits only wholly state-owned Chinese 
enterprises approved or designated by the Chin ese Government to import into China reading 
materials, AVHE products, sound recordings, and f ilms for theatrical release.  Underscoring this 
restriction, China expressly prohibits any fore ign-invested enterprises from engaging in the 
importation of any of the Products.  Thus, under Ch inese law, any foreign-invested enterprise in 
China – whether the enterprise is wholly-foreign owne d or is a Chinese-foreign joint venture – as well 
as any foreign enterprise and any foreign individual is denied the right to import the Products. 
4.39 There are four measures broadly applicable to  the importation of the Products:  (1) the 
Catalogue ;  (2) the Several Opinions ;  (3) the Publications Regulation ;  and (4) the Importation 
Procedure .  Each of these is inconsistent with China's trading rights commitments.  The Catalogue  
and the Several Opinions  prohibit foreign-invested enterprises from importing any of the Products 
into China.  Article X of the Catalogue  bans foreign-invested enterprises from engaging in the 
importation of the Products.  Likewise, the Several Opinions  definitively forbids foreign-invested 
enterprises, whether or not they are in China,  from engaging in the importation of the Products. 
4.40 These measures are inconsistent with China's trad ing rights commitments in two ways.  First, 
by depriving foreign-invested enterprises in Chin a, as well as foreign enterprises and individuals, of 
the right to import the Products, the Catalogue  and the Several Opinions limit the trading rights of 
these entities, which China's trading rights commitments do not permit.  Second, the Several Opinions 
and the Catalogue  also restrict trading rights in a discriminatory manner, as they insulate certain 
wholly Chinese-owned enterprises from any competition from foreign sources.  
4.41 The Publications Regulation  and the Importation Procedure  are similarly inconsistent with 
China's trading rights commitments.  First, these measures mandate that only wholly state-owned 
enterprises satisfying specified criteria, including th e State plan for the total number, structure, and 
distribution/deployment of these enterprises, may import reading materials, AVHE products, and sound recordings into China, giving rise to the same  two inconsistencies with China's trading rights 
commitments discussed above with regard to the Several Opinions  and the Catalogue .  Second, the 
importation of certain reading materials, i.e., news papers and periodicals, is further restricted to 
wholly state-owned enterprises specially desi gnated by the Chinese Government, pursuant to 
Article 41 of the Publications Regulation .  These measures inject further qualifying criteria and 
government discretion into a process that China co mmitted to be "non-discretionary" and are therefore 
inconsistent with China's trading rights commitments. 
4.42 The 1997 Electronic Publications Regulation  is inconsistent with China's trading rights 
commitments by imposing limits on which enterprises may import electronic publications into China.  
Articles 50 and 51 limit which enterprises may engage in the importation of electronic publications 
according to Chinese Government plans for "total  number, structure and deployment" of such 
enterprises.  Articles 52-55 further require appr oval by multiple layers of Chinese Government WT/DS363/R 
Page 12  
 
  decision-makers before an enterprise may import electronic publications.  By conditioning trading 
rights on Chinese Government plans for structur ing these activities and on successfully obtaining 
Chinese Government approvals, the 1997 Electronic Publications Regulation  is inconsistent with 
China's trading rights commitments.  It injects qua lifying criteria and government discretion into a 
process that China committed to  be "non-discretionary". 
4.43 China uses a number of measures specific to the audiovisual sector to place restrictions on the 
right to import AVHE products into China that are inconsistent with China's trading rights commitments.  The 2001 Audiovisual Products Regulation and the Audiovisual Products Importation 
Rules  provide that only enterprises designated by the Chinese Government may import finished 
audiovisual products, and it provides that importers  of unfinished audiovisual products must be 
approved by the Chinese Government.  Under these requirements, only CNPIEC (a Chinese wholly 
state-owned enterprise) has been designated to impor t finished audiovisual products, and only Chinese 
wholly state-owned enterprises may be approve d to import unfinished audiovisual products. 
4.44 The Audiovisual (Sub-)Distribution Rule , which governs the activities of foreign-invested 
distributors of audiovisual products, specifically  provides in Article 21 that Chinese-foreign 
contractual audiovisual product distribution en terprises are prohibited from engaging in the 
importation of audiovisual products.  Article 21 is therefore inconsistent with China's trading rights 
commitments, because it denies these enterprises the right to import AVHE products. 
4.45 China's trading rights regime with  respect to sound recordings is also heavily restricted and is 
also inconsistent with China's trading rights commi tments.  This restrictive sound recordings trading 
rights regime is incorporated into the general me asures governing the importation of the Products as 
well as the specific measures governing the importation of AVHE products.  Accordingly, only 
Chinese state-owned enterprises are permitted to impor t sound recordings into China, with foreign-
invested enterprises and individuals e xplicitly banned from these activities. 
4.46 Furthermore, only the state-owned enterprises specifically "designated" by the Chinese 
Government are allowed to import finished sound recordings.  As for unfinished sound recordings, 
only enterprises that have been  approved by the Chinese Government are permitted to import such 
products.  In practice, as is the case with AVHE products, China reserves the exclusive right to import 
finished sound recordings to CNPIEC, while permitting only Chinese Government-approved Chinese 
state-owned enterprises to import unfinis hed sound recordings into China. 
4.47 China's measures granting China Film Group a monopoly on the right to import films for 
theatrical release are inconsistent with China's trading rights commitments.  The basis for this 
monopoly is established through such general measures as the Several Opinions  and the Catalogue , 
which forbid foreign-invested enterprises from importi ng films into China.  The restriction is further 
detailed in the following specific measures:  the Film Regulation , the Film Enterprise Rule , the Film 
Distribution and Exhibition Rule .     
4.48 The Film Distribution and Exhibition Rule  explicitly establishes China's film importation 
monopoly, designating China Film Import and Expor t Corporation as the exclusive importer of 
foreign films into China.  Article 30 of the Film Regulation  provides the legal basis for this monopoly, 
providing that only enterprises designated by the Chinese Government are permitted to import films 
for theatrical release.  Article 16 of the Film Enterprise Rule  confirms this restriction.  This monopoly 
not only deprives enterprises in China (other than  China Film Group) as well as foreign enterprises 
and individuals of the right to import films for theat rical release.  It also discriminates against foreign-
invested enterprises and foreign individuals, in c ontravention of China's trading rights commitments.  WT/DS363/R 
 Page 13 
 
 
  4. China's measures regarding distribution services are inconsistent with China's 
obligations under the GATS 
4.49 In its Accession Protocol, China made market access and national treatment commitments in 
the distribution services and audiovisual services s ectors of its Services Schedule to open China's 
market in substantial fashion to foreign service suppliers, including distributors of reading materials, 
AVHE products and sound recordings.  Despite these commitments, China's measures impose 
discriminatory restrictions and requirements on fo reign service suppliers seeking to engage in the 
distribution of reading materials, AVHE products , and sound recordings.  Those restrictions and 
requirements are inconsistent with China's obligations under the GATS. 
4.50 In Sector 4B, under the Distribution Servi ces heading of its Services Schedule, China 
undertook market access and national treatment commitm ents with respect to wholesale trade services 
("wholesaling") through commercial presence (mode 3) of, inter alia , reading materials (including 
books, newspapers, periodicals a nd electronic publications). 
4.51 China committed to permit foreign service suppliers to engage in wholesale trade services via 
mode 3 with respect to books, news papers and periodicals within three years after China's accession.  
After December 11, 2004, therefore, China's Services Schedule provides for no market access 
limitations under mode 3 for wholesaling services with  respect to any reading materials.  Having 
inscribed "None" in mode 3 under the national treatme nt column in Sector 4B, China provided for no 
conditions or qualifications on its national treatment commitment with respect to wholesaling services 
through commercial presence.  Moreover, China' s inscriptions under mode 3 of its horizontal 
commitments do not create any limitations on China' s commitments in Sector 4B of its specific 
commitments that would justify the measures at issue. 
4.52 The discriminatory limitations on foreign-invested reading materials wholesalers imposed by 
China's measures are inconsistent with Article XVII of the GATS.  In examining a claim under 
Article XVII, three distinct elements are relevant to establishing a breach:  (1) the Member whose measure(s) is at issue has made a commitment in its  services schedule in the relevant sector and mode 
of supply, and has not inscribed any relevant lim itation to that commitment;  (2) the Member has 
adopted or applied a measure affecting the supply of services in that sector and/or mode of supply;  
and (3) the measure accords to any other Member's  service suppliers treatment less favourable than 
that accorded to its own like service suppliers.  Ch ina's measures regarding foreign reading material 
wholesalers are inconsistent with China's GATS Ar ticle XVII commitments, since they treat foreign 
suppliers of these services far less favourably than their domestic counterparts. 
4.53 China maintains numerous measures affecting the supply of reading material wholesaling 
services under mode 3.  These measures include 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 Catalogue , the 
Foreign Investment Regulation , and the Several Opinions .  These measures affect the supply of 
reading material wholesaling services in mode 3 with in the meaning of Article XVII, because they 
directly regulate the wholesale distribution of reading materials in China. 
4.54 
On their face, these measures treat foreign-invested wholesalers of reading materials 
operating under mode 3 less favourably than whol ly Chinese-owned wholesalers.  First, China 
prohibits foreign-invested enterpri ses from engaging in several forms of reading material wholesaling.  
Further, where China has made a limited exception to this general ban, as it did for foreign-invested 
enterprises engaging in the sub-distribution of books , newspapers and periodicals published in China, 
foreign service suppliers are subjected to requireme nts – governing registered capital, operating terms, 
pre-establishment violations, and examination and a pproval procedures – that are more onerous than 
those applicable to their wholly Chinese-owned competitors.  This treatment is less favourable WT/DS363/R 
Page 14  
 
  because it modifies the conditions of competition in favour of wholly Chinese-owned reading material 
wholesalers compared to like foreign-in vested reading material wholesalers. 
4.55 In Sector 2D of its Services Schedule, entitled "Audiovisual Services", China undertook 
market access and national treatment commitments under mode 3 for the distribution of a range of 
products, including AVHE products such as videocassettes, VCDs, and DVDs.  
4.56 In the first column of Sector 2D, China inscrib ed "Videos, including entertainment software 
and (CPC 83202), distribution services" under "audiovi sual services", which covers the distribution 
of, inter alia , videocassettes, VCDs, DVDs, video games, computer games as well as the leasing or 
renting services concerning videocassettes.   
4.57 Under the market access column for Sector 2D, China inscribed the following : "Upon 
accession, foreign services suppliers will be permitte d to establish contractual joint ventures with 
Chinese partners to engage in the distribution of  audiovisual products, excluding motion pictures, 
without prejudice to China's right to examine the content of audio and video products (see footnote 1)."  China's horizontal market access co mmitment under mode 3 describes three forms of 
foreign-invested enterprises – i.e., foreign capita l enterprises (also referred to as wholly foreign-
owned enterprises), equity joint vent ures and contractual joint ventures.  Foreign investment in equity 
joint ventures must account for a minimum of 25 per cent of total registered capital; no maximums for 
foreign investment participation in equity joint ventures are established. 
4.58 For contractual joint ventures, China inscr ibed no limitations – whether minimums or 
maximums – on foreign equity partic ipation, either in its horizontal commitments or in Sector 2D.  
China's horizontal market access commitment under mode 3 provides that the level of equity 
participation in contractual joint ventures is to be  determined by the parties as memorialized in the 
terms of the contract. 
4.59 Returning to the second column of Sector 2D, China excluded the distribution of "motion 
pictures" from its market access inscription under mode 3.  "Motion picture" is defined as a "cinema 
film" and means in this context a film for theatri cal release as opposed to an AVHE product, such as a 
videocassette, VCD or DVD.   
4.60 Reading China's market access commitment under m ode 3 in Sector 2D together with its 
horizontal commitments, China scheduled no market  access limitations on the contractual joint 
ventures that foreign-invested enterprises may est ablish with Chinese partners to engage in the 
distribution of audiovisual products, excluding films for theatrical release, without prejudice to China's right to examine the content of audio a nd video products.  In particular, China did not 
schedule any limits on the level of foreign equity participation in such contractual joint ventures; 
rather, it expressly acknowledged that this level is to  be negotiated and agreed by the parties to the 
contractual joint venture.  Turning to national tr eatment, China inscribed "None" – i.e., no limitations 
– in the national treatment column of Sector 2D. 
4.61 The foreign equity participation restrictions  imposed by China on foreign-invested AVHE 
product distributors are inconsistent with Article XV I of the GATS.  Article XVI:2, sub-paragraph (f) 
provides that where a Member has made a market  access commitment in its Services Schedule, that 
Member is prohibited from imposing limitations on the participation of foreign capital, whether in 
terms of maximum shareholder percentage limits or in  terms of the total value of foreign investment 
(on either an individual or aggregate basis), unless th e Member included that limitation in its Services 
Schedule.  
4.62 Thus, in order to show that a Member's measure  is inconsistent with Article XVI:2(f), it is 
necessary to demonstrate:  (1) that the Member made a market access commitment in the relevant  WT/DS363/R 
 Page 15 
 
 
  sector or sub-sector and mode of supply in its Serv ices Schedule;  (2) that the Member did not include 
a limitation on the participation of foreign capital in  that sector or sub-sector and that mode of supply 
in its Services Schedule;  and (3) that the measure at issue imposes such a limitation. 
4.63 As discussed above, China committed to perm it foreign service suppliers to establish 
contractual joint ventures with Chinese partners to engage in the distribution of AVHE products.   
China, however, maintains numerous measures limiti ng the percentage of shares foreigners may own 
in contractual joint ventures engaged in the di stribution of AVHE products.  These measures include 
the Audiovisual (Sub-)Distribution Rule , the Catalogue , the Foreign Investment Regulation  and the 
Several Opinions .   
4.64 China's measures at issue are also inconsistent with Article XVII of the GATS.  In the market 
access column under mode 3 of Sector 2D of its Services Schedule, China committed to permit 
foreign service suppliers to establish contractual join t ventures with Chinese partners to engage in the 
distribution of AVHE products through commercial presence.  In addition, China scheduled no 
limitations on its national treatment commitment under mode 3.  
4.65 The measures at issue affect the supply of video distribution services under mode 3 of 
Sector 2D of China's Services Schedule by dir ectly regulating audiovisual distribution services, 
including distribution services regarding AVHE products in China. 
4.66 China's measures fail to meet the obligations of Article XVII:  they treat AVHE product 
distribution services and service suppliers of othe r Members less favourably than China's own like 
services and service suppliers.  The measures at issue limit the operations of foreign-invested enterprises wishing to engage in AVHE product distribution services by imposing more stringent 
requirements – governing equity participation, ope rating terms, the existe nce of pre-establishment 
legal violations, examination and approval processes, and decision-making criteria – on foreign-
invested enterprises engaged in these services compar ed to their wholly Chinese-owned competitors. 
4.67 In Sector 2D of its Services Schedule, Ch ina undertook market access and national treatment 
commitments under mode 3 with respect to sound reco rdings distribution.  China has also inscribed 
"sound recording distribution services" under the audiovisual services sector of its Services Schedule.  
Thus, the market access and national treatment co mmitments that China has included in the second 
and third columns under mode 3 of Sector 2D also apply to sound recordings distribution in China. 
4.68 In addition, China inscribed no limitations on its market access commitment under mode 3 
regarding the means of delivery used for sound recordi ngs distribution.  That is, China did not identify 
any means of delivery – whether by mail, Internet, mobile telecommunications networks, or any other 
means – that Chinese-foreign contractual joint vent ures were precluded from using to distribute sound 
recordings.   
4.69 As the panel noted in US – Gambling , "the GATS does not limit the various technologically 
possible means of delivery under mode 1", which is  reflected in the principle of "technological 
neutrality" espoused in the Work Programme on Electronic Commerce – Progress Report to the 
General Council and relied on by the panel in US – Gambling . 
4.70 China's measures do not provide national treatment  to foreign-invested enterprises engaged in 
sound recording distribution under mode 3 and thus are inconsistent with Article XVII of the GATS. 
4.71 China's measures affect the supply of sound reco rding distribution services via mode 3.  The 
Internet Culture Rule , the Circular on Internet Culture , the Network Music Opinions and the Several 
Opinions  dictate how certain types of electronic distri bution are to be conducted through commercial 
presence within China, and they li kewise dictate who may engage in these activities.  These measures WT/DS363/R 
Page 16  
 
  likewise accord less favourable tr eatment to foreign-invested enterprises by prohibiting them from 
engaging in any electronic distribution of sound recordings through commercial presence. 
5. China's measures regarding product distribution are inconsistent with China's 
obligations under Article III:4 of the GATT 1994 
4.72 Imported copyright-intensive products face  numerous disadvantages in the Chinese 
marketplace and are deprived of national treatme nt vis-à-vis their domestic counterparts.  China 
significantly limits the distributors and distribution channels that are available to imported reading 
materials; they impose a restrictive subscription regime on a large portion of these imported products.  
China also discriminates against imported sound recordings intended for electronic distribution by imposing more burdensome content re view requirements prior to distri bution.  Finally, China confines 
imported films for theatrical release to two Chinese state-controlled distributors.  In each instance, 
China accords treatment to imported reading materials, sound recordings intended for electronic distribution, and films for theatrical release that is less favourable than that accorded to like domestic 
products. 
4.73 China's measures governing the distributi on of imported reading materials (the Imported 
Publications Subscription Rule  and the Publications (Sub-)Distribution Rule ), hard copies of imported 
sound recordings intended for electronic distribution (the 2001 Audiovisual Products Regulation , the 
Audiovisual Products Importation Rule , the Internet Culture Rule , the Network Music Opinions ), and 
imported films for theatrical release (the Film Regulation , the Film Enterprise Rule , and the Film 
Distribution and Exhibition Rule ) are inconsistent with Article III:4 of the GATT 1994.  
4.74 The Appellate Body has identified three distin ct elements that are required to establish a 
breach of Article III:4: (1) the imported and domestic products are "like products";  (2) the measure is 
a law, regulation, or requirement affecting the intern al sale, offering for sale, purchase, transportation, 
distribution, or use of the imported and domestic  like products;  and (3) the imported product is 
accorded less favourable treatment than the domestic like product. 
4.75 For each product, imports are "like" those made in China within the meaning of Article III:4.  
The question of whether imported and domestic pr oducts are "like products" for the purposes of 
Article III:4 is readily answered where the measure s at issue make distinctions between products 
based solely on origin.  As the panel found in India – Autos , where "origin [is] the sole criteria 
distinguishing the products, it is correct to treat su ch products as like products within the meaning of 
Article III:4."   
4.76 Whether they are reading materials, sound record ings intended for electronic distribution, or 
films for theatrical release, the imported and domestic  products share the same physical characteristics 
and commercial uses.  However, Chinese measures discriminate against imported reading materials, imported sound recordings intended for electronic distribution, and imported films for theatrical 
release on the basis of national origin through measures that favour the purchase and use of their 
domestic counterparts. 
4.77 The second prerequisite to a finding of an Artic le III:4 inconsistency requires a showing that 
the measures at issue "affect [the] internal sale, of fering for sale, purchase, transportation, distribution, 
or use" of like products.  The term "affecting" in  Article III:4 has been understood to have a "broad 
scope of application", and to cover measures even beyond those which directly regulate or govern the 
sale of imported and domestic like products.  The measures at issue here all regulate at least the internal sale, offering for sale, purchase, distribut ion or use of imported and domestic like products, 
and thus readily qualify as "affecting"  these activities within the meaning of this term in Article III:4.  WT/DS363/R 
 Page 17 
 
 
  4.78 The last element in an Article III:4 analysis is whether the measures at issue accord less 
favourable treatment to imported products than to domestic products.  The Appellate Body has found 
this to be the case when, for exam ple, the measure at issue modifies the conditions of competition in 
the relevant market to the detriment of imported products.  The panel in Canada – Wheat  found that 
"the imposition of additional, or extra, require ments on imported products as compared to like 
domestic products constitutes less favourable treatment ".  The measures at issue systemically distort 
competition between imported and like domestic pr oducts.  These regulatory constraints, from which 
competing Chinese products are exempt, create majo r disadvantages for imported products in the 
Chinese market place. 
4.79 China's Imported Publications Subscription Rule  accords less favourable treatment to 
imported reading materials than that accorded to  domestic reading materials by modifying the 
conditions of competition in the Chinese marketplace to  the detriment of imported reading materials.  
This measure only permits distribution of imported newspapers and periodi cals, and imported books 
and electronic publications in the limited distribution category via a highly restrictive subscription regime that does not apply to domestic reading materials. 
4.80 Imported reading materials suffer further comp etitive disadvantage from the fact that they 
may only be distributed by a limited set of di stributors in China, i.e., wholly Chinese-owned 
distributors.  Domestic reading materials are subject to neither the subscription requirement nor the limitation on who can distribute them, as clarified by the Publications (Sub-)Distribution Rule .  As a 
result, China accords less favourable treatment to  imported reading materials than it accords to 
domestic reading materials in c ontravention of Article III:4. 
4.81 China's measures modify the conditions of compe tition in its sound recordings market to the 
detriment of imported sound recordings.  Sp ecifically, Article 9 and Appendix 2 of the Network Music 
Opinions  provide that imported sound recordings intended for electronic distribution must be 
subjected to a formal content review and approval pr ocess run by the Ministry of Culture (MOC) that 
must be successfully completed before the imported products can be distributed.  The like products at 
issue – domestic sound recordings intended for electronic distribution that have Chinese copyright 
owners – are not covered by this mandatory regulat ory process as a precondition to their distribution.  
The measure provides that employees of the domes tic sound recording's publisher can review the 
content in-house, and then simply register the reco rding with MOC at the time the recording is ready 
for distribution.  
4.82 The Internet Culture Rule further perpetuat es this disparate treatment by providing for 
asymmetrical content review requirements that decidedly favour domestic over imported sound 
recordings intended for electronic distribution.  In contrast, Article 19 of the Internet Culture Rule  
states that domestic Internet cultural products are to be reviewed by their domestic distributor's 
internal content examination system.  Article 16 further provides that such domestic products only 
need to be registered with MOC within 60 days after being distributed. 
4.83 The 2001 Audiovisual Products Regulation  and the Audiovisual Products Importation Rule  
echo this discriminatory content review require ment.  These two measures impose additional content 
review requirements on imported products as compar ed to like domestic products resulting in 
distorted competitive conditions that disadvantage imported sound recordings vis-à-vis domestic like 
products. 
4.84 China's regime for the distribution of films for theatrical release also creates discriminatory 
competitive conditions that harm imported products.  First, the Film Enterprise Rule and the Film 
Distribution and Exhibition Rule  only permit imported films for theatrical release to be distributed by 
two state-controlled enterprises, China Film Group a nd Huaxia.  In contrast, domestic films can be WT/DS363/R 
Page 18  
 
  distributed by these two enterprises as well as by any of the other film distributors established in 
China. 
4.85 Second, the two state controlled distributors that are the only option for distributing imported 
films are explicitly required by law to support the distribution and exhibition of domestic films.  
These requirements treat imported films less favourably than domestic films.  The distribution 
opportunities afforded to domestic films are radically different, involving access to the complete 
range of distribution channels.   
6. China's measures regarding product distribution are inconsistent with China's 
obligations under the Accession Protocol 
4.86 The Imported Publications Subscription Rule , the Publications (Sub-)Distribution Rule , the 
Network Music Opinions , the Internet Culture Rule , the 2001 Audiovisual Products Regulation , the 
Audiovisual Products Importation Rule , the Film Regulation , the Film Enterprise Rule  and the Film 
Distribution and Exhibition Rule  are also inconsistent with paragraph 5.1 of Part I of the Accession 
Protocol with respect to importe d publications, imported hard copies  of sound recordings intended for 
electronic distribution, and imported films for theatrical release.  As these measures are all 
inconsistent with Article III:4 of  the GATT 1994, they are likewise in breach of Section 5.1 of Part I 
of the Accession Protocol. 
4.87 These measures are also inconsistent with China' s obligations under paragr aph 1.2 of Part I of 
the Accession Protocol, to the extent that it inco rporates commitments in paragraph 22 of the Working 
Party Report.  As these measures are inconsistent w ith China's obligations under Article III:4 of the 
GATT 1994 regarding national treatment with respec t to imported and domestic products, they are 
consequently inconsistent with Section 1.2 of Part I of the Ac cession Protocol and paragraph 22 of the 
Working Party Report. 
7. Conclusion 
4.88 For the foregoing reasons, the United States resp ectfully requests that the Panel find that 
China's measures, as set out in the US panel request  are inconsistent with China's obligations under 
the Accession Protocol, the GATS, and the GATT 1994.   The United States further requests, pursuant 
to Article 19.1 of the DSU, that the Panel recommend that China bring its measures into conformity with its obligations under the Accession Protocol, the GATS, and the GATT 1994. 
B. F
IRST WRITTEN SUBMISSION OF CHINA  
1. Introduction 
4.89 The United States is essentially attempting to justify its complaint against alleged trade 
restrictions in China for cultural products in the hope of obtaining enhanced market access, prospect 
of more liberal markets and stronger commercia l opportunities.  However, the United States is 
feigning to ignore the unique nature of the goods and services concerned by this proceeding.  Cultural 
goods and services have in common the fact of being vectors of cultural identity and values and, as 
such, of justifying the implementation of specific, yet WTO compliant, regulatory measures. 
4.90 The United States further attempts to unduly ex tend China's commitments beyond that which 
was negotiated and agreed upon at the time of its accession to the WTO.  Such commitments, 
however, have been clearly defined at the time  of China's WTO accession and reflect China's 
intention to implement a sustainable liberalization consistent with its legitimate policy objectives in 
the cultural sector.  WT/DS363/R 
 Page 19 
 
 
  4.91 The present dispute concerns (i) reading ma terials (books, newspapers, periodicals and 
electronic publications) and their corresponding distribution services, (ii) audiovisual products, including so-called "audiovisual home entertainm ent products" and "sound recordings" and their 
corresponding distribution services, (iii) network musi c services (inaccurately described as "electronic 
distribution services" by the United States) consisting in the dissemination of music via the Internet 
and (iv) motion pictures for theatrical release. 
4.92 With regard to trading rights in the sector of  motion pictures for theatrical release, the United 
States is unjustified to base its claim on an alleged violation by China of its commitments in the area 
of trade in goods, insofar as it ignores the fact th at motion pictures for theatrical release cannot be 
qualified as goods.  The same is true for the importa tion of audiovisual products used for publication.  
For reading materials and audiovisual products, the Un ited States fails to take account of China's right 
to regulate trade in a manner consistent with the WTO Agreement, including Article XX of the 
GATT. 
4.93 In the same vein, concerning distribution servi ces, the United States fails to present to the 
Panel the true scope and nature of China's WTO commitments applicable to services involving 
cultural products and is furthe r unjustified in arguing that China is violating GATS Article XVII 
concerning reading material distribution services, as well as GATS Articles XVI and XVII, concerning audiovisual product distribution services.  Its claim under GATS Article XVII in respect to the so-called "electronic distribution of sound r ecordings" is based on an unjustified extension of 
the scope of China's GATS commitments in an atte mpt to include new and distinct services, i.e. 
network music services.  
4.94 For product distribution, the United States is unjustified in arguing that China is violating 
Article III:4 of the GATT since the US claim fails to take account of the fact that the regulation relevant to certain sectors (motion pictures for thea trical release and network music services) cannot 
be scrutinized under the rules applicable to trade in goods, or, for reading materials, is based on a 
misrepresentation of China's measures and/or th e competitive situation between the products.  
2. Trading rights  
(a) Motion pictures for theatrical release 
4.95 The United States based its claim with regard to trading rights in the sector of motion pictures 
for theatrical release inter alia  on the Film Distribution and Exhibition Rule .  Since these rules were 
not explicitly, or even implicitly, referred to in the US panel request, they cannot be considered to 
have been adequately identified in the meaning of  Article 6.2 DSU and are thus outside the Panel's 
terms of reference. 
4.96 The US claim is based on Paragraphs 5.1, 5. 2 and 1.2 of China's Accession Protocol and 
paragraphs 83 and 84 of the Work ing Party Report, which only cove r trade in goods. However, the 
United States fails to establish that motion pictur es for theatrical release are goods.  In fact, the 
commercial exploitation of motion pictures through th eatrical release consists of the organization of 
public projections involving three main service provi ders, i.e. producers, distributors, and movie 
theatres. 
4.97 The importation and distribution of foreign motion pictures is organized on the basis of 
copyright licensing agreements where the producer grants the distributor the right to use copies of the 
motion picture in order to organize its distribution fo r the period of time and in the territories agreed 
with the producer. WT/DS363/R 
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  4.98 Motion pictures are imprinted on cinematographic film.  The distributor will receive copies of 
materials (including prints, soundtracks, and adve rtising materials) in order to organize the 
distribution of the motion picture within its licensed territory.  At the end of the period of release, the 
distributor will either (i) return all delivered materials as well as all materials created by the 
distributor or (ii) destroy all materials. 
4.99 A motion picture, consisting of a sequence of pictur es that is projected on to a screen in rapid 
succession and accompanied by a soundtrack, is per se  intangible and cannot be possessed.  Motion 
picture distributors do not buy the motion picture as such.  Likewise, movie-goers do not buy the motion picture as such, but only the right to attend the projection.  The commercial value of the motion picture lies in the revenue generated by th e services provided for its exploitation, and not in 
the fixed revenue generated by the sale of goods .  Motion pictures for theatrical release cannot 
therefore be considered as goods, i.e. "items that  are tangible and capable of being possessed", as 
specified by the Appellate Body.  
4.100  While the delivered materials that "carry" the motion picture are traditionally tangible items 
(motion pictures, however, are increasingly stored and transmitted digitally and no longer "carried" in 
reels), the existence of these materials, that are merely accessories to a service, does not allow treating 
motion pictures as goods. 
4.101  The above qualification of the motion picture bus iness as a service is confirmed by the main 
relevant international classification instruments.  The activities involved in the exploitation of motion 
pictures for theatrical release are classified as services, and the only "goods" category relating to 
motion pictures is the film reel, which is described as an accessory  to such services. 
4.102  While the claim by the United States is only about trade in goods, the Chinese regulations 
challenged by the United States, i.e. the Film Regulation ;  the Film Enterprise Rule , do not treat the 
importation of motion pictures as the importati on of goods, but as a licensing service for the 
exploitation rights of motion pictures for their theatrical distribution. 
4.103  It should further be recalled that in its Schedule to the GATS China made an additional 
commitment concerning the "importation of motion pictures for theatrical release".  This commitment 
confirms that (i) the concept of "importation" used  by China in the context of the regulation of the 
motion picture business refers to services, and that (ii) measures affecting the importation of motion pictures do not fall under WTO provisions relating to the importation of goods. 
4.104  Because motion pictures for theatrical release are not goods, the challenged measures cannot 
be scrutinized under paragraphs 5.1,  5.2 and 1.2 of China's Accessi on Protocol and paragraphs 83 and 
84 of the Working Party Report which refer only to trade in goods.  
(b) Audiovisual products used for publication  
4.105  The United States is basing its claim on paragrap hs 5.1, 5.2 and 1.2 of China's Accession 
Protocol and paragraphs 83 and 84 of the Work ing Party Report that only cover trade in goods, 
wrongly assumes that the importation of improperly called "unfinished" audiovisual products is 
importation of goods.  As the United States itself specifies, "unfinished audiovisual products are 
master copies to be used to publish and manufactur e copies for sale in China".  These master copies 
carry an audiovisual content that is subject to a copyright licensing agreement between the foreign 
rights holder and a Chinese publisher.  Consequently, the importation of audiovisual products used for 
publication does not correspond to the importation of goods, but to copyright licensing. 
4.106  In other words, the "right to import" audiovisual  products used for publication consists of the 
right to enter into a copyright agreement for the publ ication of copies of an audiovisual content, and  WT/DS363/R 
 Page 21 
 
 
  not of the right to import goods.  Consequently, the measures governing trade with audiovisual 
products used for publication cannot be scrutinized under paragraphs 5.1, 5.2 and 1.2 as well as 
paragraphs 83 and 84 of the Working Party Report of China's Accession Protocol, the legal basis of 
the US claim, which only refer to trade in goods. 
(c) Reading materials and audiovisual products, including sound recordings 
4.107  China's regime for the importation of the above  cultural goods is designed to guarantee an 
effective and efficient application of the content re view decided by China and is in full compliance 
with China's WTO rights and obligations.  
4.108  The cultural goods have a major impact on societ al and individual morals as emphasized in 
particular in the UNESCO Convention on the Protec tion and Promotion of the Diversity of Cultural 
Expressions. 
4.109  It is of vital interest for China to impose a hi gh level of protection of public morals through an 
appropriate content review mechanism that prohibits any cultural goods with a content that could have 
a negative impact on public morals. 
4.110  Since the review on imported cultural goods needs to be carried out at the border, but also 
because the administrative authorities are not in a pos ition to carry out a comprehensive and thorough 
content review by themselves without creating undue delays, there is an allocation of tasks, for the 
exercise of the content review, between the relevant administrative authorities and selected importation entities.  The first are responsible for administering and supervising the content review 
process.  The second are required by the challenged  measures to conduct content review and are 
selected, based on their capacity relating to conten t review to avoid the importation of cultural 
products with content having a negative impact on pub lic morals.  The importation entity shall review 
the content of reading materials envisaged for im portation and decide whether or not the reviewed 
goods shall be imported in the case of reading materi als or be submitted to the relevant administrative 
authority for final approval in the case of electronic publications and audiovisual products. 
4.111  The selection process allows the relevant admini strative authority to ensure that (i) each 
selected entity has an appropriate organizational st ructure, (ii) each selected entity has a reliable, 
competent and capable personnel, (iii) the entities fi nally selected ensure an appropriate geographical 
coverage, and that (iv) the number of selected entities remains limited. 
4.112  Paragraph 5.1 of China's Accession Protocol requires China to liberalize the right to trade, but 
nevertheless allows China to limit the right to trad e through its right to regulate trade in a manner 
consistent with the WTO Agreement, including Ar ticle XX of the GATT.  The challenged selection 
process is justified by Article XX of the GATT a nd thus consistent with the WTO Agreement.  
Paragraph 5.1's right to regulate trade is the e xpression of the WTO general exception to Members' 
obligations, which leaves room for the implementa tion of public policies and is crucial for the 
preservation of China's sovereignt y.  Paragraph 5.2 of China's Accession Protocol as well as 
paragraphs 83 and 84 of the Work ing Party Report on China's Accession, which are closely linked to 
paragraph 5.1 of China' Accession Protocol, shall al so apply "without prejudice" to China's right to 
regulate trade in a manner consistent with the WTO Agreement. 
4.113  The challenged Chinese regulations establishing a system of selection of importation entities 
are necessary to protect public morals and full y justified under Article XX (a) of the GATT. 
4.114  The selection of importation entities is designed to protect public morals in China.  In fact, 
China has decided not to allow the importation of cultural goods, the content of which could have a 
negative impact on public morals, especially those that depict or vindicate violence or pornography.  WT/DS363/R 
Page 22  
 
  Then, the measures establish a content review mechanism for imported cultural goods, based on a 
selection of importation entities that ensures an effective contribution of these entities to the content review. 
4.115  The selection of importation entities is also necessary for the protection of public morals in 
China.  Pursuing a high level of protection, i.e.  prohibiting importation of cultural goods negatively 
impacting public morals through effective content review, is of vital importance for China.  Its 
importance is clearly affirmed by the challenged measures and further illustrated by the sanctions 
imposed in case of infringements. 
4.116  The selection of importation entities contributes to the pursued aim in various ways. 
According to the relevant regulations, the im portation entities to be selected must have an 
organizational structure and competent personnel en suring that the content review be conducted both 
efficiently and effectively.  The importation entities' geographical presence within China and its coherence with the State's plans guarantees no entry gate into the Chinese market is overlooked.  
Finally, the limited number of importation entities enables the government authorities to exercise 
efficient control over and cooperate effectively with importation entities. 
4.117  The selection of importation entities has limited impact on trade in cultural goods.  While 
primarily aimed at content review, the selection and supervision of importation entities also focus on 
their capacity to avoid disruption of the normal tr ade flow.  The correct implementation of content 
review by these entities helps to minimize undue de lay of importation. Figures about import volume 
further demonstrate the lack of trade distortion. 
4.118  The selection of importation entities is also a pplied in a reasonable manner and in full 
compliance with the requirements set by the "Chap eau" of Article XX of the GATT, insofar as it is 
not applied in a manner constituting a means of arb itrary or unjustifiable discrimination.  Indeed, 
when considering China's regulatory framework in its entirety, it appears that domestic publishers 
must also be approved by the administrative authorities, on the basis of content review related requirements. 
4.119  Given the fact that the selection of importati on entities is based on requirements adapted to 
the need to ensure an efficient content review while limiting its collateral trade effects, it cannot 
therefore be viewed as a disguised restriction to inte rnational trade.  Further, this is evidenced by the 
import statistics for reading mate rials and audiovisual products, wh ich show that the number of 
imported titles has been steadily increasing. 
4.120  Justified under Article XX (a) of the GATT, the challenged measures do not violate China's 
obligations under paragraphs 5.1, 5.2, 1.2 of Chin a's Accession Protocol and paragraphs 83 and 84 of 
the Working Party Report on China's Accession.   
3. Distribution services 
4.121  In its first written submission, the United States challenges certain specific requirements 
applying to foreign entities wishing to establish in the activity of distribution of reading materials and 
audiovisual products, i.e. (i) requirement that fore ign entities have no record of laws or regulations 
violations in the past three years for being authorized  to invest in the activity of distribution of reading 
materials (so-called "pre-establishment legal complia nce"), (ii) approval process to engage in the 
distribution of reading materials and audiovisual products, and (iii) "Decision making criteria" (such 
as "friendliness", "great capability" , "standardized management", "advanced technology" and "reliable 
investment") that the approval agency, including both General Administration of Press and 
Publication ("GAPP") and Ministry of Culture, w ould apply in the examination and approval of 
Chinese-foreign joint ventures for the distribution of reading materials and audiovisual products.  WT/DS363/R 
 Page 23 
 
 
  4.122  Considering that these claims were not addressed in the US panel request and that the related 
measures were not addressed in this regard, they cannot  be considered to be within the Panel's terms 
of reference and should therefore be  disregarded.  As far as the rema ining claims relating to allegedly 
discriminatory prohibitions and/or discriminatory requirements are concerned, including the above 
identified claims should they be found to be within  the Panel's terms of reference, they should be 
rejected as being unfounded. 
(a) Reading materials  
(i) Alleged discriminatory prohibitions 
4.123  The United States provided the Panel with an in accurate picture of the different Chinese 
concepts relating to distribution. 
4.124  Fa Xing  is the generic term covering the different  features of distribution. It covers two 
distinct distribution channels:  Zong Fa Xing  and Fen Xiao .  Fen Xiao  corresponds to the traditional 
conception of distribution through wholesaling ( Pi Fa ) and retailing ( Ling Shou ). 
4.125  The United States' description of Zong Fa Xing  as a compulsory step of  the distribution chain 
before wholesaling by any distributor is therefore incorrect since Zong Fa Xing  is a comprehensive 
"top to bottom" distribution channel, distinct from the traditional distribution channel.  Accordingly, 
the translation of Zong Fa Xing  by the United States as "master distribution" is not accurate.  
Similarly the translation of Fen Xiao  submitted by the United States, i.e.  "sub-distribution", is also 
inaccurate insofar as it insinuates that Fen Xiao , which is in fact an autonomous "top to bottom" 
distribution channel (like Zong Fa Xing , but with intermediaries), would be a stage of the distribution 
channel leading to Zong Fa Xing , thus ignoring the fact that both distribution channels are 
autonomous distribution channels.  
4.126  The United States also fails to take into account  the recent legislative developments in the 
sector of distribution of electronic publications.  In fact, the 1997 Electronic Publications Regulation  
has been replaced by the recently promulgated 2008 Electronic Publications Regulation .  Considering 
the above legal development, th e prohibitions for foreign-invested enterprises to engage in Zong Pi Fa  
and the wholesaling of electronic publications are no l onger applicable, contrary to the US assertion in 
its first written submission. 
4.127  China, in fact, never intended to include Zong Fa Xing  in the scope of distribution services. 
What China actually committed under Sector 4B of  its Schedule to the GATS was and still is 
wholesale, which is a sub-category of Fen Xiao . 
4.128  A proper interpretation of the commitments undertaken by China under Sector 4B 
("wholesaling") reveals that Zong Fa Xing  can not be considered as wholesaling.  "Distribution Trade 
Services" of which wholesaling is a sub-sector have been defined by China in Annex 2 of its Schedule 
to the GATS as being "characterized as reselling me rchandise".  "Reselling" is defined as "selling (a 
thing) again, esp. commercially".  Consequently, a product being resold must have been previously 
sold. 
4.129  Zong Fa Xing  may be operated by two types of entities, either the publisher itself for its own 
publications or by an approved Publication Zong Fa Xing  entity commissioned by the publisher.  In 
the case where the publisher itself operates Zong Fa Xing  for its own publications, the Zong Fa Xing  
operation cannot be qualified as a distribution trade service as it is not a "reselling operation", but a 
direct sale to the end-consumer.  In cases where an entrusted Publication Zong Fa Xing  entity operates 
Zong Fa Xing  of reading materials, it will itself sell the reading materials to the end-consumer without 
relying on further intermediaries.  WT/DS363/R 
Page 24  
 
  4.130  Therefore, the US claims related to the prohib ition for foreign invested entities to engage in 
Zong Fa Xing  and Zong Pi Fa  as well as wholesale of electronic publications should be rejected. 
(ii) Alleged discriminatory requirements 
4.131  When read in conjunction, Paragraphs (2) a nd (3) of Article XVII of the GATS make clear 
that the mere fact that a Member establishes a formally different treatment between domestic and 
foreign services and service suppliers cannot suffice to establish a violation of Article XVII of the 
GATS.  In fact, as clearly established by Paragraph (3 ) of Article XVII, a formally different treatment, 
which is in itself not prohibited by the GATS, may only be considered as vi olating Article XVII, "if 
its modifies the conditions of competition in favour of services or service suppliers of the Member 
compared to like services or service suppliers of any other Member". 
4.132  The United States in its first written submission has only addressed the first element of the 
above required demonstration wit hout putting forward any element evidencing a modification of the 
conditions of competition resulting from the alleged different treatment. 
4.133  The United States, when asserting that the regi stered capital requirements for domestic and 
foreign-invested enterprises engaging in the whol esaling of reading materials are different, only 
provides a partial picture of the applicable regime .  The United States omits to mention that according 
to the 1993 Company Law , shareholders of a wholly Chinese-owned company must contribute the 
entire registered capital contribution before its est ablishment, while foreign-invested enterprises can 
contribute the capital requirements in several separ ate instalments after its establishment.  This 
treatment of foreign-invested enterprises cannot be considered as affecting the conditions of 
competition.  
4.134  As far as the requirement of operating terms is concerned, the United States neglects that, 
even though foreign-invested enterprises are subject  to a fixed term of operation, they are free to 
extend that term under normal and transparent co nditions.  The only requirements are that the 
extension must be agreed by all investors, all Boar d Directors, and comply with the laws, regulations 
and policies on foreign investment applicable at the time of extension.  Thus, the approval is almost 
automatic and only for the purpose of verifying the intention of investors and compliance with the 
applicable foreign investment policy which need to  be compatible with China's GATS commitments.  
This requirement cannot be considered as affecting the conditions of competition. 
4.135  As far as the approval process is concerned,  both wholly Chinese-owned enterprises and 
foreign-invested enterprises must go through GAPP approval procedures and the State Administration 
for Industry and Commerce registration procedures.   The only difference relating to the approval 
process therefore lies in the fact that foreign-inv ested enterprises will have to submit an additional 
application, i.e. to the Ministry of Commerce ("MOFCOM").  As far as the time-limits for both 
approval procedures are concerned, it appears that they  are almost identical (only a 5-days difference). 
4.136  As far as the implication of MOFCOM in th e approval process is concerned, it should be 
recalled that pursuant to China's Schedule to th e GATS, and in particular to its horizontal 
commitments, China expressly limited its commitm ents on market access by indicating that "In 
China, foreign-invested enterprises include forei gn capital enterprises (also referred to as wholly 
foreign-owned enterprises) and joint venture ente rprises and there are two types of joint venture 
enterprises: equity joint ventures and contractual joint ventures." 
4.137  
Through this limitation, China preserved its right to enforce the laws and regulations 
governing these corporate forms at the time of its a ccession to the WTO.  These laws and regulations 
already provided for the approval processes of fo reign-invested enterprises by MOFCOM that the  WT/DS363/R 
 Page 25 
 
 
  United States is challenging.  In any event, the a pproval process cannot be considered as affecting the 
conditions of competition. 
(b) Audiovisual products  
(i) The US claim under Article XVI of the GATS 
4.138  The United States has provided the Panel with an inaccurate description of the challenged 
measures, by asserting that the Chinese party to  a Sino-Foreign joint venture engaging in the 
wholesaling of audiovisual products must hold at least 51 per cent of the shares. 
4.139  However, the relevant challenged measures refe r to the rate of distribution of profit and 
allocation of loss in contractual joint ventures.  According to these measures, in the sector of 
audiovisual products distribution, and consistent ly with China's Schedule to the GATS, foreign 
investment is limited to the form of contractual join t ventures.  In such corporate forms, the allocation 
of profit and loss is negotiated in the contract be tween the partners, and can be freely determined. 
4.140  Article XVI of the GATS does not impose any obligations on WTO Members to insert any 
limitations with respect to the rate of profit and loss allocation in their Schedule to the GATS.  Thus, 
the relevant Chinese measures challenged cannot be found to be violating Article XVI of the GATS. 
(ii) The US claims under Article XVII of the GATS 
4.141  Similarly to its claim regarding the distributio n of reading materials, the United States has 
only addressed the formal differences in the treatment  of foreign and domestic competitors without 
putting forward any element evidencing a modifi cation of the conditions of competition resulting 
from the alleged different treatment as required by  paragraph (3) of Article XVII of the GATS. 
4.142  As far as the allegations regard ing the equity participation are concerned, China recalls that 
these provisions' limitations refer to the rate of distribution of profit and allocation of loss in 
contractual joint ventures.  Even though there are fo rmally different treatments regarding the rates of 
profit and loss allocations among shar eholders within the contractual joint venture engaging in the 
distribution of audiovisual products, this does not impact the actual conditions of competition to the 
detriment of such contractual joint ventures. 
4.143  As far as the limitation of the operating terms is concerned, the United States neglects that, 
even though foreign-invested enterprises are subject  to a fixed term of operation, they are free to 
extend that term under normal and transparent co nditions as explained in the context of reading 
materials distribution services.  This formally different treatment does not affect the conditions of competition. 
4.144  As far as the approval process is concerned, an  assessment of the relevant legal framework 
reveals that foreign-invested enterprises have to undergo only four subsequent  approval stages, not six 
as alleged by the United States.  Similarly to the expl anations provided by China in the context of the 
US claim related to the distribution of reading mate rials, China, by limiting its commitments to certain 
corporate forms ( inter alia  equity joint ventures and contractual joint ventures), preserved its right to 
impose a MOFCOM approval to foreign-invested en terprises.  In any event, the approval process 
cannot be considered as affecti ng the conditions of competition. 
4.145  Contrary to what the United States asserts, i.e.  that foreign partners in the contractual joint 
venture may not contact Chinese government agencies during the approval process, none of the provisions of the Audiovisual (Sub-)Distribution Rule
 expressly prohibits the foreign partners from 
contacting the relevant authorities in the cour se of the approval process and thus from actively WT/DS363/R 
Page 26  
 
  participating in that process. Therefore, no forma lly different treatment between foreign-invested 
enterprises and domestically-owned distributors exists. 
4.146  As far as the US claim regarding the potentia l requests by the approval authorities for so 
called "other document" during the approval process is concerned, there is no different treatment 
between foreign-invested and domestically-owned enterprises insofar as the latter also face similar 
potential additional requirements. 
(c) Sound recordings  
4.147  The United States is wrongly asserting that what it has chosen to label "electronic distribution 
of sound recordings", which in fact corresponds to  network music services, could be qualified as a 
means of delivering "sound recording distribution se rvices", thus allegedly be ing covered by China's 
relevant commitments under Sector 2D of its Schedule to the GATS. 
4.148  Network music services are, in fact, a new type of service, which emerged virtually around 
2001, totally different in kind from the "sound recording distribution services" committed by China, thus not being covered by its commitments.  
4.149  There are a number of significant differences between network music services and 
"traditional" sound recording distribution servi ces as committed by China.   The most evident 
difference lies in the fact that, contrary to "tra ditional" sound recording distribution, network music 
services do not supply the users with sound recordings in physical form, but supply them with the right to use a musical content.  Apart from this fundamental difference, it further appears that not only the infrastructure and operation of both businesses, but  also the perception of the consumers with 
regard to the separate offers, significantly differ. 
4.150  China also established new and distinct regulator y regime for this newly arisen service.  The 
first regulation in this field, the Internet Culture Rule in 2003, sets up the conditions for the 
establishment of Internet cultural entities, estab lished a content review mechanism for imported 
cultural works, and stipulated sanctions  for any unlawful service activity.  The Network Music 
Opinions further provides specific procedures for the re gulation of the market access of network 
music service, the enhancement of the supervisi on over prohibited content, and the enforcement of 
intellectual property rights. 
4.151  The United States in its first written submission failed to make a comprehensive interpretation 
of China's relevant commitments, i.e. the releva nt market access and national treatment commitments 
for "sound recording distribution services" under Sector  2D which China has provided to the Panel.  
4.152  The ordinary meaning of "sound recording distribution services" refers to the marketing and 
supply of a specific category of goods, i.e. goods c ontaining recorded music, such as CDs or other 
physical supports.  Network music services, however, which consist basically of the transmission of 
intangible content to users via the Internet, cannot  be considered as falli ng under China's relevant 
commitments under Sector 2D of its Schedule to the GATS. 
4.153  China's commitment referring to "sound recording distribution services" in Sector 2D should 
further be read in light of the entire Schedule to which it belongs, i.e. other entries in different sub-
sectors, as well as the related Annexes included in China's Schedule to the GATS.  Sector 4A-4E of 
China's Schedule, which covers the general category of "dis tribution services" refers to the definition 
of "distribution services" provided in  Annex 2 of its Schedule to the GATS, which refers to the action 
of reselling merchandise.  This reference provides fu rther relevant guidance for the interpretation of 
the specific entry of "sound recordi ng distribution services" in Sector 2D.  WT/DS363/R 
 Page 27 
 
 
  4.154  When interpreted against this specific contex t, the sub-sector "sound recording distribution 
services" must be considered as covering the dist ribution of a specific category of goods, i.e. goods 
containing recorded music, such as CDs or other physical carriers, and cannot be interpreted as 
covering the supply of network music services. 
4.155  Finally, when considering the circumstances prev ailing at the time of the conclusion of the 
services negotiations concerning China's accession, it appears that none of the parties involved can 
actually have had the intention of including a commi tment related to a virtually inexistent service 
category, i.e. network music services. 
4.156  The principle of "technological neutrality", on which the US claim is actually based, has no 
textual basis in the WTO legal framework and is far from being a principle generally agreed upon 
among WTO Members. 
4.157  Even if the principle of "technological neutrality " could be taken into consideration by the 
Panel, quod non , the analysis of the United States is flawed since it is based on the erroneous premise 
that network music services constitute a means of delivery for sound recordings distribution services 
as committed by China. 
4.158  According to the US acceptation of this princi ple, a commitment inserted into a Member's 
schedule regarding a particular service sector should ex tend to all means of delivery of that particular 
service unless an express limitation has been inserte d into the Schedule for one or more delivery 
modes, including potential or non-existing ones at the time of conclusion of its Schedule to the GATS.  
In US – Gambling , however, the Panel limited the scope of the so-called principle of "technological 
neutrality" to "possible" means of delivery.  New ser vices or new means of delivery not existing at the 
time of the conclusion of a Member's Schedule to  the GATS cannot reasonably be considered as 
"possible".  Any other interpretation would le ad to open-ended, unpred ictable and therefore 
unsustainable commitments. 
4.159  Unduly extending the scope of this contentious principle would be against the principle of 
progressive liberalization as reflected in the Prea mble to the GATS and would preclude Members, 
especially developing Members, from making further commitments.  
4.160  A distinct service, such as network music services, which have not been offered for 
liberalization at the time of the negotiation of th e Schedules for the simple reason that they hardly 
existed at that time, cannot be committed post hoc through the dispute settlement process.  This is all 
the more true in view of the fact that new servi ces appeared following the development of information 
technologies are currently subject to ongoing discussions within the WTO which are far from creating 
consensus among Members. 
4.161  The principle of in dubio mitius  supports a restrictive interpretation of China's GATS 
commitments.  The principle of in dubio mitius  indeed requires that sovereign State obligations 
pursuant to treaties, such as China's GATS commitment s, be interpreted restrictively.  The Appellate 
Body in EC – Asbestos  stated that an adjudicatory body, and therefore a Panel, "cannot lightly assume 
that sovereign states intended to impose upon themse lves the more burdensome, rather than the less 
burdensome, obligation by mandating conformity or  compliance with such standards, guidelines and 
recommendations."  Applying this principle to the present case, China's GATS commitments must not 
be interpreted as covering network music services.  
4.162  Considering the above, it appears that China did not include so-called "electronic distribution 
of sound recordings" in its GATS commitments and that therefore the challenged measures do not 
violate Article XVII of the GATS. WT/DS363/R 
Page 28  
 
  4. Product distribution  
(a) Reading materials 
4.163  In its panel request, the United States alleged that  China acted inconsistently with Article III:4 
of the GATT (and with paragraph 5.1 and para graph 1.2 of China's Accession Protocol) by 
establishing different distribution opportunities fo r imported and domestic reading materials.  
However, the United States had not raised such  concerns in its request for consultations. 
4.164  As the Panel in Korea – Commercial Vessels  clarified, "the scope of the request for 
establishment is governed by, and may not exceed, the scope of the consultations that actually took 
place between the parties".  It follows that the US request to examine claims under Article III:4 of the 
GATT with regard to imported reading materials is  inconsistent with Articles 4 and 6 of the DSU, 
thus not within the terms of reference. 
4.165  Should the Panel decide to examine the Unite d States claims' concerning reading materials 
under Article III:4 of the GATT, it should be underlined that the United States challenges, in its first 
written submission, several issues in relation to th is claim which were not mentioned in its panel 
request.  
4.166  First, it challenges the mandatory subscription regime applying to impor ted reading materials 
as well as the conditions, limitations and process a pplicable to persons wishing to subscribe to 
imported reading materials.  However, in its panel re quest, the United States had not raised this issue.  
The initial claim of the United States related, in fact, to the prohibition imposed on foreign service 
suppliers to distribute imported reading material s and its restrictive effect on the distribution 
opportunities of these reading materials.  The subscr iption regime as such and the conditions imposed 
on subscribers of imported reading materials are clearly a distinct issue. 
4.167  Moreover, the United States did not, in its pa nel request, refer to provisions that would 
specifically deal with the channelling requirement  and the conditions imposed on subscribers of 
imported reading materials.  It onl y made a general reference to the Imported Publications 
Subscription Rule .  However, such a general reference is not  sufficient to consider that the measures 
concerning the conditions imposed on subscribers have  been adequately identified in the meaning of 
Article 6.2 of the DSU. 
4.168  Secondly, the United States included electronic publications in its claims concerning reading 
materials under Article III:4 of the GATT.  However,  it had not mentioned thes e products in its panel 
request.  Electronic publications, which are a different  product, cannot be considered to be included in 
this limitative list. 
4.169  Even if the US claims were to be addressed, the United States fails to establish less favourable 
treatment for reading materials. 
4.170  It refers to two types of subscription systems, i. e. the one applicable to the restricted category 
of reading materials and the one applicable to  the non-restricted category of newspapers and 
periodicals.  The restricted category refers to reading materials that are prohibited from distribution in 
China but which are subscribed for research pur poses.  The non-restricted category refers to 
newspapers and periodicals that are subject to quasi-a utomatic subscription.  While it is true that these 
two types of subscription systems are different from the rules applicable to domestic like products, the 
United States must establish that these diffe rences result in less favourable treatment. 
4.171  As far as the restricted category is concerned,  the subscription system applied to foreign 
reading materials does not affect the conditions of  competition between fore ign and domestic products  WT/DS363/R 
 Page 29 
 
 
  in this category.  Indeed, the so-called restricted  category includes reading materials with prohibited 
content that are not allowed to be distributed in China, but are imported by certain government 
agencies and institutions for research purpose only.   Therefore, the challenged measures do not 
modify the competition between imported reading ma terials allowed to be distributed in China and 
their domestic counterparts. 
4.172  As far as the non-restricted category of newspape rs and periodicals is concerned, subscription 
is granted more or less automatically, without any involvement of the State agencies.  As a result, 
consumers can easily buy non-restricted newspape rs by subscription.  Therefore, the challenged 
measures do not modify the competition between impor ted non-restricted reading materials and their 
domestic counterparts. 
(b) Sound recordings 
4.173  In its first written submission, the United States referred, in its claim under Article III:4 of the 
GATT, to two regulations that had not been  mentioned in its panel request, i.e. the 2001 Audiovisual 
Products Regulation  and the Audiovisual Products Importation Rule . 
4.174  In its panel request, the United States had only mentioned the Internet Culture Rule , the 
Circular on Internet Culture , the Catalogue , the Several Opinions , and the Network Music Opinions . 
4.175  The United States has therefore not properly id entified the two measures at stake in the 
context of its corresponding claim in the panel requ est.  The Panel should therefore conclude that 
these measures do not fall within the terms of reference. 
4.176  Should the Panel, however, consider that th e above measures fall within the terms of 
reference, it would have to conclude that the United States failed to establish a prima facie case 
showing that the relevant measures, i.e. the 2001 Audiovisual Products Regulation  and the 
Audiovisual Products Importation Rule  affect the so-called "electronic distribution".  
4.177  Even if these two measures could be reviewed by the Panel, quod non , the United States 
failed to make a prima facie case that the above  identified measures affect the conditions of 
distribution, insofar as Article 28 of the 2001 Audiovisual Products Regulation  and Articles 16 and 14 
of the Audiovisual Products Importation Rule  have to be considered as border measures at the 
importation stage. 
4.178  The United States is trying to subsume the distribution of sound recordings in non-tangible 
form under Article III:4, even though no phys ical goods are actually being distributed. 
4.179  The concept of "distribution" within the me aning of Article III:4 of the GATT has to be 
understood as only addressing trade in physical produc ts.  This has been confirmed by the Panel in 
Canada – Wheat .  The Panel had recourse to the definition in the New Shorter Oxford Dictionary, 
which defines distribution to mean "the disper sal of commodities among consumers effected by 
commerce."  The Panel took this to mean that "distribution" entails inter alia  the supply of goods to 
consumers or to on-sellers". 
4.180  The commercial steps subsequent to the transfer  of the content of sound recordings imported 
in hard copy format into a digitized format re ady for network transmission cannot be scrutinized 
under Article III:4 of the GATT as they do not invo lve any supply/transfer of goods as acknowledged 
by the United States itself in its definition of so-called "electronic distribution". WT/DS363/R 
Page 30  
 
  4.181  The essence of the so-called electronic distri bution of sound recordings lies in the 
transmission of music content over the Internet, allowi ng the user to either download the content or to 
hear the content in real-time, and does not lie in the distribution of goods. 
4.182  Considering the above, the challenged measures cannot be scrutinized under Article III:4 of 
the GATT and paragraphs 5.1 and 5. 2 of China's Accession Protocol. 
(c) Motion pictures for theatrical release 
4.183  The United States is trying to subsume the di stribution of motion pictures for theatrical 
release under Article III:4 of the GATT, even though no physical goods are actually being distributed. 
4.184  As demonstrated above, motion pictures for th eatrical release cannot be qualified as goods, 
and their distribution does not consist in the distribution of a good, but in the distribution of an 
intangible work through the organisation of public shows on the basis of licensing agreements 
allowing their exploitation.  The only goods involved in theatrical distribution services, the film reels, 
are mere accessories to such services.  Even though a film reel is initially imported, the materials 
actually being distributed within China are copies  produced after various transformations of the 
motion pictures (dubbing, subtitling, etc.).  Therefor e, the challenged measures cannot be scrutinized 
under Article III:4 of the GATT and paragraphs 5.1 and 5.2 of China's Accession Protocol. 
4.185  Even if the distribution of motion pictures were  to be scrutinized under Article III:4 of the 
GATT, the challenged Chinese regulations do not modi fy conditions of competition and therefore do 
not violate Article III:4 of the GATT 1994.  
4.186  The distribution of foreign motion pictures in Chinese movie theatres is carried out by 
companies approved by SARFT.  There are currently two approved distributors, China Film 
Distribution Company and Huaxia Film Distribution Company. 
4.187  Contrary to what the United States pretends, Chinese regulations do not establish a "duopoly" 
and they do not in any way limit the number of companies that can be approved by SARFT.  The Film 
Regulation  establishes a licensing system for the activity  of distribution of motion pictures, whether 
domestic or foreign, and lays down the basic cond itions and procedure according to which distributors 
may obtain such a licence. 
4.188  In fact, there are only two approved distributors because the number of foreign motion 
pictures imported into China is limited.  Indeed, in  conformity with its Schedule to the GATS, China 
imports 20 motion pictures on a revenue-sharing basi s per year and applies screening quotas on all 
foreign motion pictures (whether on a reve nue-sharing or on a lump-sum basis). 
4.189  It follows that the distribution system applied in China for foreign motion pictures, although 
different from the one applied for domestic motion pi ctures, is appropriate in view of the limited 
number of foreign motion pictures that are imported into China. 
4.190  The two distributors approved by SARFT ensure the smooth distribution of all foreign motion 
pictures imported into China.  This is all the mo re true than these two distributors are amongst the 
biggest and most efficient distributors of domestic motion pictures in China. 
4.191  Moreover, foreign motion pictures are distributed on a large scale and in the most important 
markets.  In 2007, all of the 50 foreign motion pict ures were distributed onto the mainstream market, 
i.e. in urban areas and on a nation-wide basis.  By  contrast, most Chinese motion pictures do not have 
access to these nation-wide and large-scale distribution networks.  WT/DS363/R 
 Page 31 
 
 
  4.192  Foreign motion pictures do not face less favourable screening opportunities than domestic 
motion pictures; in particular, American blockbusters  occupied the peak peri ods (especially summer) 
and 80 per cent of the screen capacity.  Fore ign motion pictures enjoy better distribution and 
screening opportunities than domestic motion pictures.  This is especially true for foreign motion pictures on a revenue-sharing basis, which are of ten potential blockbusters, and for which Chinese 
distributors have a clear interest in ensuri ng the distribution as efficiently as possible.  
4.193  The absence of less favourable treatment of fo reign motion pictures clearly appears from the 
box office figures provided in the Annual Report of Ch ina Film Industry for 2007, which reveal that 
Chinese blockbusters totalled 16.19 per cent of th e box office of the mainstream market whereas 
foreign blockbusters totalled 25.21 per cent.  In view  of this reality, the requirement established by 
Chinese regulations to support domestic films, which serves the sole purpose of implementing 
screening quotas, also does not alter conditions of co mpetition.  In fact, it is rather a safety net for 
domestic motion pictures, which merely allo ws them to remain in the competition. 
5. Conclusion  
4.194  For the reasons set forth in this submission, China requests the Panel to reject the claims 
raised by the United States. 
C. O
RAL STATEMENT OF THE UNITED STATES AT THE FIRST SUBSTANTIVE MEETING OF THE 
PANEL  
1. Introduction  
4.195  This dispute involves several measures th at implicate a number of China's WTO 
commitments.   
4.196  Briefly, the US concerns focus on three issues.  First, with respect to trading rights, China 
committed in its Accession Protocol to grant all fo reign enterprises, all foreign individuals, and all 
enterprises in China the right to import reading ma terials, audiovisual home entertainment products 
such as videocassettes, VCDs and DVDs, sound recordi ngs and films for theatrical release into China.  
However, China's measures ensu re that state-owned Chinese importation monopolies and oligopolies 
preserve their exclusive rights to import, since fo reign companies are categorically prohibited from 
importing reading materials, AVHE products, sound recordings and films for theatrical release into China.  The measures that impose these restricti ons breach China's trading rights commitments. 
4.197  Second, China inscribed market access and na tional treatment commitments with respect to 
both distribution services and audiovisual services in  its Services Schedule.  China's distribution 
services commitments were supposed to open full oppor tunities for foreign-invested enterprises to 
supply reading material wholesaling services in China.  Likewise, China's audiovisual services 
commitments allow Chinese-foreign contractual joint ventures to engage in AVHE and sound 
recording distribution services.  Chinese measures, however, prohibit foreign-invested distributors 
from supplying many services in these sectors.  Where foreign-invested distributors are permitted to supply a service, Chinese measures subject these distributors to discriminatory requirements.  The 
challenged measures are inconsistent with the market access and national treatment commitments in 
China's Services Schedule within the meani ng of Articles XVI and XVII of the GATS. 
4.198  Third, China committed to provide national treatment with respect to imported goods 
pursuant to both the GATT 1994 and China's Accessi on Protocol.  However, China's measures 
concerning several of the products at issue – namely reading materials, films for theatrical release, and 
hard copies of sound recordings intended for electronic distribution – create discriminatory 
commercial hurdles for imported products.  For ex ample, many imported reading materials are WT/DS363/R 
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  subjected to a restrictive and discriminatory sub scription regime.  Furthermore, while both Chinese 
and foreign enterprises can distribute domestic  Chinese products, only Chinese enterprises can 
distribute imported reading materials.  Similarl y, imported and domestic hard copies of sound 
recordings intended for electronic distribution face dis tinctly different content review regimes, with a 
significantly more onerous regime imposed on imports .  Finally, only two state-controlled distributors 
are permitted to distribute imported films, and the distribution contract does not permit the negotiation 
of key commercial terms.  By contrast, domestic films have the full range of distributors at their 
disposal, and their distribution contracts are subj ect to full competitive negotiation.  As China's 
measures accord imported products less favourable tr eatment than like domestic products, they are 
inconsistent with Article III:4 of the GATT 1994 and paragraphs 5.1 and 1.2 of China's Accession 
Protocol. 
2. Trading rights: films for theatrical release,  unfinished AVHE products and unfinished 
sound recordings are goods subject to China's trading rights commitments 
4.199  Since the parties agree that trading rights in the Protocol refer to the import (and export) of 
goods, one should begin with an analysis of whet her cinematographic film qualifies as a good for 
purposes of the Accession Protocol.  First, the GATT h as made clear for more than half a century that 
exposed cinematographic film crossing national border s is a good.  This agreement, which applies to 
trade in goods, includes a specific provision on films for theatrical release in Article IV, which is 
entitled "Special Provisions relating to Cinematograph Films." 
4.200  China's position also has a number of other majo r flaws.  According to China, the alleged 
"intangible" nature of films disqualifies them as goods.  However, even if China were correct that 
"tangibility" is the key element of a "good," the United States is, in fact, challenging measures that 
prohibit foreign-invested enterprises from importing hard-copy cinematographic film, which are tangible items.  China concedes this point in its first written submission. 
4.201  International classifications of products al so demonstrate the long-standing practice of 
Members treating films as goods.  The Harmonize d Commodity Description and Coding System 
(HS), which only covers goods, describes products  under heading 3706, and the United Nations' 
Central Product Classification (CPC) does classify cinematographic film as a good in Subclass 3895, in addition to classifying the associated services (in subclass 96113).  
4.202  China's next assertion, that films are not goods  because they are sold  through a series of 
associated services, would have serious systemic implications, if accepted.  In essence, China would 
negate the existence of a good, whenever it is clo sely connected to a series of services.  China uses a 
similar line of reasoning to contend that the ch allenged measures simply deal with a copyright 
licensing service for motion pictures rather than the importation of goods.  Even if certain provisions 
of China's measures regulate copyright licensing, this does not change the fact that other provisions in 
these measures directly prohibit foreign- invested entities from importing films. 
4.203   China also asserts that its GATS commitments w ith respect to films demonstrate that films 
are subject exclusively to the di sciplines of the GATS, and fall outs ide the scope of China's Accession 
Protocol or the GATT 1994.  Again, there is no fo undation for this assertion in the text of the WTO 
Agreement, and the Appellate Body has rejected this line of reasoning.  In Canada – Periodicals , the 
Appellate Body concluded that while a periodical ma y be comprised of elements that have services 
attributes i.e., editorial content and advertising cont ent, "they combine to form a physical product – 
the periodical itself."  Finally, China's own customs regime recognizes that films are goods. 
4.204  Second, China similarly argues that unfin ished AVHE products a nd unfinished sound 
recordings, often called "masters," are not goods .  For the reasons articulated above, China's 
arguments with respect to unfinished AVHE products  and sound recordings are also unavailing.   WT/DS363/R 
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  There is once again no textual basis for this asser tion.  Furthermore, the 2007 Harmonized System, 
(implemented under the Harmonized System Conven tion, to which China has been a party since 
1993) describes products under HS heading 8523, whic h makes clear that these products are goods.  
The CPC also classifies "recorded media for sound or other similarly recorded phenomena" other than 
films under goods subclass 47520.  In addition, as w ith films, China treats these products as goods.  
China's tariff schedule, which has not yet implem ented the 2007 changes to the HS, incorporates the 
description of this product under HS heading 8524.     
4.205  Moreover, China asserts that its measures do not regulate the right to import master copies of 
AVHE products or sound recordings, but simply deal w ith rights to enter into copyright agreements.  
As with films, China may have provisions regulati ng copyright licensing, but this does not change the 
fact that other Chinese provisions directly regulat e who can import the good subject to that licensing. 
3. Trading rights:  China's measures are inconsistent with its trading rights commitments 
and are not justified under any exceptions 
4.206  China does not contest the US arguments con cerning the inconsistency of the challenged 
measures with its trading rights commitments relate d to reading materials, finished AVHE products, 
and finished sound recordings.  Indeed, China asser ts, but fails to demonstrate, that its measures 
governing these products are justified under several exceptions. 
4.207  China begins its efforts to try to justify its measures by invoking the UNESCO Convention on 
the Protection and Promotion of the Diversity  of Cultural Expressions and a related UNESCO 
Declaration.  However, China fails to note that the UNESCO Convention expressly provides:  
"Nothing in this Convention shall be interpreted as modifying the rights and obligations of the parties 
under any other treaties to which they are parties."  In any event, nothing in the text of the WTO 
Agreement provides an exception from WTO disciplin es in terms of "cultural goods," and China's 
Accession Protocol likewise contains no such exception. 
4.208  China then argues that its "right to regulat e trade in a manner consistent with the WTO 
Agreement," provided in the first clause of para graph 5.1 of the Accession Protocol, justifies its 
wholesale carve out of the Products in dispute here  from its trading rights commitments.  First, if 
China's reading of its right to regulate trade allowe d China to deny the right to import to all foreign 
and all private Chinese enterprises for entire categori es of products at will, then China would have 
eliminated its trading rights commitment altogether, not simply "regulated trade." 
4.209  Second, China's expansive reading of its right to "regulate" is inconsistent with the structure 
and operation of paragraph 5.1, read as a whole.  China's expansive interpretation of the right to 
regulate trade would make the sp ecific mechanisms in Annexes 2A and 2B superfluous, since they 
serve precisely the same function China appears to  claim flows from its right to regulate trade. 
4.210  Turning to China's assertion that its measur es denying trading rights are justified under 
Article XX(a) of the GATT 1994, the United States submits, without prejudice to the question of 
whether Article XX applies to China's Accession Protocol, that China has not met its burden to 
demonstrate that its measures satisfy the requirements of this article.  Content review, China's concern 
here, is independent of importati on and can be performed by individuals or entities unrelated to the 
importation process at any time before, during or after that process. 
4.211  The measures at issue are not "necessary" within  the meaning of Article XX, and they do 
constitute "arbitrary or unjustifiable discriminati on" and a "disguised restriction on international 
trade."  As the Appellate Body has stated, "a 'nece ssary measure is...located significantly closer to the 
pole of 'indispensable' than to the opposite pole of si mply 'making a contribution to'."  Given the utter 
absence of a nexus between the challenged measures and the protection of public morals, China's WT/DS363/R 
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  measures denying trading rights lie far too distan t from the pole of indispensability to qualify as 
"necessary" within the meaning of Article XX.  Th e Appellate Body has not found a measure to be 
necessary where there is a "reasonably available WTO-consistent alternative".  Here, there are many such alternatives at hand.  Indeed, China's "in- house" content review regime for domestic producers 
offers a fully WTO-consistent alternative to China's measures. 
4.212  China's arguments regarding the chapeau of Artic le XX are equally unpers uasive.  As applied, 
China's measures ban foreign and private Chinese  importers from the business of importing the 
Products into China, thereby protecting the business  interests of a limited group of Chinese state-
owned enterprises.  One further aspect of China' s chapeau analysis deser ves mention.  China's 
statement that domestic producers of reading materials, finished AVHE products, and finished sound 
recordings are confronted with limitations comp arable to those on foreign producers is most 
remarkable, and does not reflect the facts. 
4. Trade in services:  China's measures proh ibiting foreign-invested enterprises from 
engaging in master distribution, master wholesale and wholesale of reading materials are inconsistent with Article XVII of the GATS 
4.213  As part of its claims under Article XVII of the GATS, the United States challenges four sets 
of discriminatory prohibitions on foreign-invested  enterprises engaging in the wholesale of reading 
materials.  China only attempts to address the fourth  set of US concerns – i.e., China's discriminatory 
prohibition on foreign-invested enterprises engaging in the master distribution of books, newspapers 
and periodicals and the master wholesale and wholesale of electronic publications. 
4.214  China contends that it made no commitment with respect to master distribution in Sector 4B 
of its Services Schedule.  However, as China conced es, master distribution is a form of distribution 
that is synonymous with master wholesale ( Zong Pi Fa ).  Several Chinese regulations and other 
sources confirm, in turn, that master distribution is also known as "first-level wholesale", and is the right to organize the distribution of a particular reading material, which includes the right to designate which "second-level wholesalers" may distribute the publication in a certain region of China.  Thus, 
master distribution or "first-level wholesale" is in cluded in China's commitments under Sector 4B of 
its Services Schedule. 
4.215  China also contends that the 1997 Electronic Publications Regulation  was replaced in April 
2008, rendering the concept of master wholesale "obs olete" and removing the prohibition on foreign 
investment in the wholesale of these products.  Ho wever, the measure cited by China replacing the 
1997 Electronic Publications Regulation  does not in fact replace the key provisions of this measure 
involving the distribution of electronic publications.  Of course, even if China's new measure had 
replaced the old regulation, the United States would continue to seek a findi ng with respect to the 
1997 Electronic Publications Regulation  that was included in the US panel request. 
5. Trade in services:  China's services commitmen ts cover the electronic distribution of 
sound recordings 
4.216  Turning to China's argument with respect to the electronic distribution of sound recordings 
and China's obligations under Article XVII of the GATS, China's defence to this claim rests on the 
argument that China did not undertake commitments  in its Services Schedule with respect to the 
electronic distribution of sound recordings, but only with respect to distribution of hard-copy sound recordings. 
4.217  Consistent with Article 31 of the Vienna Convention on the Law of Treaties, one should 
begin with an analysis of the ordinary meaning of  the relevant terms of China's commitments.  In  WT/DS363/R 
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  Sector 2D of its Services Schedule, China inscrib ed no limitations on market access or national 
treatment under mode 3 with respect to "sound recording distribution services."  
4.218  The ordinary meaning of "recording" is "the action or process of recording audio or video 
signals for subsequent reproduction" or "recorded  material."  Thus, the ordinary meaning of 
"recording" does not distinguish between recordings of sound stored on physical media or those 
stored electronically.  Distribution of sound recordings thus includes distribution of any recorded 
sound, whether in hard-copy or electronic. 
4.219  The definitions of certain terms in the GATS provi de relevant context for the interpretation of 
China's commitments.  Article I:3(b) of the GA TS defines services broadly to "includ[e] any service 
in any sector except services supplied in the exer cise of government authority."  In addition, 
Article XXVIII(e)(i) defines "sector" to mean "with respect to a specific commitment, one or more, or 
all, sub-sectors of that service as specified in a Memb er's Schedule."  In light of the ordinary meaning 
of "sound recording distribution" and the context, China's national treatment commitments in this 
sector include the electronic distribution of sound recordings. 
4.220  China contends that the relevant context for the interpretation of China's commitments under 
Sector 2D is Annex 2 to its schedule, and that Annex 2 demonstrates that "distribution services" only 
include distribution of tangible items such as hard-copy sound recordings.  However, nothing in China's schedule provides that Annex 2 even applies to  Sector 2D, in contrast, for example to Sector 
4.  More significantly, Article XXVIII(b) of the GATS  defines "supply of a service" as including "the 
production, distribution, marketing, sale and delivery of a service." 
4.221  Because an analysis of the relevant treaty terms pursuant to Article 31 does not leave the 
meaning of the terms of China's GATS schedul e ambiguous, obscure, or unreasonable, there is no 
need to resort to supplementary mean s of interpretation.  Even if this  were not the case, an analysis of 
the supplementary means of interpretation under Article 32 confirms the US interpretation under 
Article 31 that China's services commitments cover the electronic distribution of sound recordings.   
4.222  China contends that the electronic distribu tion of sound recordings was a new phenomenon 
that did not exist at the time of China's accession.  In fact, China's premise is false.  An analysis of the 
"circumstances of [the] conclusion" of China's a ccession reveals that the electronic distribution of 
sound recordings was a reality long before China's accession and that China itself was aware of this 
development. 
4.223  Even if China were correct that  it did not intend to make a commitment with respect to the 
electronic distribution of sound recordings, in US – Gambling , the panel made clear that a Member's 
intent is not relevant in discerning whether the Me mber has a commitment with respect to a particular 
means of delivery.  Because China did not expl icitly exclude electronic distribution of sound 
recordings from its national treatment obligati ons under mode 3, China's services commitments 
include this form of distribution. 
4.224  The US interpretation of China's schedule is  also consistent with the principle of 
technological neutrality, which China attempts to di smiss.  China engages in a lengthy but fruitless 
discussion of the ways in which the mechanics of  distributing hard-copy media containing music 
versus electronic distribution differ.  At the end of th e day, this discussion only confirms the point that 
electronic distribution of sound recordings merely constitutes a modern means to supply an existing 
service. 
4.225  In addition, if China's argumen ts were accepted, WTO Members could invoke this reasoning 
to evade services commitments any time a new means of delivering a service was developed.  On the 
other hand, the principle of technological neutrality is consistent with the concept that the GATS is WT/DS363/R 
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  sufficiently dynamic so that Members need not re negotiate the Agreement or their commitments in 
the face of ever-changing technology. 
6. Trade in goods:  China's measures regarding the distribution of hard-copy sound 
recordings intended for electronic distribution are inconsistent with Article III:4 of the GATT 1994  
4.226  China makes several unsuccessful arguments in  attempting to rebut the US claim under 
Article III:4 with respect to hard-copy sound recordi ngs intended for electronic distribution.  First, 
China misunderstands the US claim here by ar guing that the electronic distribution of sound 
recordings is not covered by the GATT 1994, b ecause the GATT 1994 only covers trade in goods.  
However, the US claim applies only to measures affecting imports of hard-copy media containing 
sound recordings that are intended for electronic di stribution after importation.  The claim does not 
deal with the provision of electronic distribution services.   
4.227  China also asserts that the challenged measures are "border measures" at the importation stage 
and therefore do not affect the distribution of products that have already been imported.  China's argument is misplaced.  The Ad Note to Article III of the GATT 1994 provides that internal measures 
applicable to both an imported product and the dom estic like product that are enforced for imported 
products upon importation are internal measures, not  border measures.  In this case, the measures at 
issue impose content review-related legal requirement s on both imported and domestic hard copy CDs 
that they must fulfil before distribution inside China.   
4.228  This conclusion is in fact confirmed by Chin a's next argument, which turns its assertions 
regarding "border measures" on their head.  China ar gues that the rationale behind the content review 
requirements for imports is to ensure that in th e process of transferring content from the hard copy 
format to the digital format, Chin a seeks to ensure that the conten t "has not been altered during its 
conversion into digital format."  China provides no support for this assertion, but this claim does 
reveal that China does not view this measure as a "border measure," since the conversion into digital 
form will only occur during the internal  distribution process inside China. 
7. China's measures are properly before the Panel and are within the Panel's terms of 
reference 
4.229  Finally, China raises numerous obj ections regarding the Panel's terms of reference.  First, in 
response to the US trading rights claims regarding fi lms for theatrical release, China contends that the 
Film Distribution and Exhibition Rule is a measure that is not within the Panel's terms of reference, 
because it was not identified in the US panel request.  The Film Distribution and Exhibition Rule is 
included in the US panel request with respect to the trading rights claims.  The US panel request 
describes the measures at issue as the failure to "allow[] all Ch inese enterprises and all foreign 
enterprises and individuals to have the right to  import into the customs territory of China the 
following products (collectively, the "Products"):  films for theatrical release ... ."  The Film 
Distribution and Exhibition Rule  is a legal instrument that falls within the scope of the measure 
described by this narrative. 
4.230  Moreover, under Section I of the US panel re quest, which addresses trading rights, the United 
States identified a series of measures – such as the Film Regulation  and the Film Enterprise Rule  – 
involved with China's trading rights regime, an d included, as well in this connection, "any 
amendments, related measures or implementing measures".  The Film Distribution and Exhibition 
Rule is closely and directly related to both the  Film Regulation  and the 
Film Enterprise Rule , which 
all explicitly address the importation of films for theatrical release.  WT/DS363/R 
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  4.231  Furthermore, as the panel stated in Japan – Film , measures that are not specified in a 
Member's panel request can nonetheless be included in that request if they are "subsidiary or closely 
related to" measures that are specified in that request.  Here again, the Film Distribution and 
Exhibition Rule  is closely related to both the Film Regulation  and the Film Enterprise Rule  in that it 
focuses specifically on, and elaborates upon, the film  import regime addressed in these two measures. 
4.232  China also asserts that the Several Opinions , the Importation Procedure and the Sub-
Distribution Procedure  should not be examined by the Pa nel.  However, these measures are 
specifically identified in the US panel request and are part of the Panel's terms of reference.  They are 
each legally binding on the agenci es that issued them, represent the type of legal document widely 
used in routine administration, and are fully r ecognized in the Chinese administrative law regime.  
4.233  Moreover, China erroneously asserts that three discriminatory requirements – pre-
establishment legal compliance, approval process, and decision-making criteria applicable to the distribution of reading materials and AVHE products – are not within the Panel's terms of reference 
because they were not spelled out in the US panel re quest.  Consistent with Article 6.2 of the DSU, 
Section II of the US panel request identified a ll of the measures that provide for these three 
problematic requirements – i.e., the Publications (Sub-)Distribution Rule , the Sub-Distribution 
Procedure , the Audiovisual (Sub-)Distribution Rule , and the  Several Opinions . 
4.234  China also raises two sets of procedural objections  with respect to certain elements of the US 
Article III:4 claim regarding reading materials.  First, China argues th at the US claim under 
Article III:4 of the GATT 1994 regarding different  distribution opportunities for imported reading 
materials was not addressed during consultations and, therefore, is not part of the Panel's terms of 
reference.  This objection is without merit, as the legal bases contained in a party's consultation 
request and panel request need not be identi cal.  As the Appellate Body concluded in Mexico – Rice , a 
"precise and exact identity" between the legal base s included in a consultation request and those 
included in a panel request is not required. 
4.235  Second, China contends that certain aspects of the discriminatory treatment accorded to 
reading materials – that is, aspects related to China's subscription regime for imported reading 
materials, to the conditions imposed on subscrib ers, and to electronic publications – were not 
mentioned in the US panel request and are not meas ures included in the Panel's terms of reference.  
However, China's objection in this Article III:4 contex t is unavailing.  Article 6.2 of the DSU requires 
the identification of each measure relevant to a par ticular claim, but does not require the complaining 
party to identify each individual provision of the relevant measure. 
4.236  The US panel request specifically identifies the measures at issue, and those measures in turn 
include provisions setting forth the discriminatory aspect s raised in China's objection – i.e. (1) China's 
discriminatory subscription regime is provided for in the Imported Publications Subscription Rule ;  
(2) the conditions imposed on subscrib ers are also provided for in the Imported Publications 
Subscription Rule ;  and (3) China's discriminatory treatme nt of imported electronic publications is 
provided for in the 1997 Electronic Publications Regulation , and the Publications Regulation . 
4.237  Finally, China argues that the 2001 Audiovisual Products Regulation and the Audiovisual 
Products Importation Rule  are not in the Panel's terms of reference for purposes of the US claims 
under Article III:4 because these measures were no t included in the US panel request.  The 2001 
Audiovisual Products Regulation  and the Audiovisual Products Importation Rule  are within the 
Panel's terms of reference.  First, these two instrume nts fall within the scope of the narrative in the US 
panel request describing the measure at issue.  S econd, the section of the US panel request dealing 
with the GATT 1994 includes the Internet Culture Rule , the Circular on Internet Culture , the Network 
Music Opinions , the Catalogue , and the Several Opinions as well as "any amendments, related 
measures, or implementing measures."  The 2001 Audiovisual Products Re gulation and Audiovisual WT/DS363/R 
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  Products Importation Rule  are closely related to the other measu res specifically listed in that request 
and therefore are within the Panel's terms of re ference.  Finally, these measures also properly fall 
within the Panel's terms of reference under the Panel's reasoning in Japan – Film . 
D. O
RAL STATEMENT OF CHINA AT THE FIRST SUBSTANTIVE MEETING OF THE PANEL  
1. Introduction 
4.238  China is of the view that this dispute is fundamentally about three sets of issues.  Firstly, this 
dispute is about the attempt of the United States to  unduly extend the scope of China's commitments 
beyond what was negotiated and agreed, by invoking  rules which are not applicable to the present 
case and by blurring the scope of the goods and services subject to the present dispute.  
4.239  This dispute is, secondly, about the right of China to regulate trade in cultural goods in 
accordance with legitimate policy objectives, as provi ded for by WTO disciplines, including China's 
Accession Protocol.  
4.240  Finally, this dispute requires a correct and precise understanding of the Chinese legislation 
and regulatory framework applicable to the cultura l goods and services concerned.  The United States, 
indeed, has based most of its claims on an inaccura te interpretation of the Chinese measures, and has 
repeatedly drawn inappropriate legal conclusions.  
4.241  Moreover, the United States in its first wr itten submission has addressed certain Chinese 
measures or even new claims, which it did not address either in the panel request or in its request for 
consultations.  China would like to refer the Panel to the detailed arguments of terms of reference 
made by China in its first written submission in this respect. 
4.242  In addition, in light of the ambiguous or even inconsistent way in which the United States has 
defined the scope of its claims, China urges the Pa nel to carefully examine the products and services 
at issue in order to establish whether the United States has properly met its obligation to establish a 
prima facie case of violation. 
2. Products/service at issue and applicable rules 
(a) The importation of motion pictures for theatrical release  
4.243  The United States, by remaining ambiguous about the definition of the product at issue, and 
thus about the scope of its claim, is suggesti ng that the Panel scrutinize the Chinese measures 
governing the importation of motion pictures for theat rical release under the rules applicable to trade 
in goods, i.e. the right to trade pursuant to paragraph 5.1 of China's Accession Protocol. 
4.244  This is incorrect.  Chinese measures should, in stead, be examined under the rules applicable 
to services. 
4.245  China has always regulated the exploitation of motion pictures for theatrical release as a 
service activity.  This is reflected in China's co mmitments under Sector 2D of its GATS Schedule. 
4.246  The way China has regulated the exploitation of  motion pictures for theatrical release is in 
line with the business reality of this sector.  The e xploitation of a motion picture for theatrical release 
consists in the first place in the exploitation of the intangible feature that it contains, i.e. an artistic 
works that is to be finally projected in movie theatres.   WT/DS363/R 
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  4.247  The basic features of the international moti on picture business clearly reveal that the 
commercial interests of this business lie in the e xploitation of artistic works through a series of 
services.  The commercial exploitation of motion pict ures for theatrical releas e mainly involves three 
categories of service providers: the producers, the distributors and the movie theatre operators. 
4.248  Under this commercial chain, the distribution of  motion pictures is organized on the basis of 
copyright licence agreements through which the producer  grants the distributor the right to use copies 
of the motion picture in order to organize its distribution. 
4.249  The producer provides the distributor with the ma terials necessary for the distribution of the 
motion picture in movie theatres.  The distributor will receive copies of the so-called master negative, as well as other related delivery materials, such as s oundtracks or advertising materials, in order to 
organize the distribution of the motion picture on its territory.  
4.250  At the end of the period of release, all licensed rights will in principle immediately revert to 
the producer and the distributor will, at the producer 's choice, either return or destroy the delivered 
materials as well as the materials created by the distributor. 
4.251  It results from the above that the exploitati on of motion pictures for theatrical release, 
including their importation, should fall under the ru les applicable to trade in services and not under 
those applicable to trade in goods.  China does not  deny that exploiting motion pictures may involve 
the importation of film reels.  However, in such cases, the film reel is merely an accessory linked to 
the motion picture distribution service.  
4.252  An examination of the challenged measures unde r paragraphs 5.1, 5.2 and 1.2 of China's 
Accession Protocol as well as paragraphs 83 and 84  of the Working Party Report would undermine 
China's expressly reserved right under its GA TS schedule to regulate motion picture business. 
(b) The distribution of motion pictures for theatrical release 
4.253  Even though no physical goods are actually bei ng distributed, the United States is claiming 
that the distribution of motion pictures should be scrutinized under Article III:4 of the GATT 1994. 
4.254  Article III:4 of the GATT deals with measures affecting the "internal sale, offering for sale, 
purchase, transportation, distribution or use" of  goods.  In the context of Article III:4 of the 
GATT 1994, the term "distribution"  refers to the process of supplying goods to on-sellers or 
consumers.  
4.255  Distribution of motion pictures for theatrical release does not involve the sale of goods. What 
is ultimately purchased by movie-goers is the right to  attend the screening and all that they retain are 
memories of the show.  It  follows clearly from the above that the theatrical distribution of motion 
pictures cannot be qualified as the distribution of go ods within the meaning of Article III:4 of the 
GATT 1994. 
4.256  Finally, China would like to emphasize, should th e Panel consider – despite the elements just 
presented – that Article III:4 could be relevant in th is specific context, that the allegations of less 
favourable treatment claimed by the United States are unfounded since they are not supported by the 
facts demonstrated in China's first written submission.  
(c) Audiovisual products used for publication 
4.257  The category of "audiovisual products used for p ublication" refers in fact to master copies 
with audiovisual content that are to be publishe d in China via copyright licensing agreements. WT/DS363/R 
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  4.258  These master copies carry an audiovisual conten t that is subject to a copyright licensing 
agreement between the foreign rights holder and a Ch inese publisher.  The master copy is used for the 
sole purpose of making copies in accordance with the licence agreement.  The importation of the 
master copy is thus only an accessory of the copyright licensing. 
4.259  The challenged measures do not regulate the importation of goods.  Rather, they regulate the 
importation of audiovisual products used for publicati on as the licensing of the right to make copies of 
an audiovisual content.   
4.260  Therefore, the US claim under paragraphs 5.1,  5.2 and 1.2 of China's Accession Protocol, as 
well as paragraphs 83 and 84 of the Working Party Re port, lacks any legal basis as far as audiovisual 
products used for publication are concerned. 
(d) Network music services 
4.261  By remaining ambiguous about the definition of the service at issue, the United States would 
like the Panel to consider that China's GATS co mmitments on sound recording distribution services 
cover network music services. 
4.262  The United States improperly describes this activity as "electronic distribution of sound 
recordings", thus attempting to assimilate it to di stribution of sound recordings in a physical form, 
while it relates in fact to a different service for which China has not taken any commitments. 
4.263  Network music services can be defined as the dissemination to users of music in digital 
format via the Internet.  The most common netw ork music services are usually known as "on-line 
music download" and "on-line music streaming".  
4.264  There are a number of significant differences between network music services and traditional 
sound recording distribution models.  The most evident difference lies in the fact that, contrary to 
traditional sound recording distribution, network mu sic services do not supply the users with sound 
recordings in physical form, but supply them  with the right to use a musical content. 
4.265  Not only the infrastructure and operation, but also the perception of the consumers of both 
businesses, differ significantly.  For instance, the supply of network music services is exclusively 
operated via the Internet and does not need any commodity distribution infrastructure. 
4.266  Moreover, consumers can, at any time a nd at any place, access, buy or receive music 
immediately from any computer with Internet access, without having to visit a retail outlet.  They can 
download individual tracks, instead of having to buy the entire album, and create customized compilations. 
4.267  A textual interpretation of the GATS comm itments with respect to "sound recording 
distribution services" refers to the marketing and supply of a specific category of goods, i.e. goods 
containing recorded music materials, such as CDs or other physical supports.  
4.268  One should also consider the fact that network music services hardly existed at the time of the 
negotiation of China's GATS Schedule and that th e legal framework governing the distribution of 
sound recordings addressed exclusively the distributi on of sound recordings in their traditional, hard-
copy format. 
4.269  Finally, even assuming that the principle of technological neutrality would be relevant in this 
case, its only implication would be that new means of  delivering a particular service would be covered 
by the commitments already undertaken for this service.  This is not the case for network music  WT/DS363/R 
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  services, which are a different service and not merely another means of distribution.  The difference 
between network music services and traditional distri bution of sound recording is analogous to the 
difference between email services and postal services.  Even though same messages are being delivered, email services are well recognized by me mbers GATS schedules as a different service from 
traditional postal services. 
4.270  Unduly extending the scope of a Member's commitments to new types of services, as the US 
argument would imply, would be against the principle of progressive liberalization as reflected in the Preamble of the GATS.  Consequently, unlike the committed service, a distinct service cannot be 
committed post hoc through the dispute settlement process. 
(e) Distribution of sound recordings intended for so-called "electronic distribution" 
4.271  The United States is trying in this dispute to convince the Panel that the distribution of sound 
recordings in non-tangible form should be scrutini zed under Article III:4, governing the distribution 
of physical goods. 
4.272  The concept of "distribution" within the meaning of Article III:4 of GATT should be 
understood as only addressing distribution of physical goods. 
4.273  The commercial steps subsequent to the transfer  of the content of sound recordings imported 
in hard copy format into a digitized format re ady for network transmission cannot be scrutinized 
under Article III:4 of the GATT 1994 as they do not involve any distribution of goods. 
4.274  In fact, what users are actually downloading or streaming is the digital version of the artistic 
work rather than a tangible good.  The essence of the so-called electronic distribution of sound recordings lies in the transmission of music conten t over the Internet, allowing the user to either 
download the content or to hear the content in real -time rather than lie in the distribution of goods. 
3. China's right to regulate trade in cultural goods 
4.275  The US allegation fails to take into account China's right to regulate trade in a manner 
consistent with the WTO Agreement, in partic ular under Article XX of the GATT, which allows, 
among other things, the adoption of specific measu res for the protection of legitimate policy 
objectives, including public morals. 
4.276  As vectors of identity, values and meaning,  cultural goods play an essential role in the 
evolution and definition of elements such as societal  features, values, ways of living together, ethics 
and behaviours.  Cultural goods may have a negativ e impact on public morals, such as the depiction 
or vindication of violence or pornography, against which minors must be specifically protected.  
4.277  Considering the potential impact of cultural goods on public morals, China's longstanding 
policy has been to implement a high level of protecti on which is reflected in a complete prohibition of 
cultural goods with inappropriate  content and a high level of protection against the possible 
dissemination of cultural goods with a content that  could have a negative impact on public morals. 
4.278  To that effect, China applies a content review  for the importation of cultural goods, which is 
operated through a system of selection of importation entities which play an essential role in such 
content review.  
4.279  The selection of importation entities is necessary to achieve the objective pursued.  Indeed, 
their contribution to this objective, which must be assessed in light of the high level of protection and 
the limited impact on trade sought by China, is reflected by the requirements of having:  (i) an WT/DS363/R 
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  importation entity with an appropriate  organizational structure;  (ii)  a reliable and qualified personnel, 
and;  (iii) an appropriate geogra phical coverage while preserving a limited number of entities involved 
in order to ensure the efficiency of the review. 
4.280  Therefore, Chinese measures governing the trading rights of cultural goods do not violate 
China's obligations under paragraphs  5.1, 5.2, 1.2 of China's Acc ession Protocol and paragraphs 83 
and 84 of the Working Party Report. 
4. Understanding of the Chinese legislation and regulatory framework applicable to 
cultural goods and services 
(a) No less favourable treatment for the distribution of imported reading materials under 
Article III:4 of the GATT 1994 
4.281  China has implemented two types of subscription systems: the first applies to the restricted 
category of reading materials and the second applies to  the non-restricted category of newspapers and 
periodicals. 
4.282  The restricted category refers to reading mate rials that are prohibited from distribution in 
China but which may be acquired for subscription for research purposes.  The non-restricted category 
refers to newspapers and periodicals that ar e subject to quasi-automatic subscription. 
4.283  While it is true that these two types of subscription systems are different from the rules 
applicable to like domestic products, the United St ates should have established that these differences 
result in less favourable treatment.  However, the United States has failed to do so. 
(b) Distribution services of reading materials under Article XVII of the GATS  
4.284  According to the United States, China has impl emented several measures either prohibiting 
foreign-invested enterprises from engaging in certa in forms of distribution or exposing foreign 
investment enterprises to less favourable treatment. 
4.285  As far as distribution forms are concerned, wh at is at issue are two distinct channels: Zong Fa 
Xing  and Fen Xiao .  Fen Xiao  corresponds to the traditional concept of distribution through 
wholesaling ( Pi Fa ) and retailing ( Ling Shou ).  By contrast, a product that is subject to Zong Fa Xing  
is directly sold by Zong Fa Xing  operators to the end consumers without relying on any 
intermediaries. 
4.286  What China actually committed under Sector 4B of its GATS Schedule was the activity of 
"wholesaling", which is a sub-category of Fen Xiao .  China has provided the Panel in its written 
submission with the elements showing that Zong Fa Xing  cannot, contrary to the US assertion, be 
considered as wholesaling as committed under Sector 4B of China's GATS Schedule. 
4.287  As far as the alleged discriminatory requireme nts are concerned, China reiterates that the 
United States has provided the Panel with an inco mplete legal analysis under Article XVII of the 
GATS. 
4.288  The mere fact that the United States has provided the Panel with elements allegedly 
establishing a formally different treatment between do mestic and foreign invested services and service 
supplier is certainly not sufficient for establishing a prima facie case of violation of Article XVII of 
the GATS.  WT/DS363/R 
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  (c) No market access issue or l ess favourable treatment for the distribution of audiovisual 
products 
4.289  Regarding the claims based on Article XVI, the United States has provided the Panel with an 
inaccurate description of the challenged measures,  by asserting that the Chinese party to a Sino-
Foreign contractual joint venture engaging in the distribution of audiovisual products must hold at 
least 51 per cent of the shares. 
4.290  These challenged measures do not provide that the Chinese party must hold at least 51% of 
the shares.  Rather, these measures refer to the rate of allocation of profit and loss in contractual joint 
ventures.  
4.291  Article XVI of the GATS does not impose any obligations on WTO Members to insert any 
limitations with respect to the rate of profit a nd loss allocation in their GATS Schedule.  Thus, the 
relevant Chinese measures challenged do not violate Article XVI of the GATS. 
4.292  As far as the US claims related to allegedly discriminatory requirements imposed on foreign-
invested distribution enterprises are concerned, the United States, once again, has only addressed 
alleged formal differences in the treatment of fore ign and domestic competitors and failed to prove a 
modification of the conditions of competition resu lting from the alleged different treatment, as is 
required by paragraph 3 of Article XVII of the GATS.  
5. Conclusion 
4.293  China respectfully requests the Panel to find that all the US claims are unfounded and 
therefore shall be dismissed. 
E. SECOND WRITTEN SUBMISSION OF THE UNITED STATES  
1. Introduction 
4.294  China made important market opening commitm ents related to reading materials, AVHE 
products, sound recordings and films for theatri cal release when it a cceded to the WTO.  
Unfortunately, this much anticipated liberalization s till awaits full realization, since China's laws and 
policies have created major stumbling blocks, and in some cases, have thwarted it entirely. 
4.295  In its previous submissions, the United Stat es has demonstrated that China's efforts to 
implement its trading rights, services and goods ob ligations fall short in three respects.  This 
submission will show how China's arguments and pro cedural objections in its first written submission, 
first oral statement and answers to the first set of Panel questions fail to rebut the US claims concerning the Accession Protocol, the GATS and the GATT 1994. 
4.296  First, China agreed to allow all foreign ente rprises, foreign individuals, and enterprises in 
China to import reading materials, AVHE products, sound recordings and films for theatrical release 
into China.  Despite this commitment, China permits only selected state-owned importers to participate in this business.  China asks the Panel to find that China's commitments do not extend to 
films for theatrical release, unfinished AVHE pr oducts or unfinished sound recordings, because the 
commercial exploitation of these products involves associated services, so, China claims, the goods 
themselves should be viewed as services.  However,  the Panel should decline this invitation: when 
China's trading rights commitments are read in light  of the GATT 1994, and are considered in light of 
prior reasoning by the Appellate Body, internationa l classifications, and China's own treatment of 
these products, it is evident that China's alchemy fails. WT/DS363/R 
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  4.297  China also proffers Article XX(a) of the GATT 1994 to tr y to justify its trading rights 
prohibitions, but this attempted defence fails as well.   The Panel does not need to determine whether 
the GATT exception in fact applies to China's meas ures, because China's measures fall far short of 
satisfying the requirements of sub-pa ragraph (a), and their application fails to meet the standards in 
the chapeau of Article XX.  This leaves the US cl aim unrebutted; China's measures are inconsistent 
with its trading rights commitments under the Accession Protocol. 
4.298  Second, China prohibits foreign enterprises from supplying certain kinds of distribution 
services related to reading materials and sound recordings, despite China's broad liberalizing 
commitments in its Services Schedule.  And where China does allow foreign enterprises to distribute 
reading materials and AVHE products, China impos es discriminatory requirements favouring Chinese 
competitors and also further hampers forei gn AVHE service suppliers by limiting the capital 
contributions they can make.  China has offered no convincing rebuttals to these US claims, making it 
clear that the measures at issue are inconsistent  with China's market access and national treatment 
commitments under Articles XVI and XVII of the GATS. 
4.299  Third, contrary to its national treatment oblig ations, China maintains two parallel, unequal 
channels for the commercial exploitation of read ing materials, sound recordings and films for 
theatrical release within China.  In one channel, imported reading materials, sound recordings and films for theatrical release travel through a thicke t of restrictions that devalue the commercial 
opportunities available to those products.  In the othe r channel, domestic products travel in the fast 
lane to consumers, unfettered by the limitations  imposed on their imported counterparts.  China's 
efforts to justify these measures are unavailing.  China's measures accord imported products less 
favourable treatment than like domestic products in  a manner inconsistent with Article III:4 of the 
GATT 1994 and paragraphs 5.1 and 1. 2 of China's Accession Protocol. 
2. China's measures regarding trading rights are inconsistent with China's obligations 
under the Accession Protocol and Working Party Report  
4.300  China's trading rights regime for reading ma terials, AVHE products, sound recordings, and 
films for theatrical release is inconsistent with Ch ina's obligations contained in paragraphs 5.1, 5.2 
and 1.2 of the Accession Protocol, as well as in para graphs 83 and 84 of the Working Party Report.  
While China has advanced several arguments res ponding to this claim, none of them succeed.  
(a) Goods versus services 
4.301  China makes a number of erroneous arguments th at films for theatrical release, unfinished 
AVHE products, and unfinished sound recordings, are not goods, and are not subject to the trading 
rights disciplines.  China's reasoning would tran sform all goods commercially exploited through a 
series of associated services into services themselv es.  As the United States has demonstrated, these 
products are goods subject to the trading rights disciplines, and the relevant measures challenged by the United States run afoul of China's trading rights commitments. 
4.302  In its submissions, China argued that films for theatrical release are not goods based on 
certain assertions such as: a motion picture is intangible; the commercial exploitation of motion 
pictures for theatrical release occurs through a serie s of services and the tangible film is a mere 
accessory of a service; and international classification instruments confirm the status of motion pictures as a service.  However, the text of the GA TT, the Appellate Body's guidance on this issue, 
and China's own treatment of films as goods, all belie China's contentions.   
4.303  First, the product that is the subject of the US trading rights claim is tangible, hard-copy 
cinematographic film that can be used to project  motion pictures in a theatre.  Even if, assuming  WT/DS363/R 
 Page 45 
 
 
  arguendo , China were correct that "goods" must be ta ngible to qualify as goods, the product relevant 
to the US trading rights claim  – i.e., hard-copy cinematographic film – is tangible.   
4.304  Second, China also unsuccessfully contends that  films for theatrical release are not goods 
because they are exploited through a series of se rvices.  China argues that  because the "delivery 
materials" containing film are mere accessories of  such services, films are not goods.  If accepted, 
China's argument would have serious systemic impli cations.  Because the vast majority of goods are 
commercially exploited through a series of associated services, China's argument would transform virtually all goods into services.  China's own cu stoms regime also demonstrates that China itself 
treats films as goods. 
4.305  China goes on to provide certain criteria that it says are not decisive, but claims "may help 
determine whether a particular good affected by a measure regulating the supply of a service should 
be treated as an 'accessory to a service'."  However,  these criteria merely highlight further the flaws in 
China's argument.  Under China's approach, a wide  swath of goods would be magically transformed 
into services. 
4.306  China also attempts to anchor  its argument that films are not goods in the Appellate Body's 
guidance in EC – Bananas III  concerning whether the measure at is sue affects trade in goods, trade in 
services, or both.  However, an analysis of th e relevant measures using the Appellate Body's 
guidance, which China endorses, reveals that the me asures unambiguously affect trade in goods.  In 
fact, China's measures themselves refer to the im portation of the good separate from and in addition to 
the provision of services using the good.  
4.307  China's argument that films for theatrical release are not goods is also belied by the text of the 
GATT 1994.  Article III:10 and Article IV of the GA TT 1994, part of the Multilateral Agreements on 
Trade in Goods, deal with cinematographic films, and demonstrate a long history of treating films as 
goods in the multilateral trading system. 
4.308  Third, contrary to China's contentions, interna tional classifications of films demonstrate that 
films for theatrical release are goods.  The Harm onized Commodity Description and Coding System 
(HS), which only covers goods, describes products under heading 3706 as follows: "cinematographic 
film, exposed and developed, whether or not inco rporating sound track or consisting only of sound 
track."  Similarly, the United Nations' Ce ntral Product Classification (CPC) does classify 
cinematographic film as a good in Subclass 3895, in  addition to classifying the associated services (in 
subclass 96113).    
4.309  As with films, China argues that the "master copies" of AVHE products and sound recordings 
being imported and used for reproduction, are a mere  accessory of copyright licensing and therefore 
are not goods.  China's argument is flawed for a number of reasons. 
4.310  The fact that these tangible goods carry conten t does not take them out of the category of 
goods.  The fact that certain provisions of the relevant measures may regulate copyright licensing does not mean that other provisions of the same measures do not regulate the importation of the goods 
themselves; indeed, other provisions do just that.  Finally, the 2007 Harmonized System 
(implemented under the Harmonized System Conven tion, to which China has been a party since 
1993) makes clear that unfinished AVHE products  and unfinished sound recordings are goods. 
4.311  China's tariff schedule addresses these items in  HS heading 8524.  The term "unfinished 
AVHE products" is intended to capture master copies of inter alia  videocassettes, VCDs, and DVDs 
to be used to publish and manufacture copies for sal e in China.  These products would be covered by 
the broad description for HS heading 8524 because th ese master copies are "records, tapes and other 
recorded media for sound or other similarly recorded phenomena."   WT/DS363/R 
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  4.312  Similarly, the term sound recordings as used by the United States covers inter alia  recorded 
audio tapes, records, and audio CDs.  The United States considers that "unfinished sound recordings" 
are master copies of sound recordings, such as mast er recording discs, to be reproduced and sold in 
China.  These master recording discs fit within the scope of the description, "records, tapes and other 
recorded media for sound or other similarly reco rded phenomena."  Accordingly, these items are 
treated as goods in China's own customs regime.   
4.313  China concedes that it does charge customs duties for "hard-copy audiovisual product 
(including sound recordings) intended for pub lication."  Moreover, Article 2 of the Audiovisual 
Products Importation Rule  defines "audiovisual products" as "audio tapes, video tapes, records, and 
audio and video CDs which have recorded content."  The measure then cross-references the HS codes 
for these "products," included in Annex 1 to the me asure.  The CPC also classifies "recorded media 
for sound or other similarly recorded phenomen a" other than films under goods subclass 47520. 
(b) China's measures are not justified under its right to regulate trade in a manner consistent with 
the WTO Agreement or Article XX(a) of the GATT 1994  
4.314  With respect to the remaining products at i ssue – i.e., reading materials, finished AVHE 
products, and finished sound recordings – China co ncedes that it places limitations on its trading 
rights commitments, but contends that these limitations are justified.  China submits that its right to regulate trade in a manner consistent with the WT O Agreement permits restrictions on its trading 
rights commitments that are consistent with Ar ticle XX of the GATT 1994.  China, however, has 
failed to sustain its arguments with respect to the right to regulate and Article XX.   
4.315  Contrary to China's reading of the first clause of paragraph 5.1 of its Accession Protocol, the 
right to regulate trade in a manner consistent with  the WTO Agreement applies to measures regulating 
goods that are traded, and not to measures regulating whole categories of traders engaged in the importation of goods. 
4.316  During China's accession negotiations, WTO Members agreed to specific limitations on 
China's trading rights commitments with respect to a set of listed goods.  That is, only state trading 
enterprises are allowed to import the goods enumer ated in Annex 2A1 and only designated importers 
were permitted to import the goods enumerated in Annex 2B until December 2004.  China did not list 
the goods at issue in this dispute in either A nnex, and China's trading rights commitments do not 
authorize China to add to these limitations af ter accession.  Interpreting the first clause of 
paragraph 5.1 concerning the right to regulate trade as justifying the measures at issue would render 
Annexes 2A and 2B redundant. 
4.317  China further contends that the measures at issue are justified by Article XX(a) of the 
GATT 1994 and that they are applied in a manner cons istent with the chapeau of Article XX.  As a 
threshold matter, it is not necessary to determine wh ether Article XX applies to China's commitments 
contained in the Accession Protocol and Working Part y Report.  When faced with a similar situation 
in US – Shrimp(Thailand)/US – Customs Bond Directive , the Appellate Body examined the measure 
at issue on an arguendo  basis, and after finding this measure did not satisfy the requirements of 
Article XX, concluded that it did not need to express a view on the question of whether Article XX is 
available as an affirmative defe nce for a measure found to be inconsistent with the Anti-Dumping 
Agreement.  Similarly, China's measures reside we ll outside of the parameters of Article XX(a), and 
their application fails to meet the requireme nts contained in the chapeau of Article XX. 
4.318  Without prejudice to whether Article XX appli es to China's commitments contained in the 
Accession Protocol and Working Party Report, Chin a has not met its burden to establish that the 
measures at issue satisfy this exception.  WT/DS363/R 
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  4.319  The trading rights prohibitions found in Ch ina's measures are not "necessary" within the 
meaning of Article XX(a).  As the Appellate Body has explained, "a 'necessary measure is ... located 
significantly closer to the pole of 'indispensable ' than to the opposite pole of simply 'making a 
contribution to'."  China has failed to establish a nexus between prohibiting a ll foreign importers and 
all privately-owned Chinese importers from importi ng the goods at issue and achieving its content 
review goals.  Restricting trading rights to onl y a single, or a select few, Chinese state-owned 
importers is nowhere near "indispensable" to content review, and thus the restrictions on trading rights 
are not "necessary" under Article XX(a). 
4.320  The Appellate Body has also not found a me asure to be necessary where there is a 
"reasonably available WTO-consistent alternative".  In this dispute, China has numerous alternatives 
to achieve its content review objectives that do not re strict the right to import.  For example, foreign-
invested enterprises could conduct the content revi ew of reading materials, AVHE products, sound 
recordings and films for theatrical release, after de veloping the expertise to do so by training existing 
personnel or hiring experts as employees to conduct such review. 
4.321  Moreover, China fails to show that the applica tion of challenged measur es is consistent with 
the chapeau of Article XX.  China contends that  "the administrative authorities (GAPP and MOC) 
need to make certain that the importation entities are able to participate effectively and efficiently in 
the content review process.  This can only be achieved through a selection process". Indeed, the 
selection process produces results that are both arbitrarily and unjustifiably discriminatory and a disguised restriction on trade.   
4.322  First, China's selection criteria in fact go well be yond the four factors China cited in its first 
written submission.  China a priori requires applican ts who want to engage in the importation/content 
review process for these products to be wholly state-owned enterprises. 
4.323  Second, China's actual process for selecti ng import entities for these products involves a 
number of non-transparent, entirely discretionary Chinese government decisions that also contribute 
to the discriminatory application of this regime.  To be successful, applicants subject to China's 
approval process must meet the requirements of a "State plan for the total number, structure and 
distribution of" importers.  When the Panel asked Ch ina what the State plan is, China provided no 
insights (other than to say that it is not available in written form). 
4.324  Further, China imposes a completely discreti onary "designation" process to select importers 
of most of the products, and in some cases, this  process entirely supersedes the "approval" process 
based on the four selection criteria that China described.  Only importers of books and electronic 
publications are simply "approved" by GAPP.  Fina lly, China's contention that domestic producers of 
the goods at issue are subject to content review requi rements comparable to t hose applied to importers 
is inaccurate for several reasons, and is, moreover,  besides the point in a trading rights claim. 
3. China's measures regarding distribution services are inconsistent with China's 
obligations under the GATS 
4.325  Despite China's market access and national treatment commitments in the distribution 
services and audiovisual services sectors of its Services Schedule, China imposes discriminatory prohibitions and requirements on fo reign service suppliers seeking to engage in the distribution of 
reading materials, AVHE products, and sound reco rdings.  These measures are inconsistent with 
China's obligations contained in Articles XVI and XVII of the GATS. WT/DS363/R 
Page 48  
 
  (a) Reading materials 
4.326  China imposes discriminatory prohibitions and requirements on foreign-invested reading 
material wholesalers that modify the conditions of competition in favour of wholly Chinese-owned reading material wholesalers. 
(i) Discriminatory prohibitions 
4.327  China prohibits foreign-invested enterprises from engaging in four types of reading materials 
distribution:  (1) distribution of imported newspa pers and periodicals, as well as imported books and 
electronic publications in the limited distribution category;  (2) distribution of imported books and 
electronic publications in the non-limited distribution category;  (3) master distribution of books, newspapers, and periodicals; and (4) master w holesale and wholesale of electronic publications. 
4.328  First, China prohibits foreign-invested ente rprises from wholesaling imported newspapers and 
periodicals, as well as imported books and electroni c publications in the "limited distribution 
category".  China's measures at issue do not fall  within the terms, limitations, conditions or 
qualifications on market access or national treatment th at China has specified in  its Services Schedule.  
Accordingly, the measures at issu e are inconsistent with China's obligations under Article XVII.  
China does not contest this US claim. 
4.329  Second, China denies foreign-invested enterpri ses the right to engage in the wholesaling of 
imported books and electronic publications in the "non-limited distribution category".  As the United 
States has explained, and China has confirmed, the Publications (Sub-)Distribution Rule  ". . . makes 
clear that only books [, newspapers and periodicals] published in China are eligible for distribution by 
FIEs."  China's prohibition is, therefore, inconsis tent with China's obligations under Article XVII.  
Again, China does not contest this US claim. 
4.330  Third, China also prohibits foreign-invest ed enterprises from engaging in the master 
distribution of all books, newspa pers and periodicals, whether imported or domestic.  Master 
distribution falls within the meaning of "distrib ution services" under Annex 2 to China's Services 
Schedule, and is covered by China's commitment s under Sector 4 of its Services Schedule.  
Accordingly, China's measures are inconsistent with China's market access and national treatment 
commitments inscribed under mode 3 of  Sector 4 of its Services Schedule. 
4.331  China itself concedes that master distribution is a type of distribution service.  Indeed, 
according to Annex 2 of China's Services Schedule, the "principal service" involved in a distribution 
service that falls under Sector 4 is "reselling merchandise".  As China has explained, master distributors, when they are separate entities from p ublishers, themselves sell reading materials, and 
are not agents of publishers.  This of course means that master distributors are reselling reading 
materials purchased from publishers through an initial sale. 
4.332  China's contention that it did not intend to include master distribution within its distribution 
services commitments is also unpersuasive.  If ind eed it was China's intention to exclude master 
distribution from its distribution services commitments in Sector 4 of its Services Schedule, it should 
have done so with a limitation to the effect.  China inscribed no such limitation with respect to master 
distribution under Sector 4. 
4.333  Master distribution includes wholesaling.  China itself has stated that master distribution is 
synonymous with "master wholesale".  Moreover, China has confirmed that master distribution 
involves specific services that qualify as "wholesaling"  as defined in Annex 2 of China's Services 
Schedule.  Annex 2 provides: "whol esaling consists of the sale of goods/merchandise to retailers to 
industrial, commercial, institutiona l, or other professional business users, or to other wholesalers and  WT/DS363/R 
 Page 49 
 
 
  related subordinated services."  China has already expl ained that master distributors engage in the sale 
of reading materials to industrial, commercial, institutional and other professional business users.  
China's measures also make clear that master distri butors can also resell reading materials to "other 
wholesalers", as provided for in the definition of "wholesaling" in Annex 2. 
4.334  Moreover, to the extent that master distribution also could be considered to involve retailing, 
master distribution is also covered by China's co mmitments under mode 3 of Sector 4C of China's 
Services Schedule.  China has stated on numerous o ccasions that master distribution also involves 
retailing, including of primary and middle school textbooks. 
4.335  Fourth, foreign-invested enterprises are also depr ived of the right to engage in the master 
wholesale and wholesale of electronic publications.  China responds that it has removed the 
prohibition on foreign-invested enterprises from e ngaging in the wholesale of electronic publications 
and has rendered the master wholesale of electroni c publications obsolete.  While the United States 
accepts that the 2008 Electronic Publications Regulation  repealed the 1997 Electronic Publications 
Regulation  in 2008, the former only addresses the pro duction, publishi ng and importing of electronic 
publications and is wholly silent with respect to distribution (including wholesale and master 
wholesale).   
4.336  According to China, the distribution of electronic publications is governed by the 
Publications Market Rule  and the Publications (Sub-)Distribution Rule .  However, these measures 
also prohibit foreign-invested enterprises from engaging in the master wholesale and wholesale of electronic publications.  As China itself concedes th at these two measures represent the complete set 
of rights granted to foreign-invested enterprises with respect to the distribution of electronic 
publications, those enterprises are only permitted to sub-distribute books, news papers and periodicals 
published in China.  The right of foreign-invest ed enterprises to master wholesale and wholesale 
electronic publications is not pr ovided for in either measure. 
4.337  The United States continues to seek a findi ng from the Panel with respect to the 1997 
Electronic Publications Regulation  even though it has been repealed by the 2008 Electronic 
Publications Regulation .  Moreover, the United States seeks a finding with respect to the Publications 
(Sub-)Distribution Rule  as it also prevents foreign-invested enterprises from master wholesaling and 
wholesaling electronic publications.  
(ii) Discriminatory requirements 
4.338  In the limited arena where foreign-invested enterprises may engage in reading material 
distribution – i.e., the sub-distribution of books , newspapers and periodicals published in China – 
China imposes numerous discriminatory requirements that deprive foreign-invested wholesalers of 
national treatment.  China discriminates against foreign-invested wholesalers through requirements 
regarding:  (1) operating terms;  (2) registered cap ital;  (3) pre-establishment legal compliance;  (4) 
examination and approval;  and (5) GAPP decision-making criteria. 
4.339  Foreign-invested enterprises are limited to a 30-year operating term, while their wholly 
Chinese-owned competitors are free of any term limitations.  This places foreign-invested wholesalers 
at a significant competitive disadvantage as their conti nued operations are subject to the discretion of 
government authorities, and because any extension of the operating term requires the agreement of all 
investors and all Board Directors, and must comply  with the laws, regulations and policies on foreign 
investment.  Under Chinese law, each of these par ties holds a veto on extension and can use that 
leverage to extract concessions from the foreign-inv ested parties.  China's contention that the term 
extension is "non-discretionary, automatic and simplif ied" is contradicted by Chinese law.  In fact, 
four Chinese measures cited by China state exp licitly that extension depends on approval by the 
examining authority. WT/DS363/R 
Page 50  
 
  4.340  China's registered capital requirement also modi fies the conditions of competition in favour of 
wholly Chinese-owned sub-distributors of books, ne wspapers and periodicals.  China does not contest 
that foreign-invested wholesalers of books, newspape rs and periodicals published in China must have 
RMB 30 million in registered capital, while th eir wholly Chinese-owned competitors need only 
RMB 2 million.  China argues, however, that this di sparity does not result in less favourable treatment 
because foreign-invested enterprises can contribute their registered capital in instalments, while 
wholly Chinese-owned enterprises must contribute their registered capital prior to establishment.  This 
argument fails, however, since wholly-Chinese owne d enterprises are also permitted to contribute 
their registered capital in instalments. 
4.341  China's discriminatory pre-establishment le gal compliance requirement likewise accords 
further less favourable treatment to foreign-invested  wholesalers than to domestic suppliers.  Pursuant 
to this requirement, foreign-invested enterp rises are prohibited from engaging in the wholesale 
distribution of books, newspapers and periodicals publis hed in China if they have any record of legal 
non-compliance in the three years prior to their a pplication to engage in such services.  Wholly 
Chinese-owned wholesale distributors of reading ma terials, however, are not subject to this 
requirement.  While China argues that a similar requirement is imposed on wholly Chinese-owned 
wholesalers of reading materials.  – i.e. curb ing domestic suppliers' freedom of action only for 
violations of one measure that result in "the admi nistrative punishment of revocation of [the entity's] 
licence" – the requirement applicable to foreigners to tally bars market entry for any "law or regulation 
violations" or "oth er bad offences". 
4.342  Foreign-invested wholesalers also face a f undamentally discriminatory examination and 
approval process in order to enter this market.  Th ey must go through a six stage process that takes at 
least 90 days, whereas wholly Chinese-owned wholesal ers are treated preferentially to a three stage 
process, which takes only 40 days.  China contends that the MOFCOM approval process is non-discretionary, but the text of the Publications (Sub-)Distribution Rule  belies this claim – i.e., no 
criteria or conditions govern how MOFCOM mak es its approval decisions.  China also argues 
unsuccessfully that its horizontal commitments inscrib ed in its Services Schedule preserve its right to 
maintain such discriminatory requirements.  Ch ina's horizontal commitment, however, provides no 
such safe-harbour for its GATS-inconsistent examin ation and approval process.  This inscription is a 
classic GATS Article XVI:2(e) limitation, restricting the types of entities through which a service supplier may supply a service. 
4.343  Finally, GAPP's decision-making criteria for a pproving foreign-invested enterprises – which 
include friendliness, great capability, standardized  management, advanced technologies and reliable 
foreign investment – modify the conditions of comp etition by subjecting foreign-invested applicants, 
but not wholly Chinese-owned applic ants, to additional hurdles that must be overcome in order to 
enter the Chinese market place. 
(b) AVHE products 
4.344  China maintains several measures that are inconsistent with its market access and national 
treatment obligations for foreign-invested service distributors of AVHE products.  These measures are therefore inconsistent with Article XV I:2(f) and Article XVII of the GATS.   
(i) Article XVI 
4.345  China's measures are inconsistent with Article  XVI of the GATS because:  (1) China made a 
market access commitment in its Services Schedule under mode 3 that Chinese-foreign contractual 
joint ventures would be permitte d to engage in the distribution of AVHE products upon China's 
accession;  (2) China did not inscribe any limitations on the participation of foreign capital with respect to Chinese-foreign contractual joint ventur es engaged in the distribution of AVHE products;   WT/DS363/R 
 Page 51 
 
 
  and (3) China's measures limit the pa rticipation of foreign capital in Chinese-foreign contractual joint 
ventures engaged in the distribution of AVHE products. 
4.346  China's contentions to the contrary fail to rebut  the US claim.  China does not even address 
the language in the Foreign Investment Regulation  and the Several Opinions  that directly supports the 
US position.  China initially appears to concede the validity of the US interpretation of the Catalogue  
and the Audiovisual (Sub-)Distribution Rule , by stating that the relevant measures "provide that the 
Chinese party to a Sino-Foreign joint venture enga ging in the wholesaling of audiovisual products 
must hold at least 51 per cent of the shares."   
4.347  However, China then contends, contrary to the US description of these measures, that the 
measures actually regulate the "rate of distribution of profit and allocation of loss," not the level of 
participation of foreign equity in contractual joint ventures.  Based on this assertion, China then states 
that Article XVI does not require Members to inscr ibe limitations with respect to profit and loss 
allocation in their services schedules.  However, China does not provide any textual basis for its 
conclusion that the explicit limitations on the per centage of shares that the foreign party may hold 
should be construed instead as a limitation on the a llocation of profit and loss between the parties to 
the joint venture. 
(ii) Article XVII 
4.348  China also fails to rebut the US claim that China maintains discriminatory requirements on 
Chinese-foreign contractual joint ventures engaged in the distribution of AVHE products and that 
these discriminatory requirements are inconsistent w ith China's obligations u nder Article XVII of the 
GATS.  China discriminates against foreign-invested distributors of AVHE products through 
requirements regarding:  (1) equity  participation limits;  (2) oper ating term;  (3) pre-establishment 
legal compliance;  (4) examination and appr oval;  and (5) decision-making criteria.  
4.349  First, China provides discriminatory treatment to  foreign service suppliers by requiring that 
the foreign party to a Chinese-foreign contractual joint venture hold no more than 49 per cent of the shares while the Chinese party can hold up to 100 per cent and no less than 51 per cent of the shares.  
China repeats its argument that the measures identifie d by the United States actually regulate the rate 
of allocation of profit and loss.  The inability to hold a majority position in a joint venture severely 
disadvantages foreign suppliers by depriving them  of important control over the operation of the 
AVHE product distribution venture, while Chinese supp liers do not face such a disadvantage.  China's 
restrictions on foreign capital participation in jo int ventures engaged in the distribution of AVHE 
products have the potential to restrict foreign inv estors' freedom to implement their strategic vision 
and realize their goals for the enterprise where the vi sion and goals are inconsis tent with those of the 
Chinese party to the joint venture. 
4.350  Second, China also requires that foreign-inv ested entities engaged in the distribution of 
AVHE products face a 15-year operating term while wholly Chinese-owned AVHE distributors are not subject to such a limitation.  China does not di spute that foreign-invested entities are subject to a 
limitation on their operating term.  Foreign-invested  entities face greater uncertainty and cost in the 
continuity of their operations than wholly Chinese- owned entities.  This operating term limitation also 
modifies conditions of competition to the detriment of the foreign-invested distributors because 
extension requires the agreement of all investors, all Board Directors and the laws, regulations and 
policies on foreign investment.  Furthermore, exte nsion is far from automatic and depends upon a new 
round of examination and appr oval, procedures under which government authorities have the 
authority to disapprove requests for extension. 
4.351  Third, China also maintains discriminatory re quirements with respect to pre-establishment 
legal compliance, which accord less favourable treatme nt to foreign-invested distributors than to like WT/DS363/R 
Page 52  
 
  domestic service suppliers.  Although China raises certa in procedural arguments with respect to these 
measures, China does not dispute that these meas ures provide for discriminatory treatment for 
foreign-invested enterprises in breach of Article XVII. 
4.352  Fourth, China also accords less favourable treatme nt to foreign-invested entities than wholly 
Chinese-owned entities engaged in the distributi on of audiovisual products by placing more 
administrative burdens on foreign-invested entiti es as it relates to the examination and approval 
process. 
4.353  While China's horizontal commitments in its  Services Schedule provi de a definition of 
foreign-invested enterprises, those horizontal entr ies contain no language that qualifies or limits 
China's national treatment obligations.  Nor does China's horizontal commitment provide any such 
safe-harbour for China's GATS-inconsistent examin ation and approval process.  Indeed, as China 
itself recognizes, this type of entry fits with in the scope of the market access provision of 
Article XVI:2(e) of the GATS.  China's argume nt that the laws and regulations governing the 
approval process were in place at the time of Ch ina's accession is also unavailing as the relevant 
question is whether China currently maintains any measures that are inconsistent with China's GATS 
obligations. 
4.354  China also disputes certain aspects of the appr oval process as set forth by the United States 
for Chinese-foreign contractual joint ventures e ngaged in the distribution of AVHE products.  
However, what China's argument betrays is that foreign-invested distributors face a more burdensome 
process for becoming an approved entity than wholly  Chinese-owned entities.  China also contends 
that the measures do not modify the conditions of competition to the detriment of foreign services or 
service suppliers.  However, Article XVII:3 contains  no safe-harbour for discriminatory measures that 
only modify the conditions of competition in fa vour of domestic entities by a supposedly small 
amount. 
4.355  Fifth, China also requires that the relevant au thorities, in approving applications from foreign-
invested joint ventures, give priority to foreign- invested enterprises displaying the friendliness, capital 
strength, management standardization, and technolog ical advancement of foreign-invested applicants 
in making their determinations.  These additional co nditions are only imposed on the approval process 
for foreign-invested entities and are not applicab le to wholly Chinese-owned entities.  China has 
elected not to advance substantive arguments w ith respect to these discriminatory requirements. 
(c) Sound recordings 
4.356  China has failed to establish that  the electronic distribution of sound recordings is beyond the 
scope of its services commitments for sound recording distribution services.  In Sector 2D of its 
Services Schedule, China scheduled no market acce ss or national treatment limitations under mode 3 
for Chinese-foreign contractual joint ventures enga ged in sound recording distribution services.  
However, China maintains several measures that acc ord less favourable treatment to foreign-invested 
entities engaged in the electronic distribution of sound recordings.  By doing so, these measures are 
inconsistent with Article XVII of the GATS. 
4.357  China does not address the US claims that th e measures at issue treat foreign-invested 
enterprises differently from wholly Chinese-owned en tities.  Instead, China's defence to this claim 
rests on the argument that China did not undertake co mmitments in its Services Schedule with respect 
to the electronic distribution of sound recordings, but only with respect to distribution of hard-copy sound recordings.  China's arguments are without merit. 
4.358  First, an analysis of the term "sound record ing distribution services" in China's Services 
Schedule under Articles 31 and 32 of the Vienna Conve ntion on the Law of Treaties confirms that the  WT/DS363/R 
 Page 53 
 
 
  electronic distribution of sound recordings is within the scope of China's commitments.  In particular, 
with respect to supplementary means of interpre tation under Article 32 of the Vienna Convention, 
China has failed to establish that the electroni c distribution of sound recordings was a "new" 
phenomenon at the time of its accession and thus beyond the scope of its commitments on sound 
recording distribution services.   
4.359  Second, even if China were correct that it coul d not have been aware of electronic distribution 
of sound recordings as a commercial reality at the time of its WTO accession, China has failed to 
establish that the electronic distribution of sound reco rdings is more than a new means of supplying 
an existing service.  China argues that the releva nt question is not whether a service is "new" but 
rather whether it is "different" from services for which a Member has made commitments.   
4.360  China goes on to argue that certain factors s hould be considered in determining whether a 
service is different.  There is no textual basis in the GATS for the application of these factors to an analysis of the meaning of a Member's services commi tment.  In addition, the United States has set 
forth examples in previous submissi ons demonstrating the flaws in Ch ina's attempt to characterize the 
electronic distribution of sound recordings as different from distribution of sound recordings in hard-
copy format. 
4.361  China's proposed (but utterly non-textual) "c riteria" fail to effectively distinguish among 
services, and thus these "criteria" fail to suppor t China's argument.  Indeed, many of China's 
arguments merely corroborate the conclusion that the electronic distribution of sound recordings is a different means of supplying sound recording distribu tion services, rather than an altogether different 
service.  Since the electronic distribution of sound recordings is within the scope of China's sound 
recording distribution services commitments, China's measures according discriminatory treatment to 
foreign service suppliers of such services are inconsistent with Article XVII of the GATS. 
4. China's measures regarding the internal sale, offering for sale, purchase, distribution 
and use of products are inconsistent with China's obligations under Article III:4 of the GATT 1994 
4.362  China's measures governing the internal sale, o ffering for sale, purchase, distribution and use 
of imported reading materials, hard copies of imported sound recordings intended for electronic 
distribution, and imported films for theatrical rel ease are inconsistent with Article III:4 of the 
GATT 1994. 
(a) Reading materials 
4.363  China treats imported reading materials less fa vourably than domestic reading materials.  
These measures:  (1) confine most categories of im ported reading materials to a single distribution 
channel;  (2) impose onerous conditio ns on those seeking to obtain imported reading materials;  and 
(3) strictly limit which enterprises are permitted to distribute imported reading materials.  Domestic reading materials do not face these restrictions. 
4.364  First, China requires all imported newspapers  and periodicals, as well as imported books and 
electronic publications in the "limited distribution category", to be distributed only through a highly 
restrictive subscription regime.  All other distributi on channels are denied to  these imported products.  
Domestic reading materials, however, can be di stributed through subscription as well as through a 
wide variety of other distribution channels. 
4.365  Second, China imposes higher burdens on those seeking to obtain imported reading materials, 
thereby treating imported reading materials less favour ably than like domestic  reading materials.  
Where imported and domestic reading materials ar e obtained through subscription, the requirements WT/DS363/R 
Page 54  
 
  imposed on subscribers of imported reading materi als are more onerous, requiring examination and 
approval of the subscriber, which delays and possi bly prevents the receipt of the imported reading 
material by the subscriber. 
4.366  Third, China restricts all imported newspape rs and periodicals, as well as imported books and 
electronic publications in the "limited distribution category", to distribution by Chinese wholly state-
owned distributors.  Similarly, China restricts all imported books and electronic publications in the 
"non-limited distribution category" to wholly Chin ese-owned distributors.  In contrast, domestic 
reading materials can be distributed by a wide array of  distributors that are best suited to the particular 
needs of the reading material in question.  Ch ina has not provided any substantive arguments 
challenging this third aspect of the US claim. 
4.367  China contends that restricting these importe d reading materials to distribution through 
subscription is non-discriminatory, because the "limited distribution category" includes reading materials with prohibited content used by certain  government agencies and institutions for research 
purposes. 
4.368  However, China provides no support for its asser tion that the "limited distribution category" 
consists of reading materials with  prohibited content.  In fact, China's proposed interpretation is 
inconsistent with Chinese law, which makes distri buting prohibited content in  China illegal.  China 
also argues that the use of the term "entity" in the relevant measure supports its assertion that only 
government agencies and institutions are permitted to subscribe to reading materials in the "limited 
distribution category".  China's interpretation of "entity" would mean that government agencies and 
institutions are the only wholly Chinese-owned en tities permitted to obtain imported newspapers and 
periodicals in the "non-limited distribution category".  China's newly minted defence would render 
China's subscription regime for imported reading ma terials more, rather than less, discriminatory. 
4.369  China also argues that newspapers and periodi cals in the "non-limited distribution category" 
are subject to "quasi-automatic subscription" with  "no rejection of applications" and "without the 
involvement of state agencies".  Despite this cont ention, China's argument conflicts with the express 
provisions of its own law.  In a ddition, China fails to address the fact that imported newspapers and 
periodicals in the "non-limited distribution category" are only available to consumers through subscription, while domestic newspa pers and periodicals are available through a myriad of channels. 
(b) Sound recordings 
4.370  China has failed to rebut the US claim under Article III:4 of the GATT 1994 relating to 
imports of sound recordings intended for electronic distribution.  Contrary to China's obligations 
under Article III:4, China's measures impose a more onerous content-review regime on imports of 
sound recordings intended for electronic distri bution than for domestic sound recordings. 
4.371  First, China considers that the electronic distribution of sound recordings is not covered by 
the GATT 1994 because the GATT 1994 only covers trade in goods.  In making this argument, China 
misunderstands the US claim, which only applies to measures affecting imported hard-copy media 
containing sound recordings that are intended for electronic distribution.  The US claim does not 
include a challenge to any measure's treatment of services or service suppliers involved in the 
electronic distribution of sound recordings.  Accordingly, China's discussion of the distinction between goods and services is not relevant to this claim.   
4.372  China's statements regarding the nature of  the products are likewise unavailing.  The 
distribution of copyrighted materials – whether inco rporated into hard-copy sound recordings sold in 
hard copy or distributed electronically – always involves one or more intellectual property rights with  WT/DS363/R 
 Page 55 
 
 
  respect to the copyrighted material.  This fact does not demonstrate that the products and measures 
fall outside the purview of Article III of the GATT 1994. 
4.373  China also asserts that the challenged measures are "border measures" at the importation stage 
and therefore do not "affect[]" the distribution of products that have already been imported. This 
assertion is erroneous and ignores the Ad Note to Arti cle III of the GATT.  In this case, the measures 
impose a content review regime on all sound record ings intended for electronic distribution.  For 
imports, the content review procedures are administ ered upon importation.  This does not transform 
the measures into measures to wh ich Article III:4 is inapplicable. 
4.374  The hard-copy sound recording is often provided to an Internet Culture Provider ("ICP") or 
Mobile Content Provider ("MCP") who makes an a dditional copy in hard-c opy format of the sound 
recording, transforms the sound recording into a format that can be transmitted electronically, and 
then transmits the reformatted sound recording elect ronically.  Before distributing a sound recording 
electronically, the ICP or MCP must go through th e delay and administrative burden of a content 
review process that the ICP or MCP need not go through for domestic like products.  Accordingly, the 
relevant measures affect the "sale, offering for sal e, purchase, distribution or use" of such products 
within the meaning of Article III:4. 
(c) Films for theatrical release 
4.375  China's regime for the sale, offering for sale,  purchase, distribution or use of films for 
theatrical release likewise accords less favourable treat ment to imported products within the meaning 
of Article III:4.  China's measures provide that im ported films can only be distributed by one of two 
state-controlled enterprises – China Film Group an d Huaxia.  Furthermore, commercial negotiations 
do not determine the terms of distribution or whic h of these two distributors will handle the imported 
film.  Domestic films do not face these limitations. 
4.376  China's principal argument with respect to the US claim under Article III:4 for films for 
theatrical release is that such items are not goods subject to the GATT 1994 disciplines.  As set forth 
in the US first oral statement and above, China's contention that films are not goods is untenable.  
China also argues that films cannot be "distribut ed" within the meaning of Article III:4 because 
"distribution" is limited to the supply of goods to on -sellers or consumers.  China's interpretation of 
the term "distribution" in Article III:4 is flawed.  Accordingly, China has faile d to establish that there 
is no distribution under the meaning of Article III:4. 
4.377  China also argues that imported films for theatri cal release are not subject to less favourable 
treatment.  However, China's regime governing the di stribution of films for theatrical release entails a 
number of significant disadvantages that accord impor ted films less favourable treatment than that 
accorded to domestic films. 
4.378  While China contends that there is no mandatory duopoly for the distribution of imported 
films in China, it admits that only two entities are currently designated to distribute such films.  
Regardless of whether this duopoly is mandatory, it  is discriminatory nonetheless.  Further, China's 
contention that there is no mandatory duopoly does not withstand scrutiny.  The Film Distribution and 
Exhibition Rule  expressly provides for such a duopoly, and the Domestic Film Distribution and 
Exhibition Rule  confirms that China Film Group and Huaxia  are the only two distributors of imported 
films in China.   
4.379  China further submits that the number of approve d distributors of imported films is limited by 
SARFT because the number of films imported into Chin a is limited.  China's attempt to justify its 
actions by suggesting there is a reasonable correla tion between the quantity of films imported into WT/DS363/R 
Page 56  
 
  China and the quantity of available distributors, however, only confirms that imported films receive 
less favourable treatment than that  accorded to domestic films. 
4.380  Even leaving aside the discriminatory nature of the actual distribution ratios, China cannot 
justify its limits on the number of distributors fo r imported films based on the limits China has 
imposed on the number of films imported into China.  WTO Members are not permitted to provide 
less national treatment in the case of limited imports and more national treatment in the case of many 
imports.  Article III:4 provides that each importe d product must be accorded treatment no less 
favourable than that accorded to each domestic product. 
4.381  China goes on to argue that the trade impact of its discriminatory distribution regime does not 
rise to the level of less favourable treatment unde r Article III:4.  However, consistency with 
Article III:4 is not determined on the basis of out comes or trade effects.  Article III:4 protects 
opportunities, not outcomes.  Limiting imported f ilms to two distributors, which do not permit 
negotiation on key commercial terms, while domestic fi lms have access to all available distributors on 
commercial terms, is a fundamenta l denial of equal opportunity. 
4.382  In addition, Article III:4 does not allow Members to balance off less favourable treatment in 
one area with more favourable treatment in anothe r area in order to achieve some kind of "net" 
national treatment.  Thus, the fact that China asserts  (again without any supporting evidence) that the 
payment of taxes and other costs by China Film  Group or Huaxia may result in imported films 
receiving a higher per centage of total box office receipts, does not justify the discriminatory non-negotiable terms imposed on imported films by one of two distributo rs, while domestic films are free 
to choose among all distributors and negotiate their contracts as they wish. 
4.383  Finally, China submits that China Film Group and Huaxia are only obligated to comply with 
China's screen quota and that these two distributors are not required to support domestic films in any other way.  China proffers no evidence to substa ntiate this contention, and China's position does not 
withstand scrutiny.  China's requirement that Chin a Film Group and Huaxia actively support domestic 
films is not limited to complying with the screening quota, and include metrics for supporting 
domestic films that have no direct re lationship with the screening quota.   
5. China's measures regarding the internal sale, offering for sale, purchase, distribution 
and use of products are inconsistent wi th China's obligations under the Accession 
Protocol 
4.384  For the reasons explained above and in prev ious US submissions, the relevant Chinese 
measures are inconsistent with Article III:4 of the GATT 1994.  As a consequence, these measures are 
also inconsistent with paragraphs 5.1 and 1.2 of Part I the Accession Protocol with respect to imported 
reading materials, imported hard copies of sound reco rdings intended for electronic distribution, and 
imported films for theatrical release.  
6. The Panel's terms of reference 
4.385  China also objects to the inclusion of several of  its measures, as well as one of the US claims, 
in the Panel's terms of reference.  As explained in  the US first oral statement and the US answers to 
the first set of Panel questions, China's objections are unavailing.  For the reasons cited above and in 
previous US submissions, the United States respec tfully requests that the Panel dismiss China's 
procedural objections and rule on these measures a nd this claim, which are all properly before the 
Panel and within its terms of reference.  WT/DS363/R 
 Page 57 
 
 
  7. Conclusion 
4.386  The United States respectfully requests the Panel to find that China's measures at issue are 
inconsistent with China's oblig ations under the Accession Protocol , the GATS and the GATT 1994.  
The United States further requests, pursuant to Arti cle 19.1 of the DSU, that the Panel recommend 
that China bring its measures into conformity w ith its obligations under the Accession Protocol, the 
GATS, and the GATT 1994. 
F. SECOND WRITTEN SUBMISSION OF CHINA  
1. Introduction 
4.387  The claims made by the United States in this case are characterized by a persistent failure to 
recognize the unique nature of the cultural goods that are the subject of its claim, and a fundamental 
misinterpretation of the extent of the commitm ents made by China on its accession to the WTO.  
4.388  In its first oral statement and in its answers to the Panel's questions, the United States, in 
attempting to further substantiate its claims in li ght of China's arguments, only succeeded in showing 
the weaknesses and flaws inherent in its claims.  
4.389  China respectfully asks the Panel to take partic ular note of instances where the United States 
has changed the subject of its case and is pursuing di fferent claims from those or iginally set out in its 
panel request.  This is particularly true for the following: 
(a) With respect to the US claim concerning trading rights and distribution opportunities 
for motion pictures for theatrical release, the United States has tried to move its target from motion pictures for theatrical release to cinematographic films; 
(b) With respect to the US claim concerning distribution opportunities for sound 
recordings and motion pictures for theatrical release, the United States tries to change 
the basis of its claim in order to suppor t its argument that the Chinese measures are 
inconsistent with Article III: 4 of the GATT.  
4.390  Despite this manoeuvring, the United States fail s to rebut China's contentions that (i) the 
claims concerning trading rights and distributio n opportunities for motion pictures for theatrical 
release relate to measures regulating trade in ser vices and (ii) the Chinese measures relating to sound 
recordings and motion pictures for theatrical release do not affect the distribution of goods within the 
meaning of Article III: 4 of the GATT.  
4.391  With respect to the US clai m concerning distribution services for sound recordings, China 
reiterates that "sound recording distribution servi ces" in China's GATS Schedule only covers the 
distribution of sound recording in physical form, a nd not network music services, which is a distinct 
service. 
4.392  Concerning China's justification of the measur es required to implement its content review 
system, China maintains that it is entitled to put in place a system designed to ensure the rigorous 
exclusion of all cultural content that would ha ve a negative impact on public morals and will 
demonstrate that the United States has failed to meet its burden of proof in establishing that any 
WTO-consistent alternative was reasonably available to China. 
4.393  With respect to the terms of re ference of the Panel, China will demonstrate that the "catch-all" 
approach developed by the United States is inconsis tent with the requirements of Article 6.2 of the 
DSU.  WT/DS363/R 
Page 58  
 
  2. Terms of reference 
4.394  The United States, in its first oral statement and in its answers to the Panel's questions, tries to 
justify the inclusion of claims which China believ es to be beyond the scope of the Panel's terms of 
reference, based on the following arguments: 
(a) For measures which the United States has fail ed to mention in its panel request, the 
United States contends that such measur es were properly identified, because they 
have the same effect as measures which it had identified in its panel request; 
(b) It also argues, with regard to these measur es allegedly "identified by their effects", 
that they were included in the panel requ est because they fell wi thin the category of 
so-called "related" or "implementing" measures as mentioned in the panel request; 
(c) With respect to the "discriminatory re quirements" and "different distribution 
opportunities" which the United States fails to mention in its panel request, it now 
seeks to suggest that they were properly br ought before the Panel simply because it 
mentioned the relevant measures and WTO ob ligations alleged to be breached in the 
panel request. 
4.395  However, China considers that these arguments by the United States are not consistent with 
the requirements set out in Article 6.2 of the DSU and are without merit.  
4.396  At the outset, it should be underlined that the Appellate Body ruled that, when faced with an 
issue relating to the scope of its terms of reference,  a panel must "scrutinize carefully the request for 
establishment of a panel to ensure its compliance wi th both the letter and spirit of Article 6.2 of the 
DSU". 
4.397  In this regard, it should be recalled that th e Appellate Body has consistently held that 
Article 6.2 of the DSU imposes "requirements of pr ecision" in the request for the establishment of a 
panel, which serve the due process objective of put ting the other parties sufficiently on notice that 
"specific measures" are going to be challenged, and on what legal basis.  
4.398  Although the United States had consulted extens ively with China about and had explicitly 
identified those measures at issue in certain secti ons of its panel request, it nevertheless failed to 
identify them in other sections in the same pa nel request.  China and other parties should not 
reasonably be expected to have noticed from th e US panel request that these measures would be 
challenged also in relation to other claims. 
4.399  Following the same logic, the United States also fails to identify explicitly all "discriminatory 
requirements" and "different distribution opportuniti es" that it seeks to cha llenge under the relevant 
measures and unreasonably expects China and other pa rties to have had sufficient notice that the 
United States may target any other "requirements"  and "opportunities" when it deems appropriate to 
do so at a later stage.  
4.400  With respect to the measures allegedly identif ied by their effects, China submits that 
describing the alleged effects of a measure does not  amount to "identifying the specific measure" and 
does not satisfy the "requirement of precision".  I ndeed, following the US approach would (i) entail 
that the complaining party may smuggle into the terms of reference any measure not previously 
identified by alleging that it shares the same effect s as a measure originally identified in its panel 
request and (ii) place on the responding party the burden of establishing which measures may have 
such challenged effects, whereas it is precisely disput ing that its measures have such alleged effects.   WT/DS363/R 
 Page 59 
 
 
  4.401  With respect to the US argument that these me asures allegedly "identified by their effects 
were included in the panel request merely because th ey fell within the category of so-called "related" 
or "implementing" measures, China submits th at this "catch-all" approach would minimize 
unreasonably the burden of the comp laining party and prejudice China's due process right to be 
sufficiently informed of the measures whic h are challenged by the United States.  
4.402  Finally, with respect to the US suggestion that  "discriminatory requirements" and "different 
distribution opportunities" were prope rly brought before the Panel by vi rtue of the fact that there are 
complaints made in relation to measures mentione d in the panel request, is not supported by the 
wording of Article 6.2 or by past WTO practice.  First, as held by the Appellate Body in Japan – Film  
and US – Carbon Steel , the mere reference to regulations in the panel request does not imply that each 
and every aspect of these regulations has been challe nged.  Secondly, China submits that Article 6.2 
of the DSU requires the complaining party to identi fy the basis of its comp laint by identifying the 
issues that arise in relation to particular regulations .  Therefore, the mere reference to a regulation in 
the panel request without putting it in relation with th e legal issue does not satisfy the "requirement of 
precision" and does not respect the "letter and the spirit of Article 6.2 of the DSU".  
4.403  It follows that the United States is attempting to extend the scope of the dispute in a manner 
inconsistent with the due process requirements of Ar ticle 6.2 of the DSU.  China thus respectfully 
requests the Panel to dismiss the US attempt to incl ude them at this late st age, and its underlying 
arguments. 
3. Trading rights  
(a) Motion pictures for theatrical release 
(i) The United States should not be permitted to change the subject of its claim 
4.404  In its panel request and in its first written s ubmission, the United States made its claim with 
regard to trading rights for "film for theatrical releas e".  By contrast, in its first oral statement and its 
answers to the Panel's questions, the United Stat es has moved its target towards "cinematographic 
film".  
4.405  In doing so, the United States, in an atte mpt to identify a good which could justify 
scrutinizing the Chinese measures under the WTO di sciplines on goods, tries to play with the 
ambiguity of the term "film" in order to change the object of its claim.  
4.406  The term "film" has a dual meaning as it can refer either to an artistic work or to a material on 
which this artistic work may be recorded.  This dual meaning of the term "film" explains why two 
different concepts are used in international classifi cations, in order to distinguish the artistic work on 
the one hand, and the material on the other hand .  These two concepts are "motion pictures for 
theatrical release" (referring to the artistic work ) and "cinematographic film", (referring to the 
material).  
4.407  In line with these international classifications, th e Chinese measures at issue also make a clear 
distinction between "motion pictures for theatrical release" and "cinematographic film", and clearly 
specify that they apply to the former.  
4.408  Therefore, the Chinese measures relate to th e importation of motion pictures, not to the 
importation of cinematographic film as such, i.e. the material.  
4.409  In view of the above, it appears that the Unite d States, by using the unusual term "film for 
theatrical release" in its panel request and its firs t written submission and by subsequently shifting to WT/DS363/R 
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  "cinematographic film", attempts to play with the dual meaning of the term "film" and to blur the 
distinction between "motion pictures for theatrical release" and "cinematograph films". 
4.410  However, despite such manoeuvring by the Un ited States in order to bring the Chinese 
measures concerning motion pictures for theatrical release under the WTO disciplines on goods, it is clear that motion pictures for theatrical release ca nnot be considered as equating to cinematographic 
films since the terms describe different concepts, and since motion pictures for theatrical release may 
be transmitted without a cinematographic film, and ar e intended only for public shows in theatres.  
4.411  Furthermore, the US attempt in its answers to  the Panel's questions to further switch the 
subject of its claim from "cinematographic film" to "hard-copy" cinematographic films is fruitless since cinematographic film is always in hard-copy.  
4.412  The United States' newly described claim in r espect of cinematographic film or hard-copy 
cinematographic film should not be found to fall under  the terms of reference of the Panel.  In these 
circumstances, the United States no longer pursues the establishment of a prima facie case with regard 
to its claim about films for theatrical release, which should therefore be dismissed.  
(ii) The Chinese measures should only be scrutinized  under the GATS, not under WTO disciplines 
on goods 
4.413  First, it must be underlined that the Chinese measures regulate the services involved in the 
exploitation of motion pictures for theatrical release.  They regulate the importation of motion pictures 
as part of the supply of such services.  Thus, the Ch inese measures relate to trade in services, not trade 
in goods. 
4.414  These Chinese measures only affect cinematogra phic film as an accessory to the services 
related to the exploitation of motion pictures for th eatrical release, and therefore cannot be scrutinized 
under WTO disciplines on goods. 
4.415  Contrary to what the United States and some thir d parties have argued, the mere existence of 
goods used in relation to an activity cannot in it self justify the application of WTO disciplines on 
goods to measures affecting such activity. 
4.416  Indeed, the WTO jurisprudence indicates that:  (i) a measure affecting the supply of services 
and involving goods could fall under the GATS exclusiv ely, the GATT exclusively or both;  and (ii) 
whether the GATS, the GATT or both should apply is to be determined on a case by case basis.  
4.417  China submits that a measure regulating the supply of a service, although it may have an 
impact on a good which is only an accessory to that service, should be scrutinized under the 
disciplines on trade in services only.  
4.418  Cinematographic film should be treated as an accessory to the services related to the 
exploitation of motion pictures.  This accessory nature of cinematographic film is characterized by the following aspects: 
(a) It is not in itself an object traded in its own right; 
(b) The exploitation of motion pictures for theatrical release through a series of services 
does not require a transfer of ownership of cinematographic film;  WT/DS363/R 
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  (c) The supply of the cinematographic film is part of the provision of the services of 
exploitation of motion pictures for theatrical release and cannot be considered independently from these services; 
(d) It has no own commercial value in the context of exploitation of motion pictures for 
theatrical release, and does not generate re venue other than the revenue arising from 
the supply of these services.  
4.419  It is not possible to consider that the Chinese measures affect cinematographic film 
independently of the regulation of the services re lated to the exploitation of motion pictures for 
theatrical release.  The right to import cinematographic film exists only as a logical outcome of the right to import a motion picture for theatrical release.  Therefore, the Chinese measures should be 
examined only under the GATS. 
4.420  Contrary to what the United States asserts, the fact that Article IV of the GATT deals with 
cinematographic films does not invalidate this conclusion.  
4.421  Article IV of the GATT, which deals with scr een quotas, relates to trade in services, as 
recognized by the GATT Secretariat.  Furthermor e, Article IV contains disciplines on certain 
measures regulating services related to the exploitation of motion pictures for theatrical release since 
the purpose of screen time limitations is to reserve a certain exhibition time for domestic motion pictures for theatrical release, that is the artis tic work, and not for the cinematographic film per se .  
4.422  Consequently, Article IV of the GATT does not support the applicability of the WTO 
disciplines applicable to goods  to the Chinese measures.  
4.423  Moreover, an examination of the relevant measures under rules governing trade in goods 
would lead to an incoherent interpretation of China's WTO commitments. 
4.424  China has not made any commitment under the GATS in respect of motion picture 
distribution services. China's additional commitm ent in sector 2D, whereby China allows the 
importation of a limited number of motion pictures for theatrical release on a revenue-sharing basis, is subject to "compliance with China's regulations on the administration of films".  This indicates that 
China has reserved the right to maintain its regulatory framework  governing the administration of 
films, which includes the ability to maintain a designation system for the importation of motion 
pictures for theatrical release. 
4.425  China's commitments represent a single set of right s and obligations, so that the trading rights 
commitment under its Accession Protocol and its GATS Schedule must be read as a coherent whole.  
4.426  As consistently held by the Appellate Body, all applicable provisions of a treaty must be 
interpreted in a way that gives meaning to all of th em, harmoniously.  It follows that China's trading 
rights commitment under its Accession Protocol canno t be interpreted as covering the importation of 
motion pictures for theatrical release since it w ould undermine China's abovementioned reserved 
right.   
(b) Reading materials and audiovisual products, including sound recordings 
(i) China's right to invoke Article XX of the GATT to justify limitations on trading rights 
4.427  The United States attempts to present China's right to regulate trade in a manner consistent 
with the WTO Agreement as a mere justification fo r a "wholesale carve out of the Products in dispute 
… from its trading rights commitments", risking the "e limination" of such commitments.  In so doing, WT/DS363/R 
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  it has not taken account of the fact that all word s in paragraph 5.1 should  be given their proper 
meaning.  
4.428  In particular, both China's commitment with resp ect to the right to trade and China's reserved 
right to regulate trade in a manner consistent  with the WTO Agreement should be given their 
respective full meanings in order to be interprete d correctly and to avoid diminishing China's rights 
and obligations, as required by Article 3.2 of the DSU. 
4.429  The US argument is based on the erroneous assumption that respecting China's right to 
regulate trade would open the door to the exclusion of  "entire categories of product at will" from the 
scope of its trading rights commitments, t hus making Annexes 2A and 2B meaningless.  
4.430  However, contrary to the US assertion, the "w ithout prejudice" clause of paragraph 5.1 does 
not create a right to exclude products from the scope of China's trading rights commitments, but rather 
to adopt and maintain measures consistently with the WTO Agreement.  It follows that the potential 
restrictions may only result from the application of other provisions of the WTO Agreement, which are implemented through measures which also meet all the relevant requirements set out in such 
provisions.   
4.431  The "without prejudice clause" thus aims at providing the basis for a coherent reading 
between China's commitments, on the one hand, a nd China's reserved right to implement certain 
policy objective through the adoption of WTO consistent measures, on the other hand.  
4.432  Indeed, China's trading rights commitments under paragraph 5.1 do not rule out the 
application of measures limiting such trading rights and their justification under the Article XX of the 
GATT.  China's right to implement such restricti ons or prohibitions as a way of protecting its public 
morals is unquestionable and fully c overed by Article XX of the GATT.  Thus, it is clear that in some 
circumstances, the achievement of this aim will n ecessarily imply the limitation of the right to import 
goods into China. 
4.433  In the instant case, the United St ates is in fact complaining ab out the effects of a measure 
which is fully consistent with another provision of the WTO Agreement.  To that extent, China 
submits that Article XX of the GA TT is unarguably part of the WTO Agreement and is thus relevant 
in the context of paragraph 5.1 of China's Accession Protocol.  
4.434  The reference to the WTO agreement in the "w ithout prejudice" clause confirms the right to 
regulate trade in a manner consistent  not only with the WTO Agreement itself, but also with any other 
agreements which are part of it (as is the GATT 1994) .  Also, the reference to the WTO Agreement in 
the context of paragraph 6.1 cannot have a di fferent meaning from that in the context of 
paragraph 5.1, as alleged by the EC.  In fact, what paragraph 6.1 implies is that in the context of the 
Accession Protocol, "WTO Agreement" refers to all agreements that are inco rporated into the WTO 
Agreement and are an "integral part" of it.  
4.435  Such an interpretation ensures a balance betw een China's rights deriving from its accession to 
the WTO, and other WTO Members' rights deriving from China's accession commitments.  Thus, the 
obligation of China to conform to the requirement s set out by the relevant provisions of the WTO 
Agreement, such as Article XX of the GATT, ensures that China will not exercise its right to regulate 
in a manner that would undermine other Members' rights. 
4.436  To that extent, the "without prejudice" clause is  comparable to the chapeau of Article XX of 
the GATT.  It is also the recognition on the part of WTO Members of the need to maintain a balance 
of rights and obligations between China's right to regulate trade on the basis of other provisions of the 
WTO Agreement and China's trading rights commitm ents.  To deny China the right to rely on  WT/DS363/R 
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  Article XX of the GATT would thus significantly aff ect the balance of rights and obligations reflected 
in the Accession Protocol to the detriment of China.  
4.437  Finally, because the Marrakech Agreement it self does not contain any provisions which 
address the issue of measures adopted by Members w ith respect to the regulation of trade, it is 
difficult to see how a WTO Member could "regulate trade in a manner consistent with the WTO 
agreement" other than by reference to specific pr ovisions of the various agreements which are an 
"integral part" of the WTO Agreement.  
4.438  It follows that paragraph 5.1 of the Accession Protocol allows China to maintain measures 
which are justified under Article XX of the GATT and which may result in limitation on the right to 
trade. 
(ii) The Chinese measures meet the require ments of Article XX of the GATT 
4.439  Determination of whether a measure is neces sary in the sense of Article XX of the GATT 
should be made through a process of weighing and bala ncing of a series of factors.  Such a process 
begins with an assessment of the relative importan ce of the interests and values furthered by the 
challenged measure, before turning to the other fact ors, including the contribution of the measure to 
the realisation of the ends pursued and its restrictive impact on international trade.  
4.440  China notes that it is not disputed by the Un ited States and the third parties that the 
preservation of public morals is a crucial polic y issue of primary importance for China.  
4.441  China wishes to recall that WTO Members are free to set the level of protection or 
enforcement they see fit.  In this respect, the level of protection sought by China is that of a complete 
prohibition within its territory of any cultural conten t that could, by colliding with the standards of 
right and wrong conduct specific to China, have a negative impact on public morals.  In order to 
enforce such level of protection, it is necessary for China to review the content of all imported cultural 
goods.  
4.442  China understands that what is disputed by the United States and the third parties is not 
China's right to perform a content review of all im ported cultural goods, but the fact that such content 
review must be performed (i) at the importation st age, (ii) by the importation entities (iii) which can 
only be state-owned enterprises meeting certain criteria.  
4.443  However, such aspects of the challenged measu res are necessary to achieve the level of 
protection and enforcement sought by China. 
4.444  China has already explained why and how th e selection process permits the selection of 
entities fulfilling certain criteria which guarantee that th e content review is performed in an effective 
and efficient manner that allows the achievement of the level of protection sought by China while not 
causing undue delay in the trade of cultural products.  
4.445  In addition, China would like to highlight that achievement of the intended result requires not 
only that the content review is performed in an e ffective and efficient manner, but also requires the 
prevention of any possibility of circumvention of  the content review in order to avoid any 
dissemination of unauthorized cultural conten ts, whether intentional or inadvertent. 
4.446  In this respect, China considers that the conten t review of imported cultural products must be 
implemented at the importation stage, i.e. before any possible dissemination of their content.  China 
has accordingly entrusted the importing entities with the task of performing the content review which 
also minimizes the risk of fraud or failure to pr esent the imported cultural product for content review. WT/DS363/R 
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  4.447  State-owned enterprises are entrusted with the content review not only because China 
considers that only state-owned enterprises should be called on to bear the cost of the review, which 
relates solely to the public interest, but also becau se they are the only entities considered to fulfil the 
necessary technical and organizational requirements,  as set out in the relevant Chinese regulations. 
4.448  With respect to the objectives pursued, China submits that no reasonable WTO-consistent 
alternatives are available.  
4.449  The United States tries to invoke WTO-consiste nt alternatives consisting in the possibility 
that foreign-invested enterprises could conduct the co ntent review before, during or after importation, 
through development of the expertise, training of existing personnel or hiring of experts or domestic 
Chinese entities.  It attempts to find support for its proposal in the so-called "in-house" content review 
applicable to domestic publishers.  
4.450  China recalls that, as held by the Appellate Body , any alternatives rai sed by the complaining 
party must be "reasonably available".  The Appellate Body has made clear that an alternative measure 
is not reasonably available where (i) it is merely theo retical in nature, or (ii) it does not preserve for 
the responding Member its right to achieve its desire d level of protection with respect to the objective 
pursued. 
4.451  China submits that the United States has failed to present any reasonably available alternative 
meeting the Appellate Body's criteria.  
4.452  The level of protection that China seeks to enforce cannot accommodate dissociation between 
the importation business and the performance of the content review.  The content review must be 
performed at the importation stage, before any cult ural product is imported into China's territory.  
4.453  Foreign entities and individuals cannot carry out the content review.  Foreign entities may not 
fully understand the concept of public morals as held by  China.  In addition, th ey are not registered in 
China according to China's laws and regulations, and ca nnot properly be held liable for any failure to 
prevent cultural goods with prohibited content being imported into China.  It is impossible for the 
Chinese government to review and control the capac ity of each importer registered in China to 
conduct the content review.  
4.454  In light of these considerations, the alte rnatives raised by the United States are only 
theoretical. 
4.455  The United States also refers to the possibility that foreign-invested enterprises could develop 
expertise for the content review concerning a particul ar product.  This would be  incompatible with the 
high level of protection sought by China, which re quires the content review to be performed in a 
harmonized manner. 
4.456  Training existing personnel or hiring experts w ould require the State to review and supervize 
the quality and standard of such training or expe rts' qualifications, which is impossible since the 
number of importers would be pot entially unlimited.  An effective and efficient content review 
mechanism cannot be accommodated with an excessively  large number of entities, should the right to 
import be granted to each applicant.  
4.457  Considering the high level of protection sought  by China, the risk s associated with the 
approach suggested by the United States and the extraordinary burden placed on China in order to 
attempt to implement it make such option theoretical in nature.  Therefore, the alternative raised by 
the United States cannot be considered  to be "reasonably available".   WT/DS363/R 
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  4.458  Further, China submits that hiring Chinese comp anies to perform the content review does not 
appear to be a practicable solution either.  Havi ng a different entity to c onduct the importation and the 
content review respectively would result in undue de lays in trade and/or lowering the efficiency and 
effectiveness of the content review.  
4.459  Finally, China would like to stress that the in -house content review applicable to domestic 
publishers, as suggested by the United States, wo uld not be of assistance in the case of imported 
products.  China notes that the domestic publisher conducting an in-house content review under this 
regime can only be a wholly state-owned entity, the establishment of which requires approval by the 
competent government agency on the basis of its capability to conduct the content review. 
4.460  Applying such a regime to a foreign publisher w ould require the publisher to carry out its own 
content review of its publication in the exportin g country.  This would require the relevant 
government agency to examine and supervise a ll such foreign publishers' capability of conducting 
content reviews based on Chinese standards.  Such requirements clearly falls outside the jurisdiction 
of the Chinese authorities and would cause unacceptable costs or substan tial technical difficulties.  In 
addition, the foreign publishers, without a comm ercial presence in China, could not be held 
responsible in the case of violation of the conten t review requirements, which would undermine the 
effectiveness of the content review. 
4.461  For all these reasons, the alternatives sugg ested by the United States do not constitute 
"reasonably available" alternatives.  The United States has thus failed to meet its burden of proof that 
less trade restrictive, WTO-consistent altern atives are "reasonably available" to China. 
4.462  Turning to the requirements of the chapeau, Ch ina submits that, in light of the above, the 
potential limitation on the number and type of entities that may be granted the right to import the 
products at stake is justified by its necessity in order to achieve the policy objectives pursued by 
China.  
4.463  China submits that there is no arbitrary or unjustifiable discriminati on between domestic and 
foreign enterprises.  The United States appears to  allege that discrimination would result from the 
different ways in which the content review is  performed for domestic and imported products.  
However, China has shown that the United States' unfounded assertion in this regard is irrelevant 
since the subject of this dispute is not the content review system, but the selection of certain entities to 
import cultural products.  
4.464  Further, there is also no discrimination be tween foreign and Chinese producers of reading 
materials and audiovisual products, including sound recordings, since the requirements laid down by 
the Chinese laws and regulations are equally ap plicable to both categories of companies.  
4. Distribution services  
(a) The United States has put forward contradictory de finitions and aims to broaden the scope of 
the present dispute 
4.465  China would like to emphasise that the United States  attempts to either create confusion as to 
the product at stake or to broade n unduly the scope of the present di spute beyond its panel request.  
4.466  First, the United States has adopted a confusing position with respect to the definition of 
"sound recordings" in the course of the present dispute.   Indeed, it is apparently not willing to provide 
a consistent definition of the term, given that, de pending on the legal issue at stake, sound recordings 
might sometimes be physical goods and sometimes intangible items as best serves its case.  WT/DS363/R 
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  4.467  Secondly, the United States is broadening the sc ope of the dispute beyond its panel request by 
switching from the concept of "digital distribution of sound recordings" to that of "electronic distribution of sound recordings".  
4.468  China emphasizes that the measures at stake ex clusively govern the supply of network music 
services over the Internet.  Consequently, any attemp t to include various other technical means in the 
scope of the present dispute should be dismissed.  
(b) The scope of "sound recordings distribution servi ces" in China's GATS schedule is limited to 
the distribution of sound recordings in physical form 
4.469  In its first written submission, the United States alleges that China's commitments in relation 
to "sound recording distribution services" under Sector 2D cover what the United States has chosen to 
label "electronic distribution of so und recordings", properly "network music services" as described by 
China in its first written submission.  
4.470  China reiterates that a proper interpretation of  China's commitments in Sector 2D confirms 
that these commitments are limited to the distribu tion of sound recordings in physical form.  
4.471  Since, as demonstrated by China, "distributi on services" refers to the marketing and supply of 
goods and commodities, "sound recordings distributi on services" does not cover the transmission of 
intangible content to users via the Internet.  
4.472  This conclusion is further confirmed by the sp ecific meaning that China attributes to the 
concept of "distribution services" in  Annex 2 of its GATS Schedule.  
4.473  China further notes that the Republic of Korea,  in its answers to the Panel's questions, 
submitted that its commitment on "record production and distribution services (Sound Recordings)" in 
Sector 2D of its GATS Schedule only covers the pr oduction and distribution of sound recordings in 
physical form.  
4.474  Finally, the only examples put forward by th e United States concerning the reality of online 
music business at the time of China's accession to the WTO relate to unaut horized download offers. 
(c) Network music services are distinct from the distribution of sound recordings in physical 
form 
4.475  The US assertion that network music services are covered by China's commitment on "sound 
recording distribution services" is based on the assumption that dissemination of music in digital format through the Internet is a mere "means of delivery" of the "sound recording distribution 
services".  
4.476  The United states relies on the so-called princi ple of "technological neutrality", according to 
which the GATS does not limit the technologically po ssible means of delivery of a service, to claim 
that since China has not imposed any limitations as  regards the means of delivery of the relevant 
committed service, its commitment also applies to the so-called "electronic distribution of sound 
recordings".  
4.477  At the outset, China would like to recall that the principle of "technological neutrality" is still 
under consideration among Members and that the in terpretation of this principle provided by the 
Panel in US – Gambling  has not been confirmed by the Appella te Body.  In addition, following the 
US logic would conflict with the principles of th e GATS, including the "positive list approach" and  WT/DS363/R 
 Page 67 
 
 
  the "request/offer approach", by introducing ne w services into a Member's GATS Schedule without 
going through any negotiation process. 
4.478  Turning to the question of whether dissemina tion of music through the Internet would be a 
simple "means of delivery" of "sound recording distribution services", China submits that the so-
called principle of technological neutrality is irre levant in the present dispute since network music 
service is not merely adopting a new technological "means of delivery" to deliver sound recording 
services.  
4.479  In the present dispute, China would like to  submit that the following factors clearly 
demonstrate that the network musi c service is a service which significantly differs from the sound 
recording distribution service.  
(i) Operational characteristics 
4.480  First, one should focus on the operational ch aracteristics of the relevant services when 
distinguishing one service from another, that is, the economic activities that the supply of the service 
requires. 
4.481  Network music services, on the one hand, and sound recording distribution services (as 
committed by China), on the other hand, do not sh are the same operational characteristics.  The 
traditional sound recording distribution business in volves distribution networks, which handle the 
distribution, marketing and sales of the sound recordi ngs.  It requires the establishment of a logistical 
infrastructure ensuring the usual ac tivities associated with trade, inter alia  sorting and assembling of 
goods, packing, breaking bulk, repacking in smaller lots, storage, shipment, and the managing of sale 
outlets. 
4.482  The structure of network music services differs significantly from the traditional physical 
distribution of sound recordings.  The supply of network music services is at present exclusively operated via the Internet, and requires, not the establishment of a commodity distribution infrastructure, but a robust hosting and aggregation infrastructure.  Further, it requires a range of 
support technologies. 
4.483  Differences in the constraints applicable to both  activities are further reflected by the different 
skills required to carry out these distinct activities.  While for traditional distribution, chain and supply 
managers, salespersons, etc. are required, network music services re ly on IT specialists to operate 
their systems. 
4.484  All of the above matters demonstrate that there are significant intrinsic differences between 
distribution of sound recordings in physical form and network music services. 
(ii) End-uses and consumers' perceptions 
4.485  Whether two services share the same characteris tics may further be assessed against their end-
uses and consumers' perception of them.  This cr iterion reflects the function of the service from the 
consumers' perspective, that is, the benefit that th e consumer derives from the service being supplied.  
4.486  Distribution of sound recordings in physical  form and network music services do not perform 
the same functions from the consumers' perspec tive.  The essential function of sound recording 
distribution services is the acquisition of certain ph ysical goods such as CDs, cassette tapes etc., while 
the essential function of network music services is th e acquisition - at any time and from anywhere - 
of certain intangible data which can be decoded with  a computer or other device to play music works. WT/DS363/R 
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  (iii) International classifications  
4.487  Finally, the fact that network music services are a separate and distinct service from sound 
recording distribution services as described in Chin a's first written submission is further evidenced by 
the draft of CPC Ver.2, which is currently under negotiation. 
4.488  Indeed, the draft of the revised CPC identifies two separate and distinct categories of services, 
namely (i) musical audio download and streamed audi o content;  and (ii) distributive services related 
to goods containing recorded music, which corres pond respectively to network music services and to 
traditional distribution of sound recording as describ ed by China in its first written submission.  
4.489  The fact that CPC Ver. 2 identifies two separate and distinct categories and classifies them in 
completely different sections clearly shows that they  are by nature separate and distinct services.   
4.490  It follows from all the above arguments that ne twork music services and distribution of sound 
recording services are distinct and separate services .  Accordingly, the US argument that China's 
commitment on "sound recording distribution servi ces" covers network music services in the absence 
of a limitation concerning a specific means of delivery is based on the false assumption that network music services are a mere means of delivery and is therefore unfounded.  
5. Product distribution  
(a) Sound recordings  
4.491  In its first written submission, the United Stat es claims that the allegedly more burdensome 
content review requirements applied to hard-copi es of imported sound recordings intended for 
electronic distribution are inconsistent  with Article III:4 of the GATT 1994. 
4.492  In the course of the present dispute, the United St ates has further asserted that Article III:4 of 
the GATT 1994 covers measures that may affect "a va riety of elements in the chain from importation 
to consumption including sale, offering for sale, purch ase, distribution or use" of a particular physical 
product. 
4.493  Therefore, as these different "elements" corres pond to different stages in the process of supply 
of the relevant product, they would necessarily all relate to the product as it was imported.  
4.494  Considering that the imported product identified by  the United States is a hard copy of sound 
recordings intended for digital distribution, the alleged "less favourable distribution opportunities" 
would then logically relate to the imported ha rd copies intended for electronic distribution. 
4.495  However, what the United States is targeti ng in its panel request and its first written 
submission is what it calls the "electronic distribution of sound recordings".  
4.496  The United States recognizes that the movement of the imported product (the hard copy) in 
the Chinese market stops at the moment it is acquired by the Internet Culture Provider.  
4.497  By contrast, its content, which has been transf erred by the Internet Culture Provider into a 
digital format and which is subject to the conten t review, is transmitted through the Internet.  
4.498  Therefore, distribution allegedly affected by the content review requirements does not relate 
to the hard-copy, which is the good actually being imported, but to the digitalized content.  WT/DS363/R 
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  4.499  The formally different treatment identifie d by the United States does not affect the 
"distribution" of hard copies and can therefor e not be scrutinized under Article III:4 of the 
GATT 1994.  In fact, what the United States suggests should be compared is the allegedly different 
treatment applied to digitalized content. 
4.500  Following the reasoning of the United States would entail major systemic implications, 
insofar as it would amount to applying rules on trade in goods to services provided over the Internet. 
4.501  As already sufficiently demonstrated by China, th e term "distribution" within the meaning of 
Article III: 4 of the GATT relates to physical products.  
4.502  Further, China would like to comment on the erroneous interpretation of the term 
"distribution" in the context of Article III:4 of the GATT 1994 provided in the course of the 
proceeding by the United States and Japan.  Contrary  to what they argue, the use of the term " inter 
alia" by the Panel in Canada – Wheat Exports and Grain Imports does not suggest that the term 
"distribution" must be understood as having a broade r meaning than the supply of goods, but merely 
indicates that the Panel, when referring to the dictiona ry in order to determine the ordinary meaning of 
"distribution", chose the economic  definition from among others.  
4.503  Faced with such obvious inconsistencies, th e United States is attempting now to shift its 
ground in its claim from "distribution" of the hard copy to the "use" of the hard copy.  
4.504  The Unites States' answers to th e Panel's questions shows that it has abandoned its claim 
related to the distribution opportunities as put forward in its panel request for th e simple reason that it 
cannot establish a prima facie case in this respect. 
4.505  China is of the view that no provision in th e DSU authorizes a compla ining party to change 
the legal basis of its claim in its answers to the Panel's questions.  Therefore, the United States' newly 
described claim should be dismissed.  
(b) Motion pictures for theatrical release  
4.506  As highlighted above, the United States, in th e course of the proceedings, is attempting to 
change the subject of its claim from motion pictures for theatrical release to cinematographic film.  
The US claim about the distribution of cinematographi c film is not within the scope of the terms of 
reference of the Panel and should not be examined by it. 
4.507  As demonstrated by China, the distribution of motion pictures for theatrical release consists of 
services that do not involve the distribution of goods in the meaning of Article III:4 of the GATT 1994, which the United States has not tried to re but.  Even if the cinematographic film itself 
were to be considered under Article III: 4 of the GATT, quod non , it is not the imported 
cinematographic film which is "distributed". 
4.508  As China has demonstrated in its first writte n submission, the Chinese measures regulate the 
distribution of motion pictures for theatrical release, not cinematographic film.  Distribution of motion pictures for theatrical release, which consists in th e provision of a service, cannot be characterized as 
distribution of goods in the meaning of Article III:4 of the GATT 1994 because it relates to the 
exploitation of an intangible artistic work thro ugh the organization of public shows and does not 
involve the supply of goods to consumers.  
4.509  The United States is attempting to base its argument on the erroneous assumption that the 
Chinese measures regulate the distribution of cinema tographic film.  This erroneous assumption itself 
cannot support its claim under Article III: 4 of the GATT 1994.  WT/DS363/R 
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  4.510  The United States itself recognizes and describes in detail that imported cinematographic film 
is not the good being distributed by the motion picture distributor.  The imported internegative or interpositive produced by the licensor is provided by the licensor to the distributor to produce in the 
laboratory the prints for distribution to local cinemas for theatrical exhibition of the film.  The cinematographic film actually distributed is different  from the film originally imported, save that they 
both carry the same motion picture. 
4.511  Therefore, even if cinematographic film could be  considered to be distributed in the meaning 
of Article III:4 of the GATT 1994, it would not be  the imported cinematographic film which is 
"distributed".  
6. Conclusion 
4.512  For the reasons set out in this submission, Chin a requests the Panel to reject the claims made 
by the United States. 
G. O
RAL STATEMENT OF THE UNITED STATES AT THE SECOND SUBSTANTIVE MEETING OF THE 
PANEL  
1. Introduction 
4.513  The United States will now present further view s on the reasons why th e Chinese measures at 
issue are inconsistent with Ch ina's obligations under the Accession Protocol, the GATS and the 
GATT 1994.  Where China has endeavoured to rebut th e US claims, it has fallen short, while other 
US claims have received no response.  Likewise, Chin a has failed to sustain its burden with respect to 
the defences it has raised. 
2. Trading rights:  films for theatrical release, unfinished AVHE products and unfinished 
sound recordings are goods subject to China's trading rights commitments 
4.514  China's most recent attempt to claim that fi lms for theatrical release are not goods merely 
restates China's previous unsuccessful arguments on this  same issue.  First, China's contention that the 
United States has shifted the focus of its claim is baseless.  Througho ut this dispute, the US claims 
have related to the product that the relevant Chinese measures regulate in a manner that is inconsistent 
with China's trading rights commitments.  The US claims from the beginning have related to an 
integrated product that includes a carrier medium car rying content that can be commercially exploited 
by projection in a theatre.  
4.515  China's attempt to artificially separate goods cont aining content from the content itself fails to 
overcome the US claims.  Beginning with the te xt of the WTO Agreement, Article IV of the 
GATT 1994, an agreement relating to trade in goods,  refers to the "exhib ition of cinematographic 
films" in relation to screen quotas.  The provision makes clear that when discussing the commercial 
exploitation of the artistic work in a theatre, th e GATT 1994 uses the term "cinematographic film", 
not motion pictures.  Article III:10 of the GATT 1994 provides an exception for films to the national 
treatment obligations set forth in the other paragraphs of Article III.  The GATT's national treatment 
obligations apply only with respect to goods; thus, an exception to those obligations also applies only 
to goods. 
4.516  In addition, China points to the language in the HS description of the product as referring to 
cinematographic film "for the projection of motion pictures."  However, this language demonstrates 
that the Harmonized System contemplates a physical product with integrated content that may be commercially exploited in a particular way.  Th is HS description does not take films out of the 
category of goods, but instead confirms that film s containing content to be exploited are goods.   WT/DS363/R 
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  China's accession schedule of tariff concessions, in corporates the HS description of these products 
under heading 3706. 
4.517  China's discussion of the terms in its own measur es is also unavailing.  China contends that 
the Chinese term used in these measures, Dian Ying , translates to "motion picture" rather than 
"cinematographic film."  China goes on to conclude that the Film Regulation  "provides that the 
importer of motion pictures ... instead of the im porter of cinematographic film ... requires 
designation."  China has conceded that such products  – the carrier medium containing content – must 
go through "customs clearance" as part of the importation process.  Thus, the motion picture, i.e., the content, is part of the integrated product that is treated as an importable good for purposes of China's measures. 
4.518  China also repeats its argument that because films are a mere accessory to a service, measures 
relating to importation should be analysed exclusiv ely under the GATS, rather than the trading rights 
disciplines.  China's reasoning is flawed and has be en rejected by the Appellate Body.  In a related 
argument, China asserts that a good that is an acce ssory to a service cannot be scrutinized under the 
WTO disciplines on goods.  First, there is no textual basis in the WTO Agreement for China's 
assertion that a good used to provide a service is no longer a good.  Similarly, China's proposed 
criteria for determining when a good is a mere accessory of a service have no textual basis in the GATT 1994 or the GATS and do not create a principled  rationale for distinguishing among different 
kinds of goods. 
4.519  In addition, China's repeated argument that th e relevant measures regulate copyright licensing 
as opposed to the importation of films is without merit.  While certain provisions of these measures 
may regulate copyright licensing, other provisions of these measures also regulate the importation of 
films.  As the Appellate Body has made clear, a measure regulating both goods and services may be 
analysed under the goods and services disciplines. 
4.520  China's attempt to use its services commitments wi th respect to motion pictures as a shield for 
its trading rights-inconsistent measures is meritle ss.  These services commitments in no way "reserved 
[China's] right" to maintain measures that are inconsistent with its trading rights commitments – let 
alone the right "to maintain a designation system for the importation of motion pictures for theatrical release."  The text of China's Services Schedul e has no relevance to whether China's measures 
restricting who may import films are inconsiste nt with China's trading rights commitments. 
4.521  With respect to unfinished AVHE products and unfinished sound recordings, China appears 
to have abandoned its contention that such products are not goods subject to its trading rights 
commitments.  China's previous arguments in this regard are without merit. 
3. Trading rights:  China's measures regarding reading materials, finished AVHE 
products and finished sound recordings are no t justified under its right to regulate trade 
in a manner consistent with the WTO Agreement or Article XX of the GATT 1994 
4.522  Turning to reading materials, finished AVHE products and finished sound recordings, and 
China's affirmative defence to the US trading ri ghts claims regarding them, China has failed to 
establish its prima facie case.  China is unable to de monstrate that the measures at issue are justified 
by the first clause of paragraph 5.1 of its Acce ssion Protocol or by Article XX of the GATT 1994. 
4.523  Regarding the first clause of paragraph 5.1 referri ng to the "right to regulate trade in a manner 
consistent with the WTO Agreement," China's s econd written submission states that the right to 
regulate trade is distinct from the exceptions c ontained in Annexes 2A and 2B of the Accession 
Protocol, but asserts that the right to regulate trade permits it to impose limitations on its trading rights 
commitments identical to those contained in Annexes 2A and 2B. WT/DS363/R 
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  4.524  The "right to regulate trade" clause applies to measures addressing the goods being traded, 
rather than the traders of  those goods.  As is clear from paragr aph 84(b) of the Working Party Report, 
regulating the right to trade includes applying WTO-consistent require ments concerning import 
licensing, technical barriers to trade, and sanitary and phytosanitary measures.  Thus, the right to regulate trade in a WTO-consistent manner is fundame ntally different from the "right to regulate the 
right to trade in a manner consistent with the WTO Agre ement."  It is the "right to regulate the right to 
trade" that China seeks to read into paragraph 5.1 in  order to justify deprivin g all foreign importers of 
the right to trade on the basis of national origin. 
4.525  While the United States agrees with China's statem ent that the "right to regulate trade" clause 
is distinct from the exceptions contained in Annex es 2A and 2B, the United States does not agree with 
China's contention that both the "right to regulat e trade" clause and Annexes 2A and 2B permit China 
to reserve certain products per se  to state trading.  Under China's expansive reading of the "right to 
regulate trade" clause, these Annexes would be rende red redundant.  China argues that the "right to 
regulate trade" clause and Annexes 2A and 2B pr ovide for different limitations on China's trading 
rights commitments.  Yet, China also  asserts that Annexes 2A and 2B  subject goods to state trading, 
while the "right to regulate trade" clause also subjects goods to state trading. 
4.526  While the United States does not concede its av ailability, China's Article XX defence is 
likewise without merit.  China argues without success that denying all foreign importers and privately-held importers in China the right to im port the products at issue is "necessary to protect 
public morals" based on the following four asserted requirements for its content review system:  first, content review must be performed in association w ith importation;  second, content review must be 
performed by importers;  third, importers must be  Chinese wholly state-owned enterprises as no other 
entities are capable of conducting content review;  and fourth, content reviewing entities must be limited in number so that individual reviewers can be "examined and supervised" by the Chinese 
government. 
4.527  The United States proposes several reasonably-avai lable WTO-consistent alternatives.  By 
training or hiring content review experts, fore ign-invested enterprises could conduct the content 
review of the products they import.  The Chinese Government could conduct the review of products 
imported by foreign-invested importe rs.  Foreign-invested importers could also hire domestic Chinese 
entities with the appropriate expertise to perform th e necessary review.  While China contends that its 
four system requirements demonstrate that the WTO-consistent alternatives proposed by the United States are not practicable, China's own system as described to the Panel does not meet these 
requirements. 
4.528  First, despite China's assertions that content review cannot be disassociated from importation, 
China's own system de-links these unrelated activiti es.  Second, contrary to China's contentions, 
importers are not integral to the content review process.  Third, reserving importation exclusively to Chinese wholly state-owned enterprises is also unnec essary.  Content review in China is performed 
principally, if not exclusively, by the Chinese G overnment for imported products, and not by wholly 
state-owned enterprises.  Fourth, the number of content reviewing entities does not need to be 
drastically limited as China suggests.  The larg e number of content review entities for domestic 
products shows that it is not overly burdensome or  too costly to "examine and supervise" the 
individual reviewers working at these entities to achie ve China's desired level of enforcement.  In 
sum, China's content review system differs substa ntially from a system meeting the four purported 
requirements described in its submissions.  In f act, the only significant difference between China's 
system and the reasonably available WTO-consistent alternatives proposed by the United States is that 
China reserves importation to wholly state-owned enterprises.  
4.529  Likewise, China's concerns regarding cost are addressed under the US proposals.  Two of the 
US proposals – either having the foreign importers  and privately held importers in China conduct  WT/DS363/R 
 Page 73 
 
 
  content review after obtaining the necessary expertise,  or having these importers hire domestic entities 
with the appropriate expertise to conduct content re view – would require minimal additional costs.  
These proposals essentially involve substituting forei gn importers and privately held importers in 
China into the roles currently play ed by the state-owned importers.  The third US proposal – having 
the Chinese Government conduct all content review – would also require minimal additional costs, as 
much of the content review of imported products  is already performed by the Chinese Government, 
and the Chinese Government is alread y bearing the costs of these activities. 
4.530  China's arguments regarding alleged problems associated with the examination and 
supervision of reviewers are also misplaced.  On th e burden of such examination and supervision, the 
content review system applicable to domestic pr oducts demonstrates China's ability and willingness to 
oversee hundreds of domestic content review entiti es.  Moreover, a system in which government 
officials review the content of products imported by  foreign importers and privately-held importers 
would impose no additional structural burden, b ecause these reviewers are already in place and are 
being examined and supervised in the context of the review of imported products. 
4.531  China's objections regarding its alleged inabilit y to assert jurisdiction under the US proposals 
are unavailing.  Under the US proposals in which th e Chinese Government or enterprises in China are 
conducting content review, China's ability to assert jurisdiction is clear.  China asserts that no entity would be willing to conduct content review on beha lf of other entities because the responsibility and 
penalties involved are too great.  This ignores China's arguments that state-owned enterprises are the only entities capable of reviewing produ cts manufactured by other producers. 
4.532  China has likewise failed to show that th e application of its measures satisfies the 
requirements of the chapeau of Article XX.  Instead,  China simply directs the Panel to its arguments 
with respect to Article XX(a).  However, even if  a measure is "necessary", its application must also 
constitute neither a "means of arbitrary or unjustifia ble discrimination" nor a "disguised restriction on 
international trade".  The United States has demons trated that China's measures fall far short of the 
chapeau's requirements. 
4. Trade in services:  China's services commi tments cover the master distribution of 
reading materials 
4.533  Exhibit US-99 illustrates the United States' rebu ttal arguments regarding master distribution 
and its inclusion of "wholesaling" within the meani ng of Annex 2 of China's Services Schedule.     
5. Trade in services:  China's services commitmen ts cover the electronic distribution of 
sound recordings 
4.534  With respect to the electronic distribution of  sound recordings, China's measures accord less 
favourable treatment to foreign-invested entities engaged in the electronic distribution of sound 
recordings than to wholly Chinese-owned distribut ors, thereby contravening Article XVII of the 
GATS.  China's principal defence rests on the argu ment that the electronic distribution of sound 
recordings is outside the scope of China's services commitments. 
4.535  China unsuccessfully attempts to apply an analys is of the ordinary meaning of the relevant 
terms under the customary rules of interpretation refl ected in Article 31 of the Vienna Convention on 
the Law of Treaties.  China's c ontention that the term "distribut ion" can only encompass distribution 
of goods is belied by the text of the GATS, which explicitly contemplates distribution of a service in 
Article XXVIII(b).  China's reliance on Annex 2 of its Services Schedule is of little utility in 
explaining the meaning of the term "distribution" in Sector 2D of China's schedule. WT/DS363/R 
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  4.536  With respect to supplementary means of in terpretation under Article 32 of the Vienna 
Convention, China has failed to pr ovide any support for its assertion that the electronic distribution of 
sound recordings was unknown at the time of it s accession to the WTO.  China ignores the 
considerable evidence adduced by the United States showing that the electronic distribution of sound 
recordings was known to China and other WT O Members before China joined the WTO. 
4.537  As for China's contention that the "sole rea lity" abroad and in China was "unauthorized 
download offers", these assertions are contradicted by  the evidence submitted in this dispute.  China's 
assertion that it is unaware of the existence of th e joint venture between the Chinese government and a 
Houston-based company to supply music onlin e is also contradicted by the facts. 
4.538  Even if China were correct that the electr onic distribution of sound recordings was unknown 
at the time of its WTO accession, China fails to establish that the electronic distribution of sound 
recordings is a new service rather than a new mean s of supplying an existing service.  China argues 
that the electronic distribution of sound recordings is an altogether new service from the distribution 
of sound recordings in hard-copy such that tech nological neutrality is not relevant.  China has 
articulated certain criteria that it maintains should "be taken into consideration when distinguishing 
one service from another."  However, there is no text ual basis in the GATS for the application of these 
criteria to an analysis of a Member's services commitments.   
4.539  First, China argues that the "operational characteristics" differ as between the electronic 
distribution of sound recordings and the distribut ion of sound recordings  in hard-copy because 
distributors must set up different infrastructure and employ personnel with different skills.  These differences also exist between different means of supplying a particular service, which will often 
involve different distribution infrastructure and personnel.  The same flaw plagues China's second 
criterion – end-uses and consumer perceptions.  Consumers may perceive different means of 
supplying a service differently depending on how that  means of supply fits with their preferences.  A 
difference in the consumer's perceptions does not  necessarily suggest that two different services are 
involved.   
4.540  With respect to the international classifica tions of services, China appears to take a 
contradictory position regarding th e relevance of such classification instruments by relying on 
instruments that support its argument and dismissing  those that are disadvantageous to its position.  
China claims that W/120 and the Provisional CPC are not binding on Members and have little utility 
in determining the meaning and scope of China' s commitments.  China also argues that the 
classification of "online audio content" in CPC Ver.  2 shows that the electronic distribution of sound 
recordings is distinct from other sound recording distri bution services.  This is in spite of the fact that 
CPC Ver. 2 is still in draft, is not the version of the CPC that was the basis for any of China's services commitments, and has not been accepted by WTO Members as relevant for Members' services commitments. 
4.541  With respect to China's contentio n that the relevant measures only relate to the distribution of 
sound recordings over the Internet, and not through "other electromagnetic means," China refers only 
to one of the measures relevant to the US GATS cl aim on electronic distribution of sound recordings.  
However, Article I(1) of the Network Music Opinions , which China does not discuss, refers to the 
network music market as encompassing "music produc ts transmitted through such wired or wireless 
media as the internet and mobile communicati ons."  Moreover, an interpretation of the Network Music 
Opinions  posted on the Chinese Ministry of Cu lture's website states that in the Network Music 
Opinions , "music was defined for the first time, refe rring to music products as transmitted through the 
Internet, mobile communication network as well as other wired and wireless media ... ."  WT/DS363/R 
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  6. Trade in goods:  China's measures regarding the internal sale, offering for sale, 
purchase, distribution and use of the products are inconsistent with Article III:4 of the 
GATT 1994  
(a) Sound recordings intended for electronic distribution 
4.542  China has also failed to rebut the US prima fa cie case that the measures regulating hard-copy 
sound recordings intended for electronic distribu tion accord less favourable treatment to imported 
products than to domestic like produc ts in contravention of Article III:4 of the GATT 1994.  China's 
first erroneous assertion is that the US claim rela tes to the treatment accorded to the electronic 
distribution of sound recordings.  The US claim relates to China's less favourable treatment of 
imported hard-copy sound recordings intended for electronic distribution.  China's discussion that an 
Article III:4 claim can only relate to a good, wh ich must be a tangible item, is irrelevant. 
4.543  In addition, China's contention that the releva nt measures do not affect the distribution of 
hard-copy sound recordings because these measures onl y relate to sound recordings in a format 
suitable for electronic distribution misses the mark.  First, China provides no citations to any of the 
relevant measures – let alone a textual analys is – to support this assertion.  Moreover, the Network 
Music Opinions  provides that the content review requirement  is "[i]n regard to  imported audiovisual 
products (including those officially published and distributed) whose content has already been examined by the Ministry of Culture and are to be transmitted over the information network."  The 
Internet Culture Rule , on which the Network Music Opinions  is based, refers to "[a]udiovisual 
products ... produced or reproduced by the use of cer tain technological means to disseminate over the 
Internet."  Since hard-copy sound recordings are a type of "audiovisual product," the term 
"audiovisual products," encompasses hard-copy sound recordings that may be disseminated 
electronically. 
4.544  China's argument that the discriminatory cont ent review requirement does not affect the 
distribution of the hard-copy, but only the "digitalized content," reflects an overly narrow view of the national treatment obligation in Ar ticle III:4.  Under Article III:4, a measure must be affecting the 
import's movement through the chain from production to consumption, including the "sale, offering 
for sale, purchase, transportation, distribution or use" of the imported product.  Moreover, the "affecting" requirement is interpreted broadly.    
4.545  In the case of hard-copy sound recordings inte nded for electronic distribution, the relevant 
measures affect the imported products within the m eaning of Article III:4.  Specifically, before the 
ICP or MCP can distribute an imported product electronically, it must submit the sound recording for 
content review, a requirement not faced by do mestic sound recordings intended for electronic 
distribution.  The fact that the hard-copy sound reco rding is converted after importation into a format 
that can be distributed electronically does not mean that the Chinese measures do not accord less favourable treatment to the imported products.  The steps involved in moving the product from 
importation to the next stage (i.e., from importation to the ICP or MCP, then to the Ministry of 
Culture for content review, and then back to the ICP or MCP) are part of the distribution of the 
product.  Accordingly, by imposing an administra tive hurdle on only the imported products before the 
ICP or MCP can move the product further downstr eam, the relevant Chinese measures adversely 
affect the conditions of competition for the imported product. 
4.546  In addition, a finding that a measure that accords less favourable treatment to imports does 
not "affect" the distribution of the product merely  because there is further processing of the product 
downstream would undermine the discipline of Ar ticle III:4 by allowing a loophole in the national 
treatment obligation. WT/DS363/R 
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  4.547  Finally, there is no basis for China's contenti on that the United States has changed its claim 
by showing that the relevant measures affect th e use of the imported product, rather than the 
distribution.  The US panel request provides, "[i] t thus appears that sound recordings imported into 
China in physical form are treated less favourably  than sound recordings produced in China in 
physical form ... The measures at issue therefore app ear to be inconsistent with China's obligations 
under Article III:4 of the GATT 1994."  As provided in Article 6.2 of the DSU, the panel request 
provides a brief summary of the legal basis suffici ent to set forth the problem presented by the 
relevant measures clearly. 
4.548  China also provided a discussion of its view of the translation of the relevant measures.  The 
United States provides a response to China's argume nts in Exhibit US-102.  Through its discussion of 
the translations, China seeks to argue that Article 14(1) of the Audiovisual Products Importation Rule  
and Article 28 of the 2001 Audiovisual Products Regulation  relate to the import of audiovisual 
products rather than imported audiovisual products .  China argues that th ese measures establish 
conditions for importation and are thus border measures.  China's translation is unsupported by an 
analysis of the ordinary meaning of the relevant Chinese terms.  Regardless of the translation issues, 
these measures are not border measures.  Ad Note to Article III of the GATT 1994 makes clear that a 
regime that applies to both imported and domes tic products is not a border measure because the 
measure is enforced at the border with respect to imports.  As the GATT 1994 provides, the fact that 
the content review requirement is enforced at the border for imported product does not transform the measures into border measures. 
(b) Films for theatrical release 
4.549  China erroneously contends that the relevant measures do not affect the distribution of the 
relevant product within the meaning of Article  III:4 of the GATT 1994.  These measures restrict 
which entities may import films and which entities may distribute imported films.  The term "affecting" in Article III:4 has been interpreted broadly to encompass "law s or regulations which 
might adversely modify the conditions of competitio n between domestic and imported products."  The 
discriminatory treatment applicable to importe d films adversely modifies the conditions of 
competition in favour of the domestic product because domestic films do not face the same limitations 
on their distribution opportunities as those faced by imported films.  This suffices to establish that 
China's measures are inconsistent with China's ob ligations under Article III:4.  In addition, the 
concept of distribution in Article III:4 is broad a nd encompasses a range of activities required to move 
a product downstream.  The fact that there ma y be changes to the product downstream does not 
change the fact that the imported film faces l ess advantageous distribution opportunities than a 
domestic like product.  
7. China has not sustained its claim under Article 6.2 of the DSU with respect to the 
Panel's terms of reference 
(a) China's Film Distribution and Exhibition Rule , 2001 Audiovisual Products Regulation and the 
Audiovisual Products Importation Rule are within the Panel's terms of reference 
4.550  China's second submission characterizes one of the US arguments regarding the Film 
Distribution and Exhibition Rule , the 2001 Audiovisual Products Regulation and the Audiovisual 
Products Importation Rule  as relating to measures with the "same effects".  The United States, 
however, makes no such argument.  Instead, the Un ited States argues that these measures are included 
in the Panel's terms of reference as they are laws  and regulations through wh ich the WTO-inconsistent 
legal regime described in the US panel request is put into place. 
4.551  China goes on to contend unsuccessfully that these three measures are not included in the 
Panel's terms of reference, despite the fact that they are closely and directly related to measures  WT/DS363/R 
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  identified in the US panel request.  First, the United States has shown that these three measures are 
included in the US panel request  because they fall within the cl ause incorporating amendments, 
related measures and implementing measures contained in the US panel request.  China ignores the 
panel report in EC – Bananas III .  Second, the United States has shown that the three measures are 
"subsidiary or closely related to" measures cited in  the US panel request, and are thereby included in 
the Panel's terms of reference pursuant to the reasoning of the panel in Japan – Film .   
(b) China's discriminatory requirements and differe nt distribution opportunities are within the 
Panel's terms of reference  
4.552  China's second written submission then turns to China's claims that discriminatory 
requirements and different distribution opportunities imposed on foreign-invested enterprises are not 
within the Panel's terms of refere nce with regard to th e US claims under Article XVII of the GATS.  
China's contentions that its discr iminatory requirements are outside of the scope of the US panel 
request are without merit.  First, the US pane l request explicitly refers to "discriminatory 
requirements" and "discriminatory limitations" in th e context of the US claims regarding reading 
materials, and "requirements" and "discriminatory limitations" in the context of the US claims 
regarding AVHE products.  Second, the US panel re quest explicitly enumerates all of the measures 
that contain the challenged discriminatory requirement s.  Contrary to China's contention, Article 6.2 
does not require panel requests to identify each in dividual provision of each  challenged measure. 
Finally, China maintains its misplaced reliance on the reports in Japan – Film  and US – Carbon Steel , 
while ignoring the points made in this context by the United States. 
4.553  In its first written submission, China contende d that the US Article III:4 claim regarding 
restrictions on distribution opportunities for imported reading materials was outside of the Panel's 
terms of reference, because it was not included in the US Consultation Request.  China has offered no 
response to the US arguments explaining why this clai m is included in the Panel's terms of reference, 
including with respect to the Appellate Body's reasoning in Mexico – Rice . 
8. Translation 
4.554  China provided a discussion of the translation of certain measures in an exhibit submitted 
with its second written submission.  The United States responds to China's discussion of these 
translation issues in Exhibit US-102. 
H. ORAL STATEMENT OF CHINA AT THE SECOND SUBSTANTIVE MEETING OF THE PANEL  
1. Introduction  
4.555  In its second written submission, the United States h as tried to further substantiate its claims 
and to rebut China's arguments, and even sometim es to expand the subject of its claim beyond what 
was initially included in its panel requ est and its first written submission. 
4.556  China believes that the claims of the United St ates, far from being clear-cut, are based on an 
erroneous reading of the WTO Agreements, in cluding China's accession documents, or on a 
misrepresentation of the facts.  
4.557  Concerning trading rights for films for theat rical release, the US second written submission 
focuses all its efforts on demonstrating that cinematogr aphic film is a good, a fact which is irrelevant 
in this case and has never been disputed by China.  This does not help the US case, because it is the 
measures at stake which determine what WTO rules are applicable. WT/DS363/R 
Page 78  
 
  4.558  As regards sound recordings distribution service s, China's commitments are limited to sound 
recordings in physical form, and do not cover ne twork music services.  The United States fails to 
establish that network music services are not a service distinct from the distribution of sound recordings in physical form.  China has brought  further evidence demonstrating that these two 
services are clearly distinct and that network music services were not covered by China's 
commitments under GATS. 
4.559  With respect to product distribution for sound recordings intended for electronic distribution, 
the United States tries to convince th e Panel that the subject of its cl aim relates not to the exploitation 
of music over the Internet, but rather to an alle ged less favourable treatment of the imported hard-
copy of sound recordings.  However, an analysis of the United States' contentions made throughout 
these proceedings reveals that this is not in fact the subject of its claim.  
4.560  With respect to product distribution for moti on pictures for theatrical release, the United 
States has likewise attempted to move the target of its claim to cinematographic film.  However, this 
does not help its case since imported cinematographic film is not "distributed" within the meaning of 
Article III:4 of the GATT 1994. 
4.561  In addition to the above, the United States provi des an unacceptably restrictive picture of the 
rights which China derived from its WTO Accession ( especially its right to regulate trade in a manner 
consistent with the WTO Agreement) and makes an  inaccurate presentation of the relevant Chinese 
laws and regulations (especially on distribution services for reading materials). 
2. Terms of reference 
4.562  The United States has sought to develop a case th at goes far beyond what was set out in its 
panel request in three respects.  
4.563  Firstly, the United States has challenged meas ures which it failed to mention in its panel 
request.  When confronted with this failing, it cont ended that such measures were properly identified, 
because they have the "same effect" as measures de scribed in its panel request. China submits that 
describing the alleged effects of a measure does not  amount to "[identifying] the specific measure" 
and does not satisfy the "requirement of precision" imposed on parties to a dispute.  Moreover, the 
alleged effects are the subject of the dispute on wh ich findings are yet to be made.  Considering that 
the responding party normally disputes that its meas ures have the effects alleged by the complaining 
party, it is unreasonable to expect the responding pa rty to identify measures based on their alleged 
effects.  
4.564  Secondly, the United States argues that these me asures were included in the panel request 
because they fall within the category of so-called "r elated" or "implementing" measures as mentioned 
in the panel request.  However, accepting this ar gument would prejudice China and other parties' due 
process right to be sufficiently informed of the me asures which are challenged by the United States.  
It would also have the effect of minimizing unreasonably the burden of the complaining party, which would only be required to identify one specific measure followed by a "catch-all" expression such as 
"as well as any amendments, related measures, or implementing measures". 
4.565  Thirdly, the United States has raised totally ne w claims with respect to distribution services 
and "different distribution opportunities", which it entir ely failed to mention in its panel request.  It 
now seeks to suggest that they were properly broug ht before the Panel simply because it mentioned 
the relevant measures and WTO obligations alleged to be breached in the panel request.  However, 
this argument is not supported by the wording of Article 6.2 of the DSU or by previous WTO 
jurisprudence.  WT/DS363/R 
 Page 79 
 
 
  4.566  China therefore respectfully requests the Pane l to make findings only on the basis of the 
claims advanced in the US panel request, and to i gnore the additions that the United States has sought 
to make to its claim since that document.  
3. Trading rights  
(a) Motion pictures for theatrical release 
4.567  In its panel request and in its first written s ubmission, the United States made its claim with 
regard to trading rights for "films for theatrical rel ease".  However, since its first oral statement, it 
instead seeks to refer to "cinematographic film".  This  is an attempt to play with the dual meaning of 
the generic term "film" (which can refer either to th e carrier or to the content), in an attempt to bring 
the Chinese measures under the WTO disciplines on goods.  
4.568  Contrary to what the United States suggests, "motion pictures for theatrical release" (i.e. 
artistic works intended to be shown in theaters) ar e different from cinematographic film.  The Panel 
should dismiss any attempt by the United States to change the subject of its claim because it goes 
beyond the Panel's terms of referen ce, and the Panel should treat the United States' abandonment of its 
previous assertions as a failure by the United States to establish its case. 
4.569  Moreover, the United States' attempt to focu s on the existence of a good (which has never 
been denied by China) does not help the US case.  In the case of measures which affect an activity 
involving goods and services, China respectfully s ubmits that the starting point for the Panel's 
analysis should be to examine how the measure s affect these goods and services, and not merely 
whether these goods and services exist.  In particular , it is necessary to consider whether the measures 
affect trade in goods as goods or the supply of service s as services, and consequently whether they fall 
under WTO rules on goods, WTO rules on services or both.  
4.570  The commercial exploitation of motion pictures fo r theatrical release is realized through a 
series of services.  The United States persistently inte rprets the term "film" as used in the relevant 
Chinese measures as referring to the physical carrier, cinematographic film, when in fact the term as 
used in the measures refers to the artistic work.  The measures regulate the exploitation of motion 
pictures through the organization of public shows through a series of services, and regulate the 
importation of motion pictures for theatrical release as part of these services.  Therefore, the measures regulate the provision of services and not the supply of goods.  
4.571  Further, in the context of theatrical release of motion pictures, cinematographic film is not 
itself the object of trade.  It is not exploited as su ch but merely follows the services involved in this 
theatrical release as an accessory to  such services.  China has demons trated that the Chinese measures 
do not affect cinematographic film independently from the regulation of services but only as a logical 
outcome of this regulation.  
4.572  The United States refers to several situations which are allegedly similar to the case of 
cinematographic films.  However, these examples  repeat the mistake of focusing on the product, 
rather than the relevant measure.  If such an appr oach was, for example, applied to a lottery ticket 
imported in order to organize lotteries, it would l ead to the conclusion that measures which regulate 
the approval of entities allowed to organize lotteri es, i.e. an entertainment service, fall under WTO 
rules on goods when they affect the importation of the lottery ticket.  Howe ver, such a conclusion 
would completely overlook the fact that the tic ket has no other purpose than to provide lottery 
services. WT/DS363/R 
Page 80  
 
  (b) China is entitled to put in place a system allowing it to review the conten t of imported cultural 
products 
4.573  China notes that the United States does not appear to dispute that China has a sovereign right 
to put in place a system designed to review and c ontrol the content of cultural goods that enter its 
territory.  The United States also does not appear to di spute that China is entitled to decide the level of 
protection that it requires.  
4.574  China has decided that the control of cultural c ontent is a matter of fundamental importance, 
and that it requires a complete exclusion from its te rritory of materials which could have a negative 
impact on public morals.  The right to set such sta ndard of enforcement and to put in place a system 
that will maintain such standard is unquestiona ble and recognized also by the Appellate Body 
jurisprudence. 
4.575  In its second written submission, the United Stat es attempts to unduly restrict the scope of 
China's explicitly reserved right to regulate trade in a manner consistent with the WTO Agreement by 
suggesting that the "without prejudice" clause in pa ragraph 5.1 of China's Accession Protocol allows 
China to regulate goods that are traded, but not to regulate categories of traders engaged in the 
importation of goods.  In fact, the "without prejudice" clause in paragraph 5.1 confirms China's right 
to regulate trade, not the right to regulate goods. Contrary to the United States' assertion, the "without prejudice" clause of paragraph 5.1 thus does not create a right to exclude products from the scope of China's trading rights commitments, but rather to a dopt or maintain measures consistently with the 
WTO Agreement.  
4.576  China's right to regulate trade is therefore diffe rent to the exceptions listed in Annex 2A and 
Annex 2B of the Accession Protocol.  While Annex es 2A and 2B reflect the negotiated right of China 
to preserve State trading for a certain number of products and sectors, China's right to regulate trade is the expression of a general right of WTO Member s to maintain certain measures and to pursue 
legitimate objectives. 
4.577  The Appellate Body has consistently held that "a treaty interpreter must read all applicable 
provisions of a treaty in a way that gives meaning to  all of them, harmoniously".  Thus, both China's 
commitment with respect to the right to trade and China's explicitly reserved right to regulate trade in 
a manner consistent with the WTO Agreement should be given their respective full meanings in order 
to avoid diminishing China's rights and obligations. 
4.578  The United States also argues th at China has failed to establish a nexus between importation 
and content review.  However, the level of prot ection sought by China is that of a complete 
prohibition within its territory of all cultural content which could have a negative impact on public 
morals.  In China's view, this justifies implementin g the content review at the importation stage, i.e. 
before any possible dissemination of the content of these products in China. 
4.579  The United States further alleges that China h as numerous alternatives to achieve its content 
review objectives that would not result in a limita tion on the right to import.  However, the United 
States fails to identify precisely any WTO consistent  alternative which would allow China to enforce 
the same level of protection than the current measures at issue.  
4.580  The United States goes on to submit that the Chinese measures at issue do not meet the 
requirements of the chapeau of Article XX of  the GATT and are applied in a manner which 
constitutes a means of arbitrary or unjustifiable discrimination, or a disguised restriction on international trade, because the relevant importa tion entities are required to be wholly state-owned 
entities.  However, China considers that only stat e-owned enterprises should be called on to bear the 
cost of the review, which relates solely to the pub lic interest.  In addition, state-owned enterprises are  WT/DS363/R 
 Page 81 
 
 
  the only entities currently considered to fulfil the technical and organizational requirements set out in 
the relevant Chinese laws and regulations.  
4.581  The requirements referred to by the United St ates are clearly laid down in the Chinese laws 
and regulations.  There is therefore nothing "opa que" or "disguised" about such requirements.  
4. Distribution services  
(a) Zong Pi Fa  no longer exists 
4.582  After the adoption in 1999 of the Interim  Provisions on the Administration of the Publications 
Market , Zong Pi Fa  no longer exists.  The two notices refe rred to by the United States are not legal 
instruments adopted by a government agency and ca nnot be used to interpret the relevant Chinese 
measures. 
(b) Alleged discriminatory requirements  
4.583  In respect of allegedly discriminatory requirements, the United States must show, not merely 
that foreign-invested enterprises are treated differe ntly from domestic enterprises, but also that they 
are treated less favourably - in other words, that the different requirements alter the conditions of 
competition with domestic services and services suppliers.  However in fact, none of the requirements 
cited by the United States places foreign-invested en terprises at any disadvantage in the market place. 
4.584  The approach of the United States is to engage  in unfounded speculation about situations in 
which these requirements could act to the detriment of the foreign invested entity. However, these 
speculations are flawed.  For example:  
(a) The US argument that foreign-invested en terprises have twice as many chances of 
being rejected in the context of the approva ls process, simply because they are (on the 
United States' case) required to obtain six approvals rather than three, is logically 
flawed; 
(b) The limitations on the operating terms of fore ign-invested enterp rises in China which 
are criticized by the United States are in  fact adopted to protect the reasonable 
expectations and interests of such ente rprises by guaranteeing their business activity 
within the approved busin ess scope and operating term; 
(c) The United States' suggestion that the exte nsion of the operating term is anything 
other than non-discretionary, automatic and simplified is incorrect .  As long as the 
application for extension satisfies the three conditions set out in the relevant regulations, the examining authority is obliged by law to grant approval. 
(c) Network music services are not covered by China's commitments under the GATS 
4.585  China's commitment under Sector 2D of its Schedule to the GATS in respect of "sound 
recording distribution services" only covers the supply of sound recordings in physical form.  It does 
therefore not extend to the supply of music over the internet. 
4.586  "Distribution" traditionally refers to the supply of goods rather than to the dissemination of 
content over the internet.  As a result, China i nvites the Panel to accept its definition of "sound 
recording distribution services"  under the general rule of interpreta tion contained in Article 31 of the 
Vienna Convention.  WT/DS363/R 
Page 82  
 
  4.587  While the United States attempts to show that "electronic distribution of sound recordings" 
was not a new phenomenon at the time of China's accession to the WTO, the evidence it cites in 
support of this contention in fact shows that netw ork music services did not constitute an established 
business embedded in a legal framework at the relevant tim e, either in the United States, or in China.  
Further, the United States fails satisfy its burden of proof and substantiate its claim that the so-called 
"electronic distribution of sound recordings" is  a mere means of supplying "sound recording 
distribution services" which China has committed under Sector 2D of its Schedule to the GATS.  
4.588  China invites the Panel to adopt the criteria it has put forward in its answers to the Panel's 
questions as useful guidelines when determin ing the boundary between a (committed) service 
delivered by a new means of delivery and a dis tinct service not committed.  "A service" committed 
remains the same service even if this service is s upplied by a new technological means.  However, the 
so-called "electronic distribution of sound recordin gs" cannot be considered to be the same service 
initially committed by China under Sector 2D of its Schedule to the GATS, when applying the criteria 
suggested by China. 
4.589  Besides the essential operational characteristics,  the perception of the consumer of the two 
services, which includes the result of the supply of the service for the consumer, is also different.  
When supplied with network music services, the end- consumer obtains a significantly different result 
from that obtained from the distribution of sound recordings in physical form, i.e. he or she is granted access to certain intangible data which can be decode d with a computer or other devices to play music 
works. 
4.590  In addition, the CPC Ver. 2 classifies s ound recording distribution services and network 
music services under completely different sections (o ne-digit level), showing that they are by nature 
separate and distinct services.  Previous versions of  the CPC also distinguish between the distribution 
of physical items (i.e. goods) and the transmission of intangible items.  
5. Product distribution under Article III:4 of the GATT 1994 
4.591  The United States has attempted to extend the scope of its claim under Article III:4 of the 
GATT 1994.  In its panel request, the United States challenged allegedly less favourable distribution 
opportunities for imported cultural products.  In its an swers to the questions of the Panel, the United 
States extended its ambit to less favourable opportunities not only with respect to the distribution, but also to the use of, in particular, imported sound recordings.  In its second written submission, the 
United States is now alleging that the Chinese measur es at stake affect the internal sale, offering for 
sale, purchase, distribution or use of sou nd recordings for electronic distribution.  
4.592  China submits that the United States should not be  allowed to change its claim in this manner, 
and asks the Panel to find that the United States has accordingly failed to establish a prima facie case 
of violation of Article III:4 of the GATT, since it fa ils to identify precisely which situation covered by 
Article III:4 of the GATT (and the similar provisions of  the Accession Protocol) is relevant in respect 
of the challenged measures.  
(a) Reading materials  
(i) Newspapers, periodicals, books and electronic pub lications in the "restricted category" 
4.593  The restricted category includes reading materi als with prohibited content used by certain 
government agencies and institutions for research pur poses.  Contrary to the US assertions, China has 
provided ample support for this fact.   WT/DS363/R 
 Page 83 
 
 
  4.594  In addition, the United States is  incorrect to refer to the Publications Market Rule  to draw 
conclusions about subscriptions to imported publications in this category, as these provisions only 
apply to publications in the market sales system, i.e. books and electronic publications in the unrestricted category. Therefore, Article 24 of the Publications Market Rule  cannot be used to 
interpret the Imported Publications  Subscription Rule , a measure on the subscription system.  
4.595  As the restricted category includes prohibited or illegal publications that cannot be distributed 
in Chinese market, the approval of entities to be able  to subscribe to publications in the restricted 
category is determined by GAPP on a case-by-case basi s and in fact, may only be granted to certain 
government agencies and institutions. 
(ii) Newspapers and periodicals in the unrestricted category 
4.596  Newspapers and periodicals in the unrestricted category are subject to "quasi-automatic 
subscription" with "no rejection of applications" and "without the involvement of state agencies".  
4.597  The United States seeks to attack thes e propositions by reference to the Imported Cultural 
Products Rule .  However, these measures are not directly applicable to importation and subscription 
activities, given that the last paragraph of these me asures provides that "[a]fter the release of these 
Measures, all departments shall sort out and amend ru les and regulations that run contrary to them".  
In fact, the Imported Publications  Subscription Rule  are the rules currently adopted and relied upon 
by GAPP to regulate the subscription to imported publications.  No government approval is required 
for the subscription to publications in the unr estricted category pursuant to this measure.  
(b) Sound recordings intended for electronic distribution 
4.598  The United States seeks to assert that its claim "only applies to measures affecting imported 
hard-copy media  containing sound recordings that are intended for electronic distribution
" and "does 
not include a challenge to any measure's treatment  of services or service suppliers involved in the 
electronic distribution of sound recordings".(emphasis added)   
4.599  In fact, the US previous complaint has been about allegedly less favourable opportunities for 
the digital transmission of imported music over the Internet. 
4.600  As China has maintained throughout these proceed ings, "distribution" within the meaning of 
Article III:4 of the GATT only relates to the supply of goods, so the US claim must be dismissed. 
4.601  Moreover, by redefining the target of its claim as being the imported hard-copy sound 
recording, the United States is in fact arguing th at the Chinese measures affecting the content of 
imported hard-copy sound recordings should also be considered as measures affecting "the internal 
sale, offering for sale, purchase, distribution or use of" hard-copy sound record ings and thus fall under 
Article III:4 of the GATT.  Following this errone ous logic of the United States would mean that 
GATT rules would apply to any measure regulating se rvices related to - intangible - content as long as 
there exists a physical carrier capable of being tr aded, since such a measure would always have the 
alleged effect on its carrier.  This  interpretation is untenable when one considers, for example, the 
effect it would have in the context of  the broadcasting of foreign music. 
(c) Motion pictures for theatrical release 
4.602  The United States affirms that its  claim is about the distribu tion of cinematographic film, 
rather than motion pictures for theatrical release.  This allegation is contradictory with the United 
States' challenges to aspects of th e distribution regime which pertain to motion pictures, and not 
cinematographic film.  WT/DS363/R 
Page 84  
 
  4.603  If one accepts that the US claim in fact concerns the distribution of motion pictures for 
theatrical release, such distribution, which consists of the provision of services for the organization of 
the release in theatres of intangibl e artistic works, cannot be characterized as the distribution of goods 
falling under Article III:4 of the GATT.  However, ev en if the cinematographic film was to be taken 
into account, the United States itself admits that the imported cinematographic film is not the good 
being distributed by the motion picture distributor.  
4.604  In respect of the United States' attempt to s how an alleged discriminatory treatment between 
imported and domestic motion pictur es, China responds as follows.  
4.605  Firstly, the allegation that the distribution of imported motion pictures is controlled by a 
"duopoly" is erroneous.  Neither the Film Regulation , nor any other Chinese laws or regulations, nor 
SARFT itself, place any quantitative restriction on th e companies that may be approved to distribute 
imported motion pictures.  
4.606  Secondly, imported motion pictures in fact enjoy equivalent, if not better, distribution 
opportunities.  The United States argues that the Pa nel should not examine the trade impact of the 
measures, because "consistency with Article III: 4 is not determined on the basis of outcomes or trade 
effects."  However, the Appellate Body in Korea – Beef  considered that the trade impact of a measure 
could be a relevant element for the analysis under Article III:4.  
4.607  For these reasons, the United States has failed to  demonstrate that the Chinese measures entail 
a less favourable treatment of the distribution of imported motion pictures for theatrical release in the 
meaning of Article III:4 of the GATT.  
6. Conclusion  
4.608  China respectfully reiterates its request that the Panel finds all the US claims unfounded and 
therefore dismisses them in their entirety. 
V. ARGUMENTS OF THE THIRD PARTIES 
A. A
USTRALIA  
1. Introduction  
5.1 Australia wishes to address: whether "films for theatrical release" and "unfinished audiovisual 
products" are "goods" within the meaning of the Protoc ol;  how "China's right to regulate trade in a 
manner consistent with the WTO Agreement" relat es to "the right to trade" in the context of 
paragraph 5.1 of the Protocol;  the applicability and scope of the "public morals" exception of 
Article XX of the GATT;  some matters relating to  China's GATS obligations;  and a matter relating 
to the US claims under Article III:4 of the GATT.  Australia reserves its position in relation to any 
matter not addressed in this statement.   
2. "Films for theatrical release" and "unfinished audiovisual products" 
5.2 China has questioned whether "films for theatrical release" and "unfinished audiovisual 
products" are "goods" covered by the relevant co mmitments of its Protocol.  Notwithstanding its 
arguments, the information provided by China indicates that the specific items at issue in the dispute 
are goods within the meaning of the Protocol.    WT/DS363/R 
 Page 85 
 
 
  5.3 China states that "motion pictures for theatrical release" are subject to "customs clearance of 
the delivery materials for the purpo se of the distribution of motion pi ctures to Chinese distributors and 
theatres".  In Australia's view, that stat ement presumes that the items are goods.   
5.4 China also states that, in respect of "audiovisual  products for publication", "the master copy 
would then be returned or destroyed", and refe rs to a model Production and Sales Contract.  The 
model contract in turn requires that the master copy  be crushed under supervis ion, or returned to the 
copyright owner of the master copy.  Australi a understands that such conditions could only be 
fulfilled if the master copy exists in physi cal form, in which case it would be a good.   
5.5 However, the Panel may consider that the items  at issue in the dispute are not necessarily 
physical goods.  In that event, Australia does not consider content separate from carrier media to be a 
good to which the right to trade would apply.   
3. "China's right to regulate trade in a manner consistent with the WTO Agreement" 
vis-à-vis "the right to trade"  
5.6 Paragraph 5.1 of the Protocol provides in relevant part:  "[w]ithout prejudice to China's right 
to regulate trade in a manner consistent with th e WTO Agreement, … all en terprises in China shall 
have the right to trade in all goods throughout the cu stoms territory of China …  Such right to trade 
shall be the right to import and export goods.  …"   
5.7 "The right to trade" within the meaning of the Protocol is a necessary prerequisite for the 
application of the WTO Agreement.  There must be  a right to import and export goods to and from 
China before China can have a right to regulat e trade in a manner consistent with the WTO 
Agreement.  Moreover, Australia believes that its view is supported by the opening phrase of 
paragraph 5.1:  "without prejudice to".  A right to trade must exist for there to be the possibility of 
detriment to China's rights under the WTO Agreement.11   
5.8 Accordingly, in Australia's view, it is not open to China to restrict or limit "the right to trade" 
within the meaning of the Protocol, that is, the right to import and export goods, on the basis of its 
"right to regulate trade in a manner c onsistent with the WTO Agreement".   
4. The applicability and scope of the "public morals" exception of Article XX of the GATT 
5.9 It follows that Australia does not consider Chin a is able to invoke Article XX of the GATT to 
justify a restriction or limitation on "the right to trade" within the meaning of the Protocol.  
Article XX is only potentially available in respect of  measures adopted subsequent to the right to trade 
having been granted.   
5.10 Moreover, Australia notes that the Accession Protocol is an integral part of the WTO 
Agreement, but not of the GATT.  The language of  Article XX makes clear that it may only be 
invoked in respect of measures that violate another GATT provision.   
5.11 The Panel may nevertheless wish to explore th e potential applicability of Article XX in more 
depth.  In that event, Australia notes that the mean ing of the term "public morals" was considered by 
the Panel in US – Gambling .  That Panel considered that the term denoted "standards of right and 
wrong conduct maintained by or on behalf of a commun ity or nation".  Further, that Panel considered 
that the concept of "public morals", as well as the concept of "public order" as used in Article XIV of 
GATS, "can vary in time and space, depending upon a range of factors, including prevailing social, 
                                                      
11 The New Shorter Oxford English Dictionary , Ed. Lesley Brown, Clarendon Press, Oxford, 1993, 
Vol. 2, page 2333, defines the phrase "without prejudice" as "without detriment to any existing right or claim".   WT/DS363/R 
Page 86  
 
  cultural, ethical and religious values".  The US – Gambling  Panel's findings provide useful guidance 
for consideration of the "public morals" exception in the context of Article XX of the GATT.   
5.12 Australia agrees that cultural values can contri bute to the public morals prevailing in a WTO 
Member.  However, not all items having genuine cu ltural value to a Member will automatically be 
encompassed by the term "public morals" within the meaning of Article XX.  Consider the example of 
books, which have cultural value in Australia.  The f act that books have cultural value in Australia 
would not automatically give Australia the right to  control the import of all books to protect public 
morals in Australia.  Rather, Australia would have  to show a relationship between the cultural value 
of books to Australia and the standards of right  and wrong conduct maintained in Australia.   
5.13 It is incumbent upon China to show that there exists a relationship between the cultural value 
of the items at issue, that is, between reading materials and audiovisual products, including sound 
recordings, and the standards of right and wrong conduc t maintained in China.  In Australia's view, 
China is not able to rely on the cited UNESCO instru ments to demonstrate such a relationship.  China 
has not taken account of the aspirational status of the UNESCO Universal Declaration on Cultural 
Diversity.  At the same time, it has ignored Artic le 20(2) of the Convention on the Protection and 
Promotion of the Diversity of Cultural Expressions .  Article 20(2) states:  "[n]othing in this 
Convention shall be interpreted as modifying right s and obligations of the Parties under any other 
treaties to which they are parties."   
5.14 Further, the Appellate Body has several times c onsidered the standard established by the word 
"necessary" in Article XX.  Most recently, in Brazil – Retreaded Tyres , the Appellate Body 
reaffirmed its earlier findings on the "necessity" test in US – Gambling  when it said:   
"… the weighing and balancing process inherent  in the necessity analysis 'begins with 
an assessment of the 'relative importance' of  the interests or values furthered by the 
challenged measure' …, and also involves an  assessment of other factors, which will 
usually include 'the contribution of the meas ure to the realization of the ends pursued 
by it' and 'the restrictive impact of  the measure on international commerce'."
12   
5.15 Australia does not comment on the level of content review of the items at issue considered 
necessary by China.  However, Australia agrees  with the view expressed by the European 
Communities that it is the content of the material its elf which is subject to review, not the entity or 
individual conducting the review.  China has not shown that its desi red level of content review cannot 
be achieved through alternative means that would have a less-restrictive impact on the right to trade.   
5. China's GATS obligations 
5.16 Australia would like to comment on three matters  with respect to China's obligations in 
relation to the GATS.     
5.17 Firstly, China has not scheduled any national treatment limitations on its scheduled 
commitments in relation to Distribution Services and Audiovisual Services.  In relation to its 
scheduled commitments, China is therefore obliged  to extend national treatment as required by 
Article XVII of the GATS to the services and service suppliers of other Members.  Australia notes 
that China's national treatment obligation applies to a "foreign-invested enterprise" insofar as such an 
enterprise remains a "juridical person of another Member" as defined in Article XXVIII(m) of the 
GATS.   
                                                      
12 Appellate Body Report on Brazil – Retreaded Tyres , para. 143.    WT/DS363/R 
 Page 87 
 
 
  5.18 Secondly, China claims that is has not scheduled, and "never intended to include", a 
commitment in relation to a particular type of wh olesale distribution channel.  Australia recalls that 
the US – Gambling  dispute involved an analogous situation concerning whether the United States had 
scheduled commitments in respect of gambling and betting services.  In that dispute, the Appellate 
Body made a number of relevant findings:   
"… the task of identifying the meaning of  a concession in a GATS Schedule, like the 
task of interpreting any other treaty text, involves identifying the common intention of Members";
13   
… [Article I:3(b) of the GATS] … defines ' services' very broadly, as including 'any 
service in any sector except services supp lied in the exercise of governmental 
authority";14   
… the GATS definition of 'sector' provides th at any reference to a 'sector' means – 
unless otherwise specified in a Member's Schedule – a reference to all of the subsectors contained within that sector";
15  and  
[t]he Scheduling Guidelines … make clear that parties wanting to use their own 
subsectoral classification or definitions … were to do so in a 'sufficiently detailed' 
way 'to avoid any ambiguity as to the scope of the commitment'."16   
5.19 In Australia's view, if the contested wholesale distribution channel is "generally covered by 
CPC 61, 62, 63 and 8929" as referred to in Annex 2 to China's Schedule, it is a distribution service in respect of which China has made market access comm itments.  Having regard to the Appellate Body's 
findings in US – Gambling , China would need to have explicitly excluded the contested wholesale 
distribution channel from the scope of its commitments for its claim to succeed.   
5.20 The third matter on which Australia would like to comment concerns China's claims that 
"network music services" are not covered by its Schedule commitments for sound recording distribution services.  China defines "network mu sic services" as "the dissemination of music in 
digital format through the Internet to users."
  
5.21 Australia does not agree that "network music se rvices are … a new service totally different in 
kind from the 'sound recording distribution services' committed by China …"  The sub-sector "sound 
recording distribution services" is not definitionally limited in regard to the methods of distribution 
covered.  Accordingly, having regard to the Appellate Body's findings in US – Gambling  as 
previously outlined, China would need to have expressly limited its commitments to particular 
methods of distribution for its argument to succeed.   
5.22 In any case, distribution of sound recordings ov er the Internet was occurring for some years 
before China acceded to the WTO,  as China itself acknowledges in its reference to the file-sharing 
platform "Napster".  Not all such distribution in fringed copyright or related rights, for example, 
copyright on some material may have expired.  Even when such distribution did infringe copyright and related rights, that infringing activity did not  invalidate the Internet's status as a means of 
distribution.   
                                                     
 
13 Appellate Body Report on US – Gambling , para. 160.   
14 Appellate Body Report on US – Gambling , para. 180.   
15 Appellate Body Report on US – Gambling , para. 180.   
16 Appellate Body Report on US – Gambling , para. 203.   WT/DS363/R 
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  6. Article III:4 of the GATT 
5.23 With respect to the US claim under Article III: 4 of the GATT, Australia has earlier expressed 
its view that content separate from ca rrier media is not a good.  Accordi ngly, to the extent that the US 
claim is based on content being a product distinct from a carrier medium, Australia does not consider 
that the US claim can succeed.   
B. E
UROPEAN COMMUNITIES  
1. Introduction 
5.24 The European Communities makes this third pa rty written submission because of its systemic 
interest in the correct interpretation of the GATT 1994 and the GATS.  
2. Trading rights and China's WTO Accession protocol  
5.25 The United States stated in its submission that  China has committed to provide all enterprises 
in China and all foreign enterprises and foreign indi viduals the right to trade in all goods except those 
listed in Annexes 2A and 2B of China's Accession Protocol, and that these commitments extend to what the United States terms as "the Products, i. e. reading materials (including books, periodicals, 
newspapers and electronic publications), AVHE  products (including videocassettes, VCDs and 
DVDs), sound recordings and films for theatrical rel ease, as none of the Products is listed in either 
Annex."  Through a variety of measures, China refu ses to permit any foreign enterprises or foreign 
individuals to import the Products, and likewise only allows a subset of enterprises in China – i.e. 
wholly state owned Chinese enterprises approve d or designated by the Chinese government – to 
import the Products.  This is inconsis tent with China's obligations contai ned in Part I, paragraphs 5.1, 
5.2 and 1.2 of the Accession Protocol, as well as in  paragraphs 83 and 84 of China's Working Party 
Report. 
5.26 China argues that it has the right, under paragr aph 5.1 of the Accession Protocol, to impose 
restrictions and conditions to the grant of trading ri ghts, such as the limitation of the right to import to 
a number of selected entities, provided that these measures are consistent with Article XX of the GATT, especially Article XX(a) which relates to me asures that are necessary to protect public morals. 
5.27 In the view of the European Communities, Article XX of the GATT 1994 does not directly 
apply to China's Accession Protocol commitments, due to the fact that even if they are an integral part 
of the WTO Agreement, they are not a part of the GATT 1994.  The GATT 1994 is obviously also an integral part of the WTO Agreement, but it is a di fferent part amongst the various "parts" referred to 
in Article II:2 of the WTO Agreement.  This makes sense, as it should only be logically possible to invoke exceptions within the specific agreement in which they are contained.  
5.28 However, even in a scenario in which the GATT 1994 regime is deemed to be applicable to 
the measures at issue, China would still have to satis fy the requirements set out in Article XX of the 
GATT 1994.  In the opinion of the European Communities, what is really at issue in this dispute is not 
the system of content review in China, but whether the "trading rights" of non-Chinese enterprises and individuals are being adversely a ffected through the application of Chinese measures which restrict 
the importation of reading materials and other audiov isual products, specifically, and only, to certain 
entities.  The European Communities contends that th is results in a discriminatory treatment against 
non-Chinese enterprises, which also has the effect  of protecting Chinese enterprises from competition 
from foreign enterprises.  
5.29 Moreover, the stringent requirements that the Chinese measures impose on the importing 
entities, do not meet the "necessity" test criteria as required by Article XX of the GATT 1994 and  WT/DS363/R 
 Page 89 
 
 
  further developed by reports of the Appellate B ody, and that the Chinese measures in question are 
having an extremely "restrictive impact on interna tional commerce".  The EC contends that it would 
still be possible for the Chinese authorities to implement a content review system, without almost completely restricting the right to trade in goods su bject to content review to a restricted number of 
Chinese entities.  
3. China's commitments in the distribution sector under the GATS and its schedule of 
specific commitments 
5.30 The European Communities refers  to China's commitments in the Distribution Sector, as set 
out in its Schedule of Specific Commitments, and to  China's explanations about the meaning of the 
term " Fa Xing ", which according to China is a generic term covering different features of distribution, 
then further sub-divided into "two distinct distribution channels", to which it refers as " Zong Fa Xing " 
and " Fen Xiao ."  It also referred to China's cont ention that it intended to include " Zong Fa Xing " in 
the scope of its distribution services commitments in the GATS. 
5.31 The European Communities recalls that, as observed by the Appellate Body in US-Gambling , 
the task of ascertaining the meaning of a concessi on in a Schedule, "involves identifying the common 
intention" of  WTO Members.  It seems that the attempt to define " Zong Fa Xing " as a distinctively 
Chinese concept with no equivalent in English does no more than to create confusion.  It is not 
uncommon in Europe and elsewhere th at publishers sell their products directly to their consumers, or 
through agency agreements with sub-distributors.   Moreover, the use of a "distinctively Chinese 
concept" or terminology in Chinese legislation does not imply that the services covered under this 
concept or term do not fall under the relevant GATS sector or sub-sector.  
5.32 The European Communities is of the op inion that China's definition of " Zong Fa Xing " is not 
necessarily relevant for the question of whether the relevant activities fall within China's distribution 
commitments. Entities offering " Zong Fa Xing " do conduct activities that would fall under China's 
distribution commitments, both under wholesaling a nd retailing services, depending on the factual 
situation and the users that are supplied.  Excluding " Zong Fa Xing " commitments would have 
required an explicit exclusion in China's GATS Sche dule.  China's measures restricting non-Chinese 
enterprises in the distribution sector are inconsistent  with – at least – Article XVII of the GATS and 
with China's Schedule of Specific Commitments. 
4. "Technological neutrality" under the GATS and the reading of China's Schedule of 
Specific Commitments on Audiovisual Services 
5.33 The European Communities supports the position th at the GATS is generally neutral vis-à-vis 
technology ("technological neutrality").  The GATS principles apply to the delivery of services by 
electronic means.  Market access and national tr eatment commitments made by WTO Members in 
their GATS Schedules of Commitments guarantee the market access and national treatment conditions which bind each WTO Member for those services can be provided in a "traditional" 
format, but also through electronic means.  
5.34 This would mean that service suppliers ar e free to supply these services unrestrictedly, 
through any means of delivery.  Moreover, th e rapid changes evident in modern technology 
essentially mean that there are cha nges in the way that services are delivered and that these changes 
are continuous.   
5.35 The European Communities cannot agree with th e view expressed by China that the new 
changes in digital technologies and communicati on networks have necessarily resulted in the 
emergence of an entirely new type of services se ctor, which China refers to as "network music WT/DS363/R 
Page 90  
 
  services".  It also does not agree with China's argume nt that the "principle of technological neutrality 
is irrelevant in the present case". 
5. The classification on "videos, including  entertainment software and distribution 
services" 
5.36 The European Communities notes with interest  the comments of the United States on the 
coverage of "videos, including entertainment software and distribution services" and argues that these 
services are regarded as audiovisual services for the purpose of regulatory and support policies of the European Communities. 
6. Applicability of Article III.4 of the GATT 1994 to services 
5.37 In the opinion of the European Communiti es, Article III:4 of the GATT 1994 is only 
applicable to domestic measures subsequent to im portation of the goods, and has no relevance to the 
issue of "trading rights".  The European Commun ities does not support the US line of argument based 
on the assessment of the discriminatory nature of national measures regarding film distribution for 
theatrical release and the electronic distribution of sound recording, against the background of Article III:4 of the GATT 1994.   
5.38 It considers that these two categories are to be considered a "service" and that it is under the 
GATS that any assessment of national measures cha llenged under WTO rules should be carried out.  
The European Communities also holds the view that electronic "deliveries" or transmissions are part 
of the supply of a service, and therefore issues aris ing in this area ought also to be assessed under the 
GATS. 
C. J
APAN  
1. Article III:4 of the GATT 1994 is applicable to the measures challenged by the 
United States 
5.39 Japan considers that China's measures affe cting audiovisual products (including sound 
recordings) and films for theatrical release that are imported on tangible media – such as CDs, DVDs, and exposed developed cinematographic film – are me asures subject to Articles II, III:4, and XI of the 
GATT 1994 and paragraphs 5.1, 5.2, and 1.2 of the Accession Protocol. 
5.40 Article III:4 of the GATT 1994 by its terms appli es to "products … imported into the territory 
of any other contracting party."  The national treat ment obligation imposed by Article III:4 applies "in 
respect of all laws, regulations and requirements affecting their internal sale, offering for sale, 
purchase, transportation, distribution or use."  Tran sportation and distribution are indeed services, and 
other services also "use" imported products, but the dr afters of Article III:4 decided to include these 
services in Article III:4 – because banning or discrimina ting against transportati on, distribution or use 
of imports is one of the most effective ways  to shut down the market for imported goods.
17  
5.41 The US claims under Article III:4 concern Chinese  laws, regulations, and requirements that 
"affect" the distribution of imported "products" and acco rd less favourable treatment to them than to 
like products of Chinese origin.  The classic statem ent of the meaning of Article III:4, in the GATT 
panel Italy – Agricultural Machinery , explains that by using the word "affecting", the drafters 
                                                      
17 See Analytical Index of the GATT  (updated 6th ed. 1995), pp. 181-182 (discussing discrimination in 
internal transportation of imported goods).  As relevant precedents, see Panel Report on Canada – Periodicals,  
paras. 5.32-5.39;  this finding was not appealed;  Panel Report on Korea – Various Measures on Beef , 
paras. 639, 685, 705;  Appellate Body Report on Korea – Various Measures on Beef , para. 148.  WT/DS363/R 
 Page 91 
 
 
  "intended to cover ... also any laws or regulations which might  adversely modify the conditions of 
competition between the domestic and im ported products on the internal market ".18  Endorsing this 
approach, the Appellate Body has interpreted "aff ecting" broadly to mean "has 'an effect on.'"19  By 
this standard, Article III:4 applies to the Chinese measures at issue. 
5.42 The term "distribution" in Article III:4 must al so be construed broadly.   "Distribution" is 
defined as "[t]he action of spreading or dispersing throughout a region,"20 and this meaning suggests 
no limit to the types of distribution covered by Article III:4.  Because Article III:4 addresses any measure that may adversely modify the conditi ons of competition between  domestic and imported 
products, "distribution" in the sense of Article III:4 must be construed to include all channels by 
which a good may be "spread[] or dispers[ed]" to consumers. 
5.43 The Appellate Body has also found that content does not detract from the conclusion that an 
object is a good.  In Canada – Periodicals , the Appellate Body found a periodical to be a good despite 
the fact that it is comprised of content stati ng that "a periodical is a good comprised of two 
components: editorial content and advertising cont ent.  Both components can be viewed as having 
services attributes, but they combine to fo rm a physical product -- the periodical itself".
  The fact that 
tangible media (such as film reels) may be an "accessory" to the provision of a service does not mean 
that trade in such tangible media is trade in servi ces.  A car is a good, not a service, even if it is 
imported solely for use in a car rental service. 
5.44 The GATS does not change the scope of Article  III:4 as the Appellate Body settled this 
question in Canada – Periodicals .  Japan considers that although the Chinese measures at issue may 
affect both trade in goods and trade in services, th e aspects of those measures that affect trade in 
goods are appropriately addressed by Article III:4 of  the GATT 1994, and there is a "category of 
measures that could be found to fall within  the scope of both the GATT 1994 and the GATS."21 
5.45 China further argues that Article III:4 is inapp licable because its content review measures stop 
importation of products into China.  This argument reflects a basic mi sunderstanding of Article III and 
of the Note Ad Article III.  If China maintains a content review regime and enforces content review 
"at the time or point of importation," these measures are still "subject to the provisions of" 
Article III:4. 
2. It is unclear whether China has demonstrated that its restrictions on trading rights are 
"necessary to protect public morals" 
5.46 China justifies its measures which permit onl y wholly state-owned Chinese enterprises 
approved or designated by the Chinese Government to import reading materials and audiovisual 
products by Article XX(a) of the GATT 1994.  While the Appellate Body has c onsistently held that 
Article XX requires a two-tiered analysis, Chin a bears in the present dispute the burden of 
establishing a prima facie case that the measures ch allenged by the United States are: (1) "necessary 
to protect public morals"; and (2) not applied in a manner that constitutes "arbitrary or unjustifiable 
discrimination" or "a disguised restriction on intern ational trade."  In order to satisfy its burden under 
the first part of this analysis, China must establis h that the challenged measures are: (a) designed to 
"protect public morals"; and (b) "necessary" to do so.    
                                                      
18 GATT Panel Report on Italy – Agricultural Machinery , para. 12 (emphasis added). 
19 Appellate Body Report on EC – Bananas III , para. 220;  Appellate Body Report on Canada – Autos , 
para. 158;  Appellate Body Report on US – FSC (Article 21.5 – EC) , paras. 209-210. 
20 The New Shorter Oxford English Dictionary  (4th ed. 1993), page 709. 
21 Appellate Body Report on EC – Bananas III , para. 221.  See also  Appellate Body Report on Canada 
– Autos , para. 159. WT/DS363/R 
Page 92  
 
  5.47 It is not clear whether China has met its burden.   First, China has argued only that its broader 
content review mechanism is consistent with Artic le XX (a) framing its arguments in reference to the 
entirety of its censorship regime.  Second, it is not clear whether China has established that its 
measures are "necessary" to protect public morals.
22  China must establish a prima facie case of 
necessity by weighing and balancing a series of f actors, including the importance of prohibiting 
content that could negatively impact public morals, the contribution made by the challenged measures 
to the protection of public morals, and the impact  of the challenged measur es on imports or exports.23 
5.48 Although China provides a discussion of these factors, the discussion focuses largely on the 
efficiency and effectiveness of the measures to ward achieving its stated goal of preventing the 
importation of cultural goods with in appropriate content.  Japan considers that it is not enough to 
demonstrate necessity and that the Panel should caref ully weigh and balance all factors, including the 
trade-restrictive effects of the challenged measures.   In doing so, the weighing and balancing process 
must consider "whether a WTO-consistent altern ative measure which the Member concerned could 
reasonably be expected to employ is available,  or whether a less WTO-inconsistent measure is 
reasonably available."24   
5.49 In addition, China relies upon the Cultural Di versity Convention to support its Article XX 
affirmative defence of its discriminatory and trad e-restrictive measures affecting trade in goods.25  As 
Article 20 of the Cultural Diversity Convention prov ides explicitly, the Cultural Diversity Convention 
cannot modify any of China's rights or obligations  under the WTO Agreement or China's Protocol of 
Accession, including under Articles III, XI, and XX of  the GATT 1994.  Accordingly, Japan is of the 
view that the Panel must apply Article XX without taking the Convention into account.  
3. Commitments on "sound recording distributio n services" include the distribution of 
digital recordings over the Internet 
5.50 China argues that the distribution of sound recordings over the Internet is "a new and 
radically different category of audiovisual services recently emerged in the course of technological 
development" and that these "new services" are out side the scope of China's commitments on sound 
recording distribution services.  However, Japan c onsiders that China's existing commitments cover 
the distribution of sound recordings over the Internet. 
5.51 The notion that new services are necessarily unbound is troubling because China's GATS 
Schedule is largely delineated in reference to th e 1991 Provisional CPC, and as the Appellate Body 
stated in US – Gambling , the Provisional CPC is "exhaustive."  The only questions are: (1) where 
within the Provisional CPC a service is covered; and (2) whether a new service falls within the scope 
of an existing commitment.   
5.52 To automatically assume that any new service is  outside existing commitments would destroy 
much of the value of the GATS in providing a stab le environment for innovation and growth in trade 
in services.  It should not be necessary to negotia te a new commitment every time a service business 
invents a new variation on a service.  Otherwise, the objective of the GATS negotiations, to "establish 
a multilateral framework of principles and rules for tr ade in services with a view to the expansion of 
                                                      
22 The Appellate Body has held that a "necessary" measure is not limited to that which is 
"indispensable"; however, a "necessary" m easure is "located significantly clos er to the pole of 'indispensable' 
than to the opposite pole of simply 'making a contribution to'." Appellate Body Report on Korea – Various 
Measures on Beef , para. 161. 
23 See Appellate Body Report on US – Gambling , para. 306;  Appellate Body Report on Korea – 
Various Measures on Beef , para. 164. 
24 Appellate Body Report on Dominican Republic – Import and Sale of Cigarettes , para. 70. 
25 China's first written submission, paras. 129-135.    WT/DS363/R 
 Page 93 
 
 
  such trade,"26 would be frustrated, as the GATS would progressively lose its relevance to actual 
business models in the service economy. 
5.53 As the Panel Report on US – Gambling  concluded that "a market access commitment for 
mode 1 implies the right for other Members' s uppliers to supply a service through all means of 
delivery".27   Japan agrees that the same logic applies to China's market access and national treatment 
commitments under mode 3.  China's commitment in cludes distribution of sound recordings through 
all means, including via the Internet or telecommunications networks.   
5.54 In the light of the ordinary meaning of "sound recording distribution", China's assertion that 
"sound recordings" include only those on physical support, such as a vinyl or optical disk, is incorrect.  
Also, in the light of the circumstances of conclusion of the treaty, it is concluded that its commitment 
includes distribution of sound recordings via the Inte rnet.  In the case of China's GATS commitments, 
the relevant period for evaluating China's commit ments was the period up to 10 November 2001, the 
date when China's terms of accession were multilaterally  agreed.  Although China asserts that Internet 
distribution of sound recordings emerged as a busin ess only after China negotiated its commitment on 
sound recording distribution, at the time that Chin a and its WTO trading partners agreed on China's 
commitments on sound recording distribution in N ovember 2001, there were very substantial 
activities in China and elsewhere distributing sound reco rdings over the Internet.  Thus, distribution of 
sound recordings over the Internet was entirely "p ossible" at the time China concluded its GATS 
Schedule, and was not a "new service[] or new m eans of delivery not existing at [that] time". 
D. REPUBLIC OF KOREA  
1. Introduction 
5.55 Korea has systemic interests in the interpretation and application of various provisions of the 
GATT and GATS, which are extensively discussed  in this controversial dispute.   
2. Legal arguments  
(a) The challenged measures at issue seem to affect both trade in goods and trade in services, and 
thus could be covered by both GATT and GATS 
5.56 One of the key issues contested by the parti es in this dispute is whether the challenged 
measures are to be regarded as affecting both trade in services and trade in goods (as the United States 
argues), or only trade in services (as China argues).  The parties' different views are particularly presented with respect to motion pictures for theatrical release. 
5.57 Korea tends to agree that main characteristi cs of the motion pictures for theatrical release are 
somewhat closer to services.  It is true that mo tion pictures for theatrical release are not sold as 
merchandise and the dissemination is usually im plemented by standard theatrical distribution 
contracts where ownership and possession are restrict ed.  Korea is not sure, however, whether these 
elements necessarily negate the existence of impact on the "product" containing the services to be provided.  To the extent a product and services are co mbined in one physical form, regulation of the 
one could necessarily affect the other.  In short, Korea is not completely persuaded that the motion 
pictures as goods can be separated from the servi ces associated with the motion pictures.   
                                                     
 
26 GATS preamble, clause 2. 
27 Panel Report on US – Gambling , para. 6.285 (finding adopted without appeal).  The US – Gambling  
panel also said that this finding was "in line with the principle of technological neutrality," which "seems to be 
largely shared among WTO Members."  Ibid. WT/DS363/R 
Page 94  
 
  (b) The measures appear to constitute a violation of  national treatment as provided in Article III 
of the GATT and it is not entirely clear whether the measures can be justified under  Article XX of the GATT.  
5.58 To the extent that the challenged measures al so affect trade in goods, the discriminatory 
treatment of China concerning the importation of the products could constitute violation of the 
national treatment under Article III of the GATT.  Th e fact that only Chinese state-owned enterprises 
are authorized to import these products, that the im ported products face state-imposed discriminatory 
treatment in distribution, and that the imported products go through more stringent content review 
could apparently lead to the violati on the national treatment of these products. 
5.59 Previous GATT and WTO precedents indicate that the national treatment principle under 
Article III is a broad concept whic h can be implicated when fore ign product encounters unfavourable 
treatment that negatively affects competitive conditi on in the market.  The situation alleged by the 
United States may well support possible violation of the national treatment principle. 
5.60 Assuming the existence of violation of Article III of the GATT, China then argues that its 
measures are justified under Article XX of the agreement, particularly as a measure necessary to 
protect public morals.  However, Korea submits that the Panel should carefully carry out analyses of 
specific elements, as pronounced by the precedents, to confirm that the challenged measures are 
indeed justified as necessary to ach ieve such goals.  Simple assertions that cultural goods are identical 
with public morals and that permitting only a few st ate-owned enterprises to import certain product is 
necessary to protect public morals may not suffice to meet these thresholds. 
(c) China's argument based on UNESCO Cultural Dive rsity Convention and its various domestic 
legislation is misplaced 
5.61 In its first written submission,  China refers to the UNESCO Convention on the Protection and 
Promotion of the Diversity of Cultural Expressi ons ("Cultural Diversity Convention") adopted in 
October 2005 to stress that cultural goods are di fferent from other non-cultural goods and that the 
Members preserve more leeway in regulating th ese goods.  Korea, however, notes that reference to 
the Cultural Diversity Convention fails to support the proposition offered by China.  Not only the 
Cultural Diversity Convention itself precludes a situ ation where the convention is somehow used as a 
ground to justify alleged violations of the WTO Ag reements, but also releva nt provisions of the DSU 
explicitly prohibits a panel from accepting such an argument.   
(d) The challenged measure constitutes a violation of Article XVII of the GATS 
5.62 The United States also argu es that China violates, inter alia , Article XVII of GATS when it 
applied discriminatory prohibitions in the distribution process of these products.  In this area, 
however, the factual descriptions of the two partie s show a significant degree of discrepancy.  This 
discrepancy needs to be carefully examined by the Panel.  Only af ter the factual issues are clarified 
can the Panel reach a reasonable decision.  Korea onl y offers its comment on some framework issues.  
5.63 First, Korea agrees with China that paragraphs (2) and (3) of Article XVII of the GATS make 
clear that the mere fact that a Member establish es a formally different treatment between domestic 
and foreign services and service suppliers does not necessarily lead to the violation of Article XVII of the GATS.  Instead, what matters is whether conditio ns of competition have been modified in favour 
of the domestic services and service suppliers as a result of different treatment.   
5.64 In addition, in its submission China points out  inaccurate description of different types of 
distribution activities in China.  According to China,  there are two types of distribution channels in 
China: 
Zong Fa Xing  and Fen Xiao .  China then explains that only the latter corresponds to  WT/DS363/R 
 Page 95 
 
 
  distribution through wholesaling and retailing.  Zong Fa Xing , on the other hand, argues China, is 
distinct and separate from traditional distribution cha nnels in that a single distributor individually and 
directly faces all the consumers and that there does not  exist an equivalent term in English.  Korea 
submits that the Panel needs to look into the terms in the China Accession Protocol and other 
preparatory documents to determine the exact parame ters of the China's obligation under the GATS.  
Korea reiterates that proper evaluation of the claims based on the GATS requires verification and 
confirmation of the factual information first. 
VI. INTERIM REVIEW 
6.1 Pursuant to Article 15.3 of the DSU, the findi ngs of the final panel report must include a 
discussion of the arguments made by the parties at the interim review stage.  This Section of the Panel 
Report provides such a discussion.  As Article 15.3 ma kes clear, this Section forms part of the Panel's 
findings. 
A. BACKGROUND  
6.2 The United States and China separately requested an interim review by the Panel of certain 
aspects of the Interim Report issued  to the parties on 20 April 2009.28  Neither party requested an 
interim review meeting.  However, the parties ma de use of the opportunity to submit further written 
comments on each others' requests.29  On 23 June 2009, the Panel issued  its Final Report to the parties 
on a confidential basis.   
B. PARTIES ' REQUESTS FOR CHANGES TO THE INTERIM REPORT  
6.3 Below, the Panel  will address the parties' requests for changes to the Interim Report.  Unless 
otherwise indicated, the references below are to paragraph or footnote numbers appearing in the 
Interim Report.   
1. Terms of reference 
(a) Comments by the United States 
6.4 The United States requests that the Panel make an addition to the last sentence of 
paragraph 7.35  to fully reflect the United States' argument that the Film Distribution and Exhibition 
Rule was issued subsequent to and is al so subsidiary and closely related to the Film Regulation.  
6.5 China argues that the Film Distribution and Exhibition Rule  was promulgated prior to the 
Film Regulation .  China argues that the reference the Un ited States makes to its submissions in 
support of its request are inapposite because they either refer to the United States' claim under 
Article III:4 of the GATT 1994 or only refer to both measures as being adopted prior to the date of 
establishment of this Panel.  China therefore re quests that the Panel refrains from inserting this 
particular part of the sentence at the end of paragraph 7.35. 
6.6 The Panel  takes note that the United States did indeed, in its first oral statement and in its 
answer to Panel question No. 2, argue that the Film Distribution and Exhibition Rule was subsidiary 
and closely related to the Film Regulation.  We also note that although the United States did put the 
dates of adoption of the various measures in parent heses next to their names in its response to Panel 
question No. 2, it made no specific argument about the Film Distribution and Exhibition Rule being 
issued subsequent to the Film Regulation .  We have reviewed the other submissions and oral 
                                                      
28 Letters of the parties of 12 May 2009. 
29 Letters of the parties of 2 June 2009. WT/DS363/R 
Page 96  
 
  statements of the United States and cannot find such an argument.  Therefore, we have modified the 
paragraph to include the United States' argument that the Film Distribution and Exhibition Rule is 
subsidiary and closely related to the Film Regulation , but we have not included any reference to the 
Film Distribution and Exhibition Rule  being issued subsequent to the Film Regulation . 
6.7 The United States requests that the Panel make additions to paragraph 7.62  to reflect more 
fully its reliance on the reasoning of the panel in Japan – Film with respect to why the 
2001Audiovisual Products Regulation and the Audiovisual Products Importation Rule  are within the 
scope of the United States' claim under Article III:4 of the GATT 1994 .   
6.8 China  notes that the United States at no point see ms to have made an argument that the 2001 
Audiovisual Products Regulation  and the Audiovisual Products Importation Rule  "are so closely 
related to measures identified in the US panel requ est that China was given adequate notice of their 
inclusion in the US claim".  China's review of the United States' submissions finds no wording which 
suggests such a strong logical relationship as the one  incorporated in the statement which the United 
States requests the Panel to add. China therefore re quests the Panel to refrain from any addition with 
respect to paragraph 7.62 of its Interim Repor t, or at least to limit such addition.  
6.9 The Panel has made appropriate changes to paragra ph 7.62 to reflect more accurately the 
arguments of the United States.  
6.10 The United States asks the Panel to modify the final sentence of paragraph 7.79  because it 
believes the characterization of th e United States' response to Panel question No. 124 is incomplete 
and may lead to confusion .   
6.11 The final sentence of paragraph 7.79 in the In terim Report states, "We specifically asked the 
United States to explain why it included the measures by name in Parts I and II of the panel request 
and not in Part IV.  The United States did not provide a reason for this inconsistency."   
6.12 The United States recalls its response to the Pane l question No. 124, in which it explained that 
the Audiovisual Products Regulation  and the  Audiovisual Products Importation Rule  were not 
explicitly identified , but that they were nonetheless included  in Part IV of the US panel request, as 
part of the narrative and as part of the phrase "any amendments, related measures, or implementing 
measures".  The United States also cited the panel's reasoning in Japan – Film , to argue that the 
Audiovisual Products Regulation  and the  Audiovisual Products Importation Rule
 were included in the 
US claim, because these measures are "closely related to measures" specifically identified in the US 
panel request.   
6.13 The United States requests that the Panel delete the sentence "The United States did not 
provide a reason for this inconsiste ncy" and instead insert a reference to the portion of its response to 
Panel question No. 124 which refers to the narrati ve and to the phrase "any amendments, related 
measures, or implementing measures." 
6.14 China notes that, here again, the language used by the United States in its response to 
question 124 appeared to be far less affirmative th an the language it would like the Panel to insert in 
the text of its report.  In particular, China submits  that the United States was never as categorical as to 
clearly affirm that the 2001 Audiovisual Products Regulation  and the Audiovisual Product 
Importation Rule  were included in part IV of its panel request. 
6.15 China therefore respectfully requests the Pa nel to refrain from making the modification 
sought by the United States.  In addition, China notes that the Panel, in footnote 105 under paragraph 7.79, has already made reference to the explanation provided by the United States in 
response to question No. 124.  WT/DS363/R 
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  6.16 The Panel  notes that the United States did provide an explanation in its answer to Panel 
question No. 124 with respect to its contention that the 2001 Audiovisual Products Regulation  and the  
Audiovisual Products Importation Rule  were included in Part IV of its Panel request via the narrative 
description in that part and the reference to "a ny amendments, related measures or implementing 
measures" and that this was referred to in foot note 107 under paragraph 7.79 .  The Panel has added 
this additional elaboration on the United States' answer  to the main text of paragraph 7.79.  However, 
the United States did not address the specific issue th at the Panel was referring to in paragraph 7.79, 
namely why the United States included those measures by  name in Parts I and II of the panel request 
but not in Part IV.   
6.17 The United States requests that the Panel modify the second sentence of paragraph 7.83  to 
reflect that China has not limited the corporate fo rm of foreign-invested enterprises engaging in the 
distribution of reading materials in China to Chinese-foreign contractual joint ventures, and that the MOC approval procedures under China's measures apply to all foreign entities.   
6.18 China notes that the wording of the Interim Report seems to reflect paragraph 238 of China's 
first written submission, which in turn reflects paragraph 137 of the United States' first written 
submission. The latter refers clearly to Chinese-forei gn contractual joint ventures. The issue raised by 
China relates to the fact that a sp ecific claim by the United States was not properly before the Panel.  
Thus, it is unclear for what reason the wording of such US claim, as rebutte d by China and analyzed 
by the Panel, should be subject to any modification. 
6.19 The Panel notes that the Several Opinions , which contains the "decision making criteria" 
applied by the GAPP in approving foreign-invested entities to distribute reading materials, does not 
contain a limitation on the corporate form of the fore ign-invested enterprises.  However, China is 
correct that in paragraph 138 of the United Stat es' first written submission, the United States 
recognized that the "decision making criteria" applied by the MOC relate to the approval of Chinese-foreign contractual joint venture.  Nevertheless,  in order to avoid grouping the regimes governing 
reading materials and audiovisual products together , the Panel has made the appropriate modification 
to the paragraph to reflect the two di stinct legal regimes being discussed.   
6.20 The United States  requests that the Panel modify paragraph 7.177 to fully reflect all of the 
relevant provisions of the Several Opinions that the United States raised in  this dispute.  Specifically, 
the United States requests that the Panel make reference to Articles 1 and 4 of the Several Opinions  as 
they relate to the United States' claims that the Several Opinions  is inconsistent with China's GATS 
obligations. 
6.21 China has not commented on the United States' request.   
6.22 The Panel has made appropriate additio ns to paragraph 7.177.   
(b) Comments by China   
6.23 China notes  that the Panel has explained in footnote 65 to paragraph 7.34 that, as a general 
rule, when referring to one of China's laws, regulat ions or documents, it utilized the US translation 
where the Panel did not identify a translation issue,  the resolution of which appeared to be necessary 
in order to make its findings.  China seeks a clarific ation in this regard.  China believes that in the 
absence of such an issue, a reason for generally favouring one party's translation over the other's 
needs to be given. 
6.24 The United States does not agree with China's request regarding footnote 65, particularly 
given that China has not explained why additional elaboration from the Panel is necessary.  First, 
China has not identified any specific instances in wh ich different translations are available that are WT/DS363/R 
Page 98  
 
  material and that have not already been identifie d and addressed by the Panel.  Second, the United 
States argues that the Panel's description of the translation review process as well as the Panel's 
discussion regarding the translation of several key term s, such as distribution, sub-distribution, master 
distribution, and master wholesale, addresses the issues raised by China.   
6.25 The United States views the Panel's discussion of the translation issues in this dispute as 
sufficient.  Accordingly, the United States respectfu lly requests that the Pane l decline China's request. 
6.26 The Panel  recalls that both the United States and Ch ina submitted English translations of all 
of the challenged measures as well as some other Ch inese legal documents.  China provided the Panel 
with English translations of some of the measures at issue in this dispute.  In some instances, China 
specifically identified concerns it had with the United  States' translation of particular provisions or 
terms.  In other instances, China provided no specific explanation as to why it had provided a 
differing translation or as to why its translation shou ld be preferred.  Neither did the Parties address 
these particular differences in their joint attempt to resolve the other issues of translation.  We also 
note that the Panel has examined both versions of th e translations of China's measures to confirm that, 
with respect to the relevant provisions, there are no material or significant differences between the 
translations provided by both parties.  Indeed, the Panel in question 150 and Annex A to the second 
set of Panel questions identified a variety of instances where the parties had provided differing 
translations of provisions of China's measures or di sputed the meaning of particular terms which were 
material to resolving the dispute.  For those provi sions, as explained in footnote 65, the Panel referred 
to either the agreement of the pa rties to the use of a particular translation or to the independent 
translator.     
6.27 The Panel notes that the fact that it has often referred in its findings to the United States' 
translations of China's measures does not mean that the Panel is favouring the United States' 
translation over the one provided by China or concl uding that the US translations are definitive or 
authoritative.  At any rate, China did have the possi bility to rebut them.  Rather, it seemed impractical 
to systematically refer to both translations throug hout the report.  The Pane l also recalls that the 
United States as complaining party bears the burde n of proving its claim, which includes providing 
evidence of the content of the challenged measures.   
6.28 The Panel has made appropriate changes to foot note 65 to further clarify the reasons stated 
above.  
6.29 China requests that the Panel change the last sentence of footnote 67 to paragraph 7.39,  to 
make reference to the date of promulgation of the Film Regulation  in addition to the date of the State 
Council decision and the date the measure took eff ect.  China believes this change will properly 
reflect its argument that the Film Distribution and Exhibition Rule  pre-dates the Film Regulation . 
6.30 The United States  has not commented on China's request. 
6.31 The Panel  has made the appropriate changes to the footnote in question. 
6.32
 China points out that the first sentence of paragraph 7.206  seems to have something missing 
from it.  In the Interim Report the sentence reads as follows:  "China argues that the Importation 
Procedure is merely a webpage which and that a ll the requirements contained in this webpage are 
requirements established by applicable published regula tions".  China requests that the Panel add the 
phrase "is intended to provide guidance for a pplicants" after the word "which."   
6.33 The United States  seeks to revise China's request for modification to this paragraph.  The 
United States argues that China did not provide suppor t for, or citations to its argument on the record 
as part of its request for modification.  The Unite d States notes that China argued in its answer to  WT/DS363/R 
 Page 99 
 
 
  Panel question 147 that the Importation Procedure  and the Sub-Distribution Procedure  are "...aimed 
at facilitating the application process."  In order to reflect the arguments that China has actually made, 
the United States respectfully requests that the Panel use that phrase in modifying the first sentence of 
paragraph 7.206. 
6.34 The Panel  recognizes that the sentence was grammatically incorrect and requires 
modification. However, the Panel does not believe  that China's suggested change is the most 
appropriate.  We also note that the United States' suggested change is contained in the immediately 
succeeding sentence and would therefore result in a redundancy.   The Panel has simply deleted the 
word "which" from the sentence.  We believe this a ccurately reflects China's argument with respect to 
the particular point being discussed in paragra ph 7.206 and fixes the grammatical error in the 
sentence. 
2. US claims regarding China's trading rights commitments 
(a) Comments by the United States 
6.35 The United States  requests that the Panel modify pa ragraphs 7.251 and 7.252.  The United 
States points out that wholly foreign-owned ente rprises are not referenced.  The United States 
considers that they should be mentioned to avoi d potential confusion about the scope of the phrase 
"all enterprises in China".   
6.36 China  has not commented on the United States' request. 
6.37 The Panel  notes that wholly foreign-owned enterpri ses are referenced at paragraph 7.251.  
The Panel has nonetheless made appropriate changes for greater clarity at paragr aphs 7.251 and 7.252. 
6.38 The United States  requests that the Panel clarify the summary of the United States' position 
at paragraph 7.278 by making three su ggested additions to the paragraph. 
6.39 China  submits that paragraph 7.278 appears to ad equately reflect the content of the United 
States' responses to question No. 160(a) and (b).  China is of the view that this particular paragraph of 
the Interim Report is not about providing another presentation or a reiteration of the US arguments, 
but about the Panel's perception of these arguments a nd the reasoning the Panel has chosen to adopt in 
response.  China notes that the arguments deve loped by the United Stat es have already been 
summarized previously in the Panel's Interim Report, e.g., at paragraphs 7.242 and 7.243.  China does 
not find anything inaccurate in the Panel's findings, in particular in light of the United States' answer 
to question No. 160(a).  China is therefore of the vi ew that there is no need to amend this particular 
paragraph of the Interim Report. 
6.40 The Panel  has accepted two of the suggested cha nges to paragraph 7.278 and rejected a 
further suggested change, as the relevant ar gument is reflected at paragraph 7.279. 
6.41 The United States  believes that the summary of its cl aims at paragraphs 7.326 and 7.327 
would benefit from additional clarification.  The United States therefore requests that the Panel make specified changes to its summary of the US claims. 
6.42 China  considers that it is unclear whether the United States has properly made a claim that 
the measures in question prohibit "all enterprises in  China (other than Chinese wholly state-owned 
enterprises)" from importing reading materials, AVHE products, sound recordings and motion pictures for theatrical release.  Absent a more explic it reference to such claim in the US first written 
submission, China is of the view that the Panel should exert caution and refrain from amending its 
Report on that particular point. WT/DS363/R 
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  6.43 The Panel  has made appropriate changes at paragraphs  7.326-7.328.  The Panel recalls in this 
connection that paragraphs 7.326- 7.328 merely provide an overview of the US claims and that the 
specific claims are addressed in greater detail at  paragraphs 7.333 and following.  The Panel also 
notes that the United States' response to questions  Nos. 1 and 151 indicate that for some of the 
measures at issue the US claims relate to trading rights of foreign-invested  enterprises in China and 
privately invested enterprises in China.   
6.44 The United States  notes that the Panel's discussion of the Catalogue  at paragraphs 7.346-
7.349 concludes,  inter alia , that Articles X.2 and X.3 of the Catalogue  cannot, by themselves, give 
rise to a breach of the provisions cited by the Un ited States.  According to the United States, this 
conclusion is based on the Panel's incorrect view that the Catalogue  has no independent legal effect.  
The United States asserts that the legally operative nature of Articles X.2 and X.3 is uncontested 
between the parties.  The United States also comm ents on the Panel's statement that China in its 
response to a Panel question
30 did not substantiate its assertion that the Catalogue  has independent 
legal effect, saying that the Panel's question did not request substantiation.  The United States 
requests, therefore, that the Panel revise its discussion of the Catalogue  to eliminate the implication in 
paragraph 7.346 that the Catalogue  has no independent legal effect and find that Articles X.2 and X.3 
are inconsistent with 5.1 and 5.2 of the Accession Protocol and paragraphs 83(d) and 84(a) and 84(b). 
6.45 China  believes that the conclusions reached by the Panel fall within its margin of 
appreciation and should therefore be left unchanged.  China further states that while the Catalogue  
has independent legal effects, China does not see any material misrepresentation in the Panel's 
reasoning that it is the combined reading of both the Catalogue  and the Foreign Investment 
Regulation  which seems to give rise to the alleged breach of China's obligations.   
6.46 The Panel  begins by recalling that pursuant to Article  11 of the DSU, the function of panels is 
to make an "objective assessment" of the matter be fore them.  Consequently, the parties' common 
assessment in relation to a particular issue is, therefore, not in and of itself dispositive.   
6.47 In the present case, the Panel's analysis takes account of the views expressed by the parties 
and the evidence on the record, which consists of the texts of the Catalogue  and the Foreign 
Investment Regulation .  In considering these elements, the Pa nel noted that little or no substantiation 
was provided by the parties in support of their re spective views.  It should be observed in this 
connection that the United States is wrong to assert th at the Panel did not request substantiation of 
responses to Panel questions.  The Panel's questi ons were sent to the parties with a general 
introductory note instructing them, inter alia , "to provide sufficient elaboration of all replies".  
Nevertheless, the Panel has made appropriate changes at paragraphs 7.346-7.349 so as to focus its 
analysis on the United States' assertion that the Catalogue  forbids, or bans, foreign-invested 
enterprises from engaging in the importation of rele vant products into China.  Corresponding changes 
were made at paragraph 7. 362 which deals with the Foreign Investment Regulation .   
6.48 The United States  believes that the summary of its pos ition at paragraph 7.381 would benefit 
from additional clarification.  The United States th erefore requests that the Panel make specified 
changes to its summary of the United States' position. 
6.49 China  refers the Panel to its comments on the US comments on paragraphs 7.326-7.327, 
which appear to be also applicable to the US co mments on paragraph 7.381.  China requests the Panel 
to refrain from inserting any wording which does not  seem to be explicitly supported by appropriate 
references to the parties' submissions as made in the course of the Panel proceedings and which would 
result in making the scope of the US claims broader than it actually was or has explicitly been debated 
before the Panel. 
                                                      
30 China's response to question No. 173.  WT/DS363/R 
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  6.50 The Panel  notes that its summary is based on paragr aph 35 of the United States' first written 
submission, which the United States fails to refere nce in its comment.  Nevertheless, the Panel has 
made appropriate chang es at paragraph 7.381. 
6.51 The United States  requests that the Panel make explicit at paragraph 7.385 the two 
inconsistencies referred to in th e third sentence of the paragraph in order to clarify their nature.  
6.52 China  responds that it does not necessarily object to the request by the Un ited States to insert 
additional clarification of its claim, provided th e suggested amendments co rrespond to the way these 
arguments have been laid down in the various US  submissions made in the course of the Panel 
proceedings.  China submits that there would be a n eed to amend the proposed modified text in order 
to reflect more accurately the content of paragrap hs 254 and 255 of the United States' first written 
submission.  
6.53 The Panel  has made appropriate changes at paragraph 7.385. 
6.54 The United States  requests that the Panel modify paragraphs 7.465 and 7.467 to reflect the 
fact that the US claim with respect to Articles 50 and 51 of the 1997 Electronic Publications 
Regulation  is not limited to the commitment concerning the "non-discretionary" grant of trading rights 
under paragraph 84(b), but also cove rs paragraphs 5.1, 5.2, 83(d) and 84(a) as well.  According to the 
United States, Articles 50 and 51 amount to a prohibition on the right to import electronic publications for all enterprises in China (other than Chinese wholly state-owned en terprises), all foreign enterprises 
and all foreign individuals.  The United States submit s that by conditioning trading rights on the state 
plan, which only Chinese wholly state-owned enterp rises can satisfy, China denies the right to import 
electronic publications to all enterprises in China (other than Chinese wholly  state-owned enterprises), 
all foreign enterprises and all fore ign individuals.  In the United States' view, Articles 50 and 51 are, 
therefore, inconsistent with para graphs 5.1, 5.2, 83(d) and 84(a). 
6.55 The United States argues that this reading of th e US claim is confirmed in paragraphs 45 and 
46 of the US first written submission, which accordi ng to the United States explain that conditioning 
the right of to import electronic publications on the plan for total number, structure and deployment 
"... reconfirms the prohibition on any foreign-inv ested enterprise or foreign individual, or any 
privately-owned enterprise, engaging in the impor tation of electronic publications".  The United 
States further points to paragraph 259 of the US first written submission (which states that Articles 50 and 51 "... limit which enterp rises may engage in the importation of electronic publications..."), 
paragraph 227 (which states that "China refuses  to permit any foreign enterprises or foreign 
individuals to import the Products, and likewise onl y allows a subset of enterprises in China – i.e., 
wholly state-owned Chinese enterprises approved or designated by the Chinese Government – to 
import the Products" and that "[t]he measures establis hing China's current trading rights regime for 
the Products are, therefore, inconsistent with China' s obligations contained in … paragraphs [5.1, 5.2, 
83 and 84]") and paragraph 270 (which states that "[t]he foregoing sections of this Part IV have 
demonstrated that China's measures restricting th e right to import into China reading materials, 
AVHE products, sound recordings, and films for theatri cal release, are inconsistent with Part I, 
paragraphs [5.1, 5.2, 83 and 84]" and that the Unite d States, therefore, "requests that the Panel find 
that China's measures identified in this Part IV are inconsistent with China's trading rights obligations 
under the Accession Protocol, which are an integral part of the WTO Agreement "). 
6.56 China  observes, firstly, that it is totally unclear , especially from paragraph 46 of the United 
States' first written submission, whether the United States has made a claim that Articles 50 and 51 
impose a prohibition.  China points out that at para graph 46 of its first wr itten submission, the United 
States draws the general conclusion, with respect to the 1997  Electronic Publications Regulation  as a 
whole, that it "reconfirms the prohibition of any fo reign-invested enterprise or foreign individual or 
any privately-owned Chinese enterprise, engaging in  the importation of electronic publications".  WT/DS363/R 
Page 102  
 
  However, China considers that it is impossible to infer from this very broa d and general allegation 
whether it refers specifically to Articles 50 and 51 of the 1997  Electronic Publications Regulation , or 
to Article 8 of the 1997  Electronic Publications Regulation , which is also described under 
paragraph 45 of the US first written submission.  
6.57 China further notes that paragraph 227 of the Un ited States' first written submission, to which 
the United States refers, contains only a very gene ral introductory statement concerning the alleged 
effects of the challenged Chinese measures on trading ri ghts.  In China's view, it is interesting to note 
that in its quotation of paragraph 227 of its own first written submission, the United States has omitted 
to reproduce the very first words of that paragr aph: "Through a variety of measures, however, China 
refuses to permit […]".  China notes th at here again, the United States fa ils to link any of the claims it 
describes specifically to Articles 50 and 51 of the 1997 Electronic Publications Regulation .  
6.58 China considers that in view of the lack of a basis behind the United States' contention that it 
has raised a claim that Articles 50 and 51 are inconsis tent with paragraphs 5.1, 5.2, 83 and 84, the 
Panel should reject the United States' request for modification of paragraphs 7.465 and 7.467.  China 
submits that the United States should not be allowe d to distort the presentation of its arguments in 
order to derive benefits from the Panel's Report with respect to claims which it has failed to make in 
the first place in the course of the Panel proceedings. 
6.59 The Panel  begins by noting that paragraph 259 of the United States' first written submission 
specifically addresses the alleged inconsistency of the 1997 Electronic Publications Regulation  with 
China's trading rights commitments.  Paragraph 259 states in relevant part: "By conditioning trading 
rights on Chinese Government plans fo r structuring these activities …, the 1997 Electronic 
Publications Regulation  is inconsistent with China's trading rights commitments.  It injects qualifying 
criteria and government discretion into a process that  China committed to be "non-discretionary".   
6.60 As we also point out at paragraph 7.467 of the Interim Report, paragraph 259 identifies only 
one commitment with which China is alleged to  be acting inconsistently – the commitment 
concerning the "non-discretionary" grant of trading rights.  We further note that the sentence 
identifying this particular commitment does not  begin with a word like "and", "in addition", 
"moreover", "also", etc.  Such a word would have indicated that additional commitments are relevant 
to the US claim concerning Articles 50 and 51.  We  note that paragraph 269 of the US first written 
submission uses precisely such an approach – it contai ns the phrase "not only, but also".  We further 
observe that paragraph 259 does not use words like "first", "second", etc. to indicate multiple bases 
for the US claim.  This is what the United St ates did in the paragraphs immediately preceding 
paragraph 259, in the context of its claims concerning the Publications Regulation .
31  Therefore, the 
text of paragraph 259 does not indicate to us that commitments other than the commitment to grant 
trading rights in a "non-discretionary" way are relevant  to the claim concerning Articles 50 and 51.       
6.61 As we also point out at footnote 349 of th e Interim Report, Panel question No. 154(b) 
specifically inquired about paragraph 259 and th e US claim concerning Articles 50 and 51.  The 
United States' response re-stated the claim b ased on the commitment concerning the "non-
discretionary" grant of trading rights.  In addition,  it identified one further claim based, it seems, on 
paragraphs 5.2 and 84(b), since the United States al leged "discrimination" ag ainst foreign importers 
and privately-held importers in China.  Having identified the two commitments, the United States' 
response concluded as follows: "Thus, by cond itioning trading rights on GAPP's plan for the 
structuring of these importation activities, the 1997 Electronic Publications Regulation  is inconsistent 
with China's trading rights commitments".  Thus, th ere is no suggestion in the United States' response 
that other commitments are alleged to have been br eached.  In contrast, as we note at paragraph 7.459 
                                                      
31 United States' first written submission, paras. 255-257.  WT/DS363/R 
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  of the Interim Report, in its response to Panel qu estion No. 153, the United States did suggest that 
Article 8 is inconsistent with, inter alia , paragraphs 5.1, 83(d) and 84(a).                 
6.62 Regarding the United States' reference to paragr aphs 45 and 46 of its first written submission, 
we note that paragraph 45 refers to Articles 8 and 50-60 of the 1997 Electronic Publications 
Regulation.    Paragraph 46 states that "[t]hus, the 1997 Electronic Publications Regulation  
implements the restrictive approval and li censing requirements contained in the [ Publications 
Regulation ] and the Importation Procedure" and that "[ i]n so doing, it reconfirms the prohibition on 
any foreign-invested enterprise or foreign indivi dual, or any privately-owned Chinese enterprise, 
engaging in the importation of electronic publications ".  As an initial matter, we have difficulty 
understanding how the existence of a licensing and a pproval requirement confirms the existence of a 
prohibition on "any" of the enterp rises or individuals mentioned.  Furthermore, we note that neither 
paragraph 45 nor paragraph 46 puts forw ard a claim of inconsistency.  Also, we recall that the United 
States' response to Panel question No. 154(b) does not mention any claim under paragraphs 5.1, 83(d) 
or 84(a), nor does it assert that the State plan  imposes, or amounts to, a "prohibition".   
6.63 The United States also refers to paragraphs 227 and 270 of the US first written submission.  
Paragraph 227 refers to "the measures establishi ng China's current trading rights regime".  
Paragraph 227 does not, however, state that each of th e measures at issue is inconsistent with each of 
the provisions identified.  Similarly, paragraph 270 re fers to "the measures iden tified in this Part IV" 
as being inconsistent with "China's trading rights obligations".  Here agai n, paragraph 270 does not 
say that each of the measures at issue is inconsis tent with each of the trading rights obligations 
identified.      
6.64 Finally, we note that in response to Panel qu estion No. 1, the United States identified Articles 
8 and 50-55 of the 1997 Electronic Publications Regulation  as provisions claimed to be in breach of 
China's trading rights commitments and paragraphs  5.1, 5.2, 83(d) and 84(a)-(b) as relevant 
commitments.  As explained above, in its subseque nt responses to Panel questions, the United States 
did not indicate that paragraphs 5.1, 83(d) and 84(a) were relevant  to its claim concerning Articles 50 
and 51.  It did suggest, however, that these paragraphs we re relevant to its claim concerning Article 8.     
6.65 In the light of the above considerations, the Panel declines to modify paragraphs 7.465 and 
7.467.         
6.66 The United States  requests that the Panel reconsider its  views expressed at paragraphs 7.470-
7.477.  The United States recalls that Article 50 of the 1997 Electronic Publications Regulation  
directs GAPP to draw up plans for the total numbe r, structure and deployment of importers of 
electronic publications.  The United States argues that Article 50 provides no guidelines or other 
criteria for drawing up those plans, so they ar e formulated and applied according to the unknown 
preference of GAPP.  In addition, the United States argues that China itself has confirmed to the Panel 
that the designation process is exclusively at the government's own initiative and on the government's 
own initiative and discretion.  The United States asser ts that at paragraphs 7.470 and 7.471 the Panel 
did not take into account these arguments.  The Unit ed States requests the Panel to find that Articles 
50 and 51 of the 1997 Electronic Publications Regulation  are discretionary in a manner inconsistent 
with paragraph 84(b).  
6.67 China  submits that the request by the United Stat es for review by the Panel of its findings 
with respect to these paragraphs is misplaced.  The Panel findings under paragraphs 7.470 and 7.471 
are clear in establishing that in carrying out th e approval process, GAPP has to apply the criteria 
which are laid down in Articles 50 and 51 of the 1997  Electronic Publications Regulation .  China 
argues that the United States does not provide an y elements establishing that the GAPP would 
approve import entities by applying different criteria than the ones which are laid down in Articles 50 and 51 of the 1997  Electronic Publications Regulation , and is therefore not establishing that such WT/DS363/R 
Page 104  
 
  entities would be approved in a discretionary way.  China therefore considers that the request by the 
United States for a finding that Articles 50 and 51 ar e discretionary in a manner inconsistent with 
paragraph 84(b) is unwarranted and should be rejected by the Panel. 
6.68 The Panel  notes that a similar issue is  addressed at paragraphs 7.429-7.431, which explains 
the somewhat less detailed treatment of the issue at paragraphs 7.471 and 7. 472.  At any rate, the 
Panel has taken the first argument concerning the ab sence of specific guidelines into account.  This 
said, in an effort to make this more explic it, the Panel has made appropriate changes at 
paragraphs 7.471 and 7.472 in response to the United States' comment.  Regarding the second 
argument concerning designation, the Panel notes that  the provisions at issue do not provide for a 
designation system, which has been confirmed by China in response to a question from the Panel.
32  
The Panel does not therefore find it appr opriate to address this argument.   
6.69 The United States  requests that the Panel revise paragr aphs 7.529, 7.536, 7.542 and 7.643 
where the Panel stated that the Film Regulation  and the 2001 Audiovisual Products Regulation , by 
regulating the activity or business of importing film s or audiovisual products, regulate the supply of a 
service.  The United States argues that the statements raise a number of questions which were not 
addressed by the parties.  The United States submits that deleting the statements would in no way 
interfere with the Panel's analysis and conclusions  regarding the arguments made by China.  The 
United States notes that the Panel's reasoning does no t rely on the view that the business of importing 
constitutes the supply of a service.       
6.70 China submits that the request of the United Stat es, which would lead to the suppression of 
important parts of the Panel's reasoning, is based on a misrepresentation of both China's arguments 
and the reasoning of the Panel.  The Panel's reasoni ng does not seem to be based on a general analysis 
of whether importation, in the abstract, is a service.   Rather, the Panel appears to have limited its 
analysis and conclusion to the question whether the activity of importing films or audiovisual products intended for publication is a service, and to have reached a positive conclusion in this 
respect.  China finds this part of the Panel's reas oning to reflect the arguments made by China that 
films and audiovisual products intended for publicati on are imported into China as part of a service.  
China also notes that, even if the relevant excer pts of the Panel's reasoning could be viewed as 
considering that importation, in general, is a ser vice, a substantial amount of support could be found 
in this respect.  China notes, for instance, that f ootnote 6 of Chin a's Services Schedule, under Sector 
4B, provides that "the restrictions on Mode 1 sh all not undermine the rights of WTO Members to the 
right to trade as stipulated in Chapter 5 of China's Protocol of Accession to the WTO".  According to 
China, this explicit exclusion suggests that importa tion may be regulated as a service activity.  China 
is therefore of the view that the United States' reque st for modification of the relevant paragraphs of 
the Interim Report should be rejected by the Panel.   
6.71 The Panel  has made appropriate changes at paragra phs 7.529, 7.536, 7.542 and 7.643, taking 
into account that some of the statements are not essential.  
6.72 The United States  requests that Panel add a clarification in footnote 382 which is attached to 
paragraph 7.529.  The United States considers th at without the clarification, confusion could 
potentially arise because the United States challenge d the relevant aspect of Article 5 – that in 
accordance with Article 5 only films which have b een approved may be imported – under Article III:4 
of the GATT 1994.   
6.73 China  is of the view that it is sufficiently clear th at this particular finding of the Panel relates 
to the wider context of the United States' claims conc erning trading rights.  In addition, it is unclear on 
what basis the United States considers that the relevant aspects have been challenged under its 
                                                     
 
32 China's response to question No. 40.  WT/DS363/R 
 Page 105 
 
 
  Article III:4 claim.  China notes in this regard that the United States does not make any explicit 
reference to any of its submissions before the Pa nel in support of its contention.  China therefore 
believes that there is no reason for granting the requested modification. 
6.74 The Panel  has added the requested clarification in footnote 382 which accompanies 
paragraph 7.529.  The Panel notes that the United States referenced Article 5 of the Film Regulation  
in the footnotes of the section of its first written submission dealing with its claim under Article III:4 
of the GATT 1994.   
6.75 The United States  requests that the Panel delete the l ast sentence of paragraph 7.609 which 
originated in paragraph 53 of the Un ited States' first written submission. 
6.76 China  has not commented on the United States' request. 
6.77 The Panel  has deleted the last sentence of paragraph 7.609. 
6.78 The United States  requests changes at paragraphs 7. 612 and 7.626 which concern the United 
States' claims regarding the 2001 Audiovisual Products Regulation .  The United States would like the 
Panel to add at paragraph 7.612 that, in the United States' view, the designation and approval 
requirements are also inconsistent with paragraphs  5.1, 5.2, 83(d) and 84(a) because they deny all 
enterprises (other than Chinese wholly state-owned enterprises), all foreign enterprises and all foreign 
individuals the right to import audiovisual products .  With regard to paragraph 7.626, the United 
States submits that it has identified the relevant provisions of the 2001 Audiovisual Products 
Regulation  to which the US claim relates and why inc onsistencies arise under these provisions.  Thus, 
the United States requests the Panel to find that Articles 8-10 and 27-28 of the 2001 Audiovisual 
Products Regulation are inconsistent with paragraphs 5.1,  5.2, 83(d), 84(a) and 84(b).    
6.79 The United States asserts that its claim is that Articles 8-10 and 27-28 impose prohibitions on 
the right to trade by subjecting all importers seek ing to import audiovisual products to approval and 
designation requirements.   More specifically, the Un ited States asserts that its claim is that China's 
approval process for unfinished audiovisual product importers (Articles 8-10 and 28) and its 
designation process for finished audiovisual product importers (Article 27) deny all enterprises in 
China (other than Chinese wholly  state-owned enterprises), all fo reign enterprises and all foreign 
individuals the right to import AVHE products and s ound recordings into China.  The United States 
points out that in paragraphs 261 and 266-267 of its first writte n submission, it argues that only 
Chinese wholly state-owned enterprises can be appr oved to import unfinished audiovisual products.  
Likewise, paragraphs 261 and 267 of the US firs t written submission state that only one Chinese 
wholly state-owned enterprise – the CNPIEC – has been designated to import unfinished audiovisual 
products.   
6.80 In the United States' view, Articles 8-10 and 27- 28 are inconsistent with paragraphs 5.1 and 
5.2 and paragraphs 83 and 84, because they amount to  a prohibition on the right to import audiovisual 
products for all enterprises in Ch ina (other than Chinese wholly st ate-owned enterprises), all foreign 
enterprises and all foreign individuals, and becau se they introduce discretion into the process of 
granting trading rights.   
6.81 China  notes that this United States' request is very  similar to that raised with respect to 
paragraphs 7.326 and 7.327 and rests largely on the same references to the Un ited States' first written 
submission. China would like to recall that para graphs 261 and 266-267 of the United Sates' first 
written submission do not support the allegation that the United States has prope rly made a claim that 
"all enterprises in China (other than wholly state-owned enterprises), all foreign enterprises and all 
foreign individuals" are being denied the right to  import audiovisual products intended for publication 
and finished audiovisual products.  China submits that here again, the United States is trying to WT/DS363/R 
Page 106  
 
  substantiate a claim which it did not properly rais e in its various submissions and that the Panel 
should refrain from letting the United States derive benefits from the Panel Report with respect to 
claims which were not properly ma de in the first place.  More sp ecifically, China requests that the 
Panel refrain from accepting any of the proposed  modifications and from making the additional 
determinations which are requested by the United States. 
6.82 The Panel  begins with the US claim concerni ng audiovisual products imported for 
publication ("unfinished" audiovisual products).  The United States asserts that  it raised a claim with 
respect to Articles 8-10.  This assertion directly contradicts the United States' response to Panel 
question No. 1.  Question No. 1 inter alia  asked the United States to indicate or clarify which specific 
provisions of the measures being challenged were in  breach of China's trading rights commitments.  
In relation to the 2001 Audiovisual Products Regulation , the United States identified Articles 5, 27 
and 28.  It made no mention of Articles 8-10.   
6.83 In its first written submission
33, the United States had mentioned Articles 8-10 and contended 
that they provide that importers of audiovisual products intended for publication must by approved by the Chinese Government.  However, Articles 8-10 are contained in Chapter II of the 2001 Audiovisual 
Products Regulation which is entitled "Publishing".  Specifically, Articles 8-10 deal with the 
establishment of "audiovisual publishing entities".  Th ey do not speak to the activity of importing or 
audiovisual products imported for publication.  This is not surprising since the activity of importing is 
addressed in Chapter IV of the 2001 Audiovisual Products Regulation , which includes Articles 27 and 
28, and also in Chapter I, namely in Article 5 which distinguishes between the activities of publishing 
and importing.   
6.84 The United States has never explained why and how Articles 8-10 in its view are relevant to 
the activity of importing audiovisual products intended  for publication.  Footnote 476 of the Panel's 
Interim Report already indicates that it is not clear to the Panel that Articles 8-10 are relevant.  Furthermore, as noted, the United States, when asked to identify the specific provisions being 
challenged, made no mention of Articles 8-10, but included Article 5.  The Panel inferred from these 
elements that with respect to audiovisual produc ts intended for publication, the United States was 
raising a claim under Articles 5 and 28, and not Articl es 8-10 and 28.  This made sense since Article 5 
plainly deals with who may import the relevant products and establishes an approval requirement 
("licensing" requirement).
34  Moreover, the Panel subsequently asked another question of the United 
States regarding "the US claim in relation to  Article 5 of the Audiovisual Regulation".35  The United 
States in its response did not state that it was not raising any claim under Article 5.  
6.85 Based on these considerations, we see neither a need nor a justification to make findings on 
whether Articles 8-10 are inconsistent w ith China's trading rights commitments. 
6.86 Having regard to the US claim concerning audi ovisual products imported for publication, the 
United States also requests the Panel to find that Arti cle 28 is inconsistent with paragraphs 5.1, 5.2, 
83(d), 84(a) and 84(b) in the same way as Artic les 8-10 and 27, namely because it amounts to a 
prohibition on the right to import audiovisual produc ts for all enterprises in China (other than Chinese 
wholly state-owned enterprises), all foreign ente rprises and all foreign individuals, and because it 
introduces discretion into the process of granting trading rights.  In our view, paragraphs 7.661 and 7.662 of the Interim Report adequately address the US  claim concerning Article 28.  As a result, we 
also do not see any need to modify para graph 7.626 of the Interim Report.   
                                                     
 
33 United States' first written submission, footnote 166.  
34 We note that the United States itself seems to conf irm this at para. 55 of its comments on the Interim 
Report when it says that "Article 7 of the Audiovisual Products Importation Rule  imposes the same approval 
requirement as is contained in Articles 5 and 28 of the 2001 Audiovisual Products Regulation  …". 
35 Panel question No. 155.  WT/DS363/R 
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  6.87 Regarding the US claim concerning Article 5,  which claim also relates to audiovisual 
products imported for publication, we note that the United States' comments are quite confusing.  At 
paragraph 50 of its comments, the United States menti ons the Panel's findings with respect to Articles 
5, 27 and 28.  It then refers to its comments on pa ragraph 7.612 of the Interim Report, which are about 
Articles 8-10 and 27-28, and says that the Panel should therefore find that Articles 5, 27 and 28 are 
inconsistent with paragr aphs 5.1, 5.2, 83 and 84.  Paragraph 51 of the US comments then goes on to 
request that "[f]or the reasons explained above", the Panel should find that Articles 8-10 and 27-28 are 
inconsistent with paragraphs 5.1,  5.2, 83 and 84.  It is not clear to us from these comments that the 
United States requests the Panel to find that Article 5 is inconsistent with para graphs 5.1, 5.2, 83 and 
84(a). 
6.88 At any rate, as we point out at paragraph 7. 626 of the Interim Report, the United States' 
response to question No. 1 mentions paragraphs 5.1,  5.2, 83 and 84(a), but provides no explanation as 
to why a breach is claimed to occur.  The United States' first written submission specifically addresses 
the alleged inconsistency of the 2001 Audiovisual Products Regulation with China's trading rights 
commitments at paragraphs 261 and 262.  Only pa ragraph 262 explains why an inconsistency is 
alleged to arise with China's trading rights commi tments, and the only commitment that is identified 
at paragraph 262 is the commitment to grant trading rights in a "non-discretionary" way (paragraph 84(b)).  As we point out in footnote 462 of the Interim Report, paragraph 261 argues that 
the approval requirement serves a gate-keeping function.   However, as we also explain, paragraph 261 
does not put forward any claim of inconsistency b ased on this argument.  Indeed, paragraph 262 does 
not open with words like "also", "moreover", "in addition", etc.
36  In other words, there is no 
indication that paragraph 261 is inte nded to put forward a claim of inconsistency that is separate from 
the United States' claim that Chin a fails to grant trading rights in a "non-discretionary" way.   
6.89 We also note paragraphs 227 and 270 of the US first written submission which we have 
discussed in relation to a different US comment.  To  recall, paragraph 227 refers to "the measures 
establishing China's current trading rights regime".  Paragraph 227 does not, however, state that each 
of the measures at issue is inconsistent with each of the provisions identified.  Similarly, 
paragraph 270 refers to "the measures identified in this Part IV" as being inconsistent with "China's 
trading rights obligations".  Here  again, paragraph 270 does not say that each of the measures at issue 
is inconsistent with each of the tradi ng rights obligations identified.      
6.90 We, therefore, see no reason to modify paragra ph 7.626 of the Interim Report insofar as it 
concerns Article 5.  In any event, it is difficult to see how Article 5 could be said to impose a 
"prohibition" on the right to trade for all importers  except Chinese wholly state-owned enterprises.  In 
fact, the United States itself points to measures other than the 2001 Audiovisual Products Regulation 
– namely, the Publications Regulation  and the Imported Cultural Product Rule  – in support of its 
assertion.  It is those other measures which app ear to establish that the business of importing 
audiovisual products intended for publication is to be  conducted by wholly state-owned enterprises.     
6.91 We now turn to the US claim concerning finish ed audiovisual products, i.e., the claim with 
respect to Article 27.  The United States requests the Panel to find that Article 27 is inconsistent with 
paragraphs 5.1, 5.2, 83 and 84(a).  In considering th is request, we refer to what we have said above at 
paragraphs 6.88-6.89 with regard to  Article 5.  We further recall that in footnote 456 of the Interim 
Report we point out the US argument that the desi gnation requirement serves a gate-keeping function.  
However, as the footnote also explains, para graph 261 does not put forward any claim of 
inconsistency based on this argument.   
                                                      
36 We recall our earlier observation that, elsewhere, th e United States' first written submission does use 
such words, or indicates multiple claims by making a numbered list (e.g., at para. 254 of the US first written 
submission).  WT/DS363/R 
Page 108  
 
  6.92 Therefore, as with respect to Article 5, we see no reason to modify paragraph 7.626 of the 
Interim Report insofar as it concerns Article 27.  And as with Article 5, it is at any rate difficult to see 
how Article 27 could be said to impose a "prohibition"  on the right to trade for all importers except 
Chinese wholly state-owned enterprises.  We not e that the United States' first written submission 
states that only the CNPIEC "has been designated"
37.  This is different from what the United States 
now says in its comments, which is that Article 27 prohibits importers other than wholly state-owned 
enterprises from being designated.  Furthermore, th e United States itself points to measures other than 
the 2001 Audiovisual Products Regulation – namely, the Imported Cultural Product Rule  and the 
Circular on Uniform Anti-Fake Logo on Audiovisual Products  – in support of its assertion.  It is those 
other measures which appear to establish that the business of importing finished audiovisual products 
is to be conducted exclusively by the CNPIEC.   
6.93 Finally, since paragraphs 261 and 262 of th e United States' first written submission do not 
contain any statement to the effect that an incons istency with China's trading rights commitments is 
claimed on the grounds that the designation and ap proval requirements deny all enterprises in China 
(other than Chinese wholly state-owned ones), all foreign enterprises and all foreign individuals the 
right to import audiovisual products, we do not fi nd it appropriate to add such a statement to 
paragraph 7.612 of the Interim Report.  We also not e that paragraph 7.613 already refers to the US 
claim under paragraphs 5.1, 5.2, 83 and 84(a).    
6.94 The United States  makes a related comment on paragra ph 7.670 which concerns the United 
States' claims regarding the Audiovisual Products Importation Rule .  Paragraph 7.670 parallels 
paragraph 7.626 concerning the 2001 Audiovisual Products Regulation .  The United States submits 
that it disagrees with the Panel and that it has de monstrated that Articles 7, 8, 9 and 10 of the 
Audiovisual Products Importation Rule  are inconsistent with paragra phs 5.1, 5.2, 83(d) and 84(a).  
The United States therefore requests the Panel to fi nd that Articles 7-10 are inconsistent with the 
aforementioned paragraphs.  The United States asse rts that the approval requirement in Article 7 
(concerning audiovisual products intended for pub lication) and the designation requirement in 
Articles 8, 9 and 10 (concerning finished audiovisual products) deprives all enterprises in China (other 
than wholly state-owned enterprises), all foreign ente rprises and all foreign individuals of the right to 
import these products into China, and treats all fo reign individuals and enterprises less favourably 
than Chinese wholly state-owned enterprises. 
6.95 China  notes at the outset that the United States'  allegation that it has raised a claim of 
inconsistency with paragra phs 5.1, 5.2, 83(d) or 84(a) with respect to the Audiovisual Products 
Importation Rule  appears to be based on the assumption that it has also raised such claim with respect 
to the 2001 Audiovisual Products Regulation .  However, as explained in China's comments on the 
United States' comments on paragraph 7.612, China considers that the United States has not properly 
raised such a claim.  Thus, in China's view, it has to be assumed that the United States has also failed 
to raise a similar claim with respect to the Audiovisual Products Importation Rule .  China considers 
that the Panel's finding in this respect is correct and accurately reflected in paragraph 7.670, especially 
considering the Panel's reference to the United Stat es' response to question No. 1.  China therefore 
requests the Panel to dismiss the United States' comments on paragraph 7.670. 
6.96 The Panel  recalls that paragraph 7.670 refers to th e United States' response to question No. 1.  
The response mentions a claim under paragraphs 5.1, 5.2, 83 and 84(a), but provides no explanation as to why a breach is claimed to occur.  The Un ited States' first written submission specifically 
addresses the alleged inconsistency of the Audiovisual Products Importation Rule  with China's trading 
rights commitments at paragraph 263.  It only states, however, that the Audiovisual Products 
Importation Rule  is inconsistent with China's co mmitments in the same way as the 2001 Audiovisual 
Products Regulation.   
                                                      
37 United States' first written submission, para. 261.  WT/DS363/R 
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  6.97 Since we have declined to modify paragraph 7.626 of the Interim Report, which parallels 
paragraph 7.670, we see no reason to modify paragraph 7.670.  In any event, it is difficult to see how 
Articles 7-10 could be said to impose a "prohibition" on the right to trade for all importers except Chinese wholly state-owned enterprises.  As noted above, the United States itself points to measures 
other than the 2001 Audiovisual Products Regulation or the Audiovisual Products Importation Rule  in 
support of its assertion.  It is those other measur es which appear to estab lish that the business of 
importing audiovisual products is  to be conducted by wholly state-owned enterprises.     
6.98 The United States  requests that the Panel modify paragraph 7.654 so as to take into account 
that the second sentence of Article 27 of the 2001 Audiovisual Products Regulation refers to 
individuals.   
6.99 China  has not commented on the United States' request. 
6.100  The Panel  has made appropriate changes at paragraph 7.654. 
6.101  The United States  requests changes at paragraphs 7.725,  7.728, 7.733, 7.750-7.751, 7.753, 
7.755, 7.757, 7.762, 7.764-7.767, 7.789-7.790, 7.795-7.796, 7.818-7.819, 7.834, 7.882, 7.889, 7.895, 7.901-7.903, 7.916-7.917 as well as paragraph 2.1.  Specifically, the United States notes that the Panel 
and parties define the term "reading materials" as including electronic publications.  To avoid creating 
the impression that electronic publications are not a type of reading material for the purpose of this dispute, the United States requests that the Panel clarify the above-noted paragraphs.  
6.102  China  has not commented on the United States' request. 
6.103  The Panel  has made appropriate changes at paragr aphs 7.725, 7.728, 7.733, 7.750-7.751, 
7.753, 7.755, 7.757, 7.762, 7.764-7.767, 7.789-7.790, 7.795-7.796, 7.818-7.819, 7.834, 7.901-7.903, 
7.916-7.917 as well as paragraph 2.1. 
6.104  The United States  requests that the Panel modify the first sentence of paragraph 7.744 in 
order to reflect more precisely the US reference to  the Appellate Body's approach to Article XX in US 
– Customs Bond Directive .   
6.105  China  notes that it fails to see to what extent th e requested modification would have the merit 
of making the United States' position clearer than it is already reflected in the finding of the Panel. 
Thus, China suggests that there is no need for the Panel to modify this particular finding. 
6.106  The Panel  has made appropriate changes at paragraph 7.744. 
6.107  The United States  requests that the Panel modify the first sentence of paragraph 7.765 in 
order to reflect the GAPP's review of the catalogue  of publications which publication import entities 
must submit before importing them.  The United States re calls that this is provided for in Article 45 of 
the 
Publications Regulation .   
6.108  China  notes that the Panel's statement at paragra ph 7.765 is not made by reference to the 
United States' submissions, but reflects the Panel's own reasoning which appears to be sufficiently clear. Thus, China submits that the addition sugg ested by the United States does not seem to be 
necessary.  Further, China argues that the suggest ed addition appears also to be incorrect and 
somewhat misleading, since nothing in Article 45 of the Publications Regulation  provides for any 
review by the GAPP of the catalogue of publications  intended for importation to which the importer's 
review and its subsequent decision to import woul d be subject.  China notes that Article 45 of the 
Publications Regulation  only provides that the importer must submit the catalogue of publications 
intended for importation for registration purpose.  Ch ina agrees that in case the GAPP finds prohibited WT/DS363/R 
Page 110  
 
  content, it may intervene by notifying the importer of any publications which shall be prohibited or 
deferred from being imported.  However, China notes that the importer's review and its subsequent 
decision to import are not generally dependent upon any GAPP decision.  China points out in this context that Article 45 does not use words such as "subject to" or "review".  Thus, China considers 
that the Panel should refrain from making the modification sought by the United States. 
6.109  The Panel  has made appropriate changes at paragr aph 7.765 to take account of Articles 44 
and 45 of the Publications Regulation .     
6.110  The United States  requests that the Panel delete the se cond sentence of paragraph 7.817.  The 
United States considers that the sentence in questi on, which comments on the fact that the exception 
in relation to "public morals" is the first exception identified in Article XX, could give rise to possible 
misinterpretation.  The United States also argues that  the Panel's analysis would be unaffected by the 
requested deletion.  
6.111  China  suggests that the Panel has adequately char acterized the importance of public morals in 
this particular paragraph and does not consider that there is a need to amend the Panel's findings in 
this respect. 
6.112  The Panel  notes that the United States has not explained how the sentence in question could 
give rise to misinterpretation.  The Panel does not  consider that the said sentence lends itself to 
misinterpretation and, therefore, does not agree to delete it.  The Panel has, nonetheless, slightly rephrased the sentence in question.    
(b) Comments by China 
6.113  China  requests that the Panel modify paragraph 7.330 in order to describe more accurately 
China's argument as relating to the fact that the measures regulating the importation of motion 
pictures for theatrical release should not be scrutinized  under the rules applicable to trade in goods.  
6.114  The United States  has not commented on China's request. 
6.115  The Panel  has made appropriate changes at paragraph 7.330. 
6.116  China  requests that at paragraph 7.410 the Panel u se the word "layout" rather than the word 
"distribution", since that term is used in the transl ation of the relevant Chinese regulations.  China also 
argues that the term "distribution" has multiple meanings and may cause confusion. 
6.117  The United States  does not agree with China's suggest ed change to paragraph 7.410 to 
replace the term "distribution" with the term "l ayout".  The United States submits that the term 
"distribution" is the most appropria te term in this context and, unlike the term "layout", will not lead 
to confusion.  In contrast, the United States consid ers that the term "layout"" – e.g., the internal 
arrangement of constituent parts, such as in a ci rcuit board or an office space – does not accurately 
convey the appropriate meaning in this context.  The United States notes that while China indicates 
that it used the term "layout" in its translation of  the relevant Chinese regulations, the United States 
notes that the US translation uses the term "distribu tion".  The United States recalls that China had the 
opportunity to identify any translation concerns dur ing the extensive translation review process, and 
chose not to raise this issue.   
6.118  The Panel  does not consider that the English term "layout" is less likely to create confusion 
than the term "distribution".  Nonetheless, the Panel has deleted the term "distribution" at 
paragraph 7.410.      WT/DS363/R 
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  6.119  China  requests that the fourth sentence at paragr aph 7.434 should be changed so as to reflect 
the fact that China's confirmation was given with respect to newspapers and periodicals and to avoid 
any ambiguity. 
6.120  The United States  has not commented on China's request. 
6.121  The Panel  has made appropriate changes at paragraph 7.434.     
6.122  China  requests that the Panel add a reference to  China's response to question No. 25(b) in 
footnote 325, which is attach ed to paragraph 7.434. 
6.123  The United States  does not agree with China's suggested change to footnote 325.  In the 
United States' view, footnote 325 is correct as written.   The United States notes that China's answer to 
Panel question No. 25(b) does not support the proposition  that the "GAPP designates publication 
import entities at its own initiative and that there is  no application process".  The United States points 
out that China's answer to Panel question No. 25(b ) addresses a different issue, i.e., which importers 
are subject to what government selection process.  Accordingly, the United States requests that the 
Panel decline China's request to modify footnote 325. 
6.124  The Panel  notes that China's response to question No. 25(b) is referenced in footnote 324 of 
the Interim Report.  Also, the response to question No . 25(b) does not seem to be directly relevant to 
the sentence to which footnote 325 is  attached.  As a result, the Panel does not find it appropriate to 
make the requested change.       
6.125  China  requests that the Panel add to its summary of China's position at paragraph 7.502 in 
order to reflect fully China's arguments. 
6.126  The United States  has not commented on China's request. 
6.127  The Panel  has made appropriate changes at paragraph 7.502.   
6.128  China  requests that footnote 383, which is attach ed to paragraph 7.530, should be completed 
by adding a reference to paragraph 35 of China's second written submission. 
6.129  The United States  has not commented on China's request. 
6.130  The Panel  has made the requested change  in footnote 383 which accompanies 
paragraph 7.530. 
6.131  China  requests that the Panel delete the last  sentence of footnote 402 which relates to 
paragraph 7.552.  China considers that its comme nts on the United States' response to question No. 
199(b) do not make a similar point. 
6.132  The United States  has not commented on China's request. 
6.133  The Panel  has deleted the last sentence of footnote 402,  which is attached to paragraph 7.552.    
6.134  China  requests that the Panel change the second sen tence of paragraph 7.569 to reflect that 
China made no mention of the role of the SARFT.   China further requests that the Panel clarify 
footnote 415 along similar lines. 
6.135  The United States  does not agree with China's suggested  change to paragraph 7.569.  The 
United States notes that China's request suggests that  SARFT's role as the initiator of the designation WT/DS363/R 
Page 112  
 
  process has not been confirmed.  According to the Un ited States, this is contradicted by China's own 
measures and its answers to Panel question No. 25( a) and 25(b) as well as Panel question Nos. 170 
and 171.  The United States argues that in its answ ers to Panel question No. 25(a) and 25(b), China 
confirms that designation occurs exclusively thro ugh the government's own initiative.  The United 
States further notes that China reiterates in its an swers to Panel question Nos. 170 and 171 that those 
seeking to import films must be designated by SARFT.   Accordingly, the Unit ed States requests that 
the Panel decline China's request to modify the second sentence of paragraph 7.569. 
6.136  The Panel  has made appropriate changes at paragrap h 7.569 and the attached footnote 415 to 
reflect the fact that China has not explicitly mentioned the SARFT. 
6.137  China  requests the Panel to change the thir d sentence of paragr aph 7.637 and the 
accompanying footnote 460.  China submits that its  responses to question Nos. 25(b) and 40 did not 
mention the scope of Article 5.  China contends that  it did not indicate in its responses that Article 5 
applies only to audiovisual products imported for publication.  China considers it worth noting, 
however, that its response to question No. 31(a) pointed out that "audiovisual products" in the 2001 
Audiovisual Products Regulation  encompass audiovisual products used for publication.  China thus 
requests that the Panel state that China appears to acknowledge that Article 5 applies to audiovisual 
products imported for publication.  China also requ ests that the Panel in footnote 460 refer to China's 
response to question No. 31(a). 
6.138  The United States  requests that the Panel decline Chin a's request.  At the same time, the 
United States notes that the Panel assessed China' s approval process with respect to importers of 
audiovisual products imported for publication.  The United States submits that China's comments on 
paragraph 7.637 result in the need for the Pane l to assess the consistency of Article 5 of the 2001 
Audiovisual Products Regulation  with paragraph 84(b) also with respect to finished audiovisual 
products. 
6.139  The United States notes that at paragraph 7.637,  the Panel concluded that it would analyse 
Article 5 as it applies to audiovisual products impor ted for publication, but not to finished audiovisual 
products.  The United States asserts that in sup port of this conclusion, the Panel relied on its 
understanding of China's apparent view that Article  5 applies only to audiovisual products imported 
for publication.  The United States considers that China's comments on the Interim Report clarify that 
its arguments do not support the Panel's conclusion. 
6.140  The United States further argues that in addition to its understanding of China's apparent view 
of the scope of Article 5, the Pane l also relied on the apparent limitations of the US claim with respect 
to that article.  The United States contends that its claim is not, however, limited to audiovisual 
products imported for publication.  The United States  notes that the Panel refers to paragraphs 261 
and 262 of the US first written subm ission in support of its view rega rding this perceived limitation.  
Yet, according to the United States, paragraphs 261 and 262 do not limit the US claim in respect of 
Article 5 to audiovisual products imported for public ation.  Rather, these paragraphs address China's 
designation and approval requirements set forth in the 2001 Audiovisual Products Regulation .  The 
United States notes that it explained in paragraphs 52 through 54 of its first written submission that 
Article 5 applies to all audiovisual products, with the importation of finished audiovisual products and audiovisual products imported for publication covere d by specific articles.  In addition, the United 
States recalls that the US answer to Panel question No. 155 confirms that Article 5 applies to both finished audiovisual products and audiov isual products imported for publication. 
6.141
 In the light of China's clarification, the Unite d States requests that the Panel decline China's 
request and that the Panel revise its analysis a nd findings (under paragraph 84(b)) with respect to 
Article 5 to include finished audiovisual products.    WT/DS363/R 
 Page 113 
 
 
  6.142  The Panel  begins by noting that China incorrectly  describes its response to question No. 
31(a).  That response refers to Article 2 of the Publications Regulation .  It does not refer to the 2001 
Audiovisual Products Regulation .  The regulation at issue, however, is the latter one.  The Panel does 
not, therefore, find it appropriate to reference Chin a's response to question No. 31(a).  In response to 
China's comment, the Panel has, however, deleted footnote 460 and has made appropriate changes to 
paragraph 7.637.  The Panel notes that China does not seem to disagree that Article 5 applies to 
audiovisual products imported for publication. 
6.143  Regarding the US comments, the Panel reca lls that the United States was given an 
opportunity to request changes.  Thus, the United St ates could have requested the Panel to revise its 
analysis and findings with respect to Article 5 to  include finished audiovisual products.  The United 
States did not do so.  We fail to see how the chang es requested by China "result in the need" for the 
Panel to make changes not requested by China.  I ndeed, as is clear from paragraph 7.637, even before 
China's comments, the United States' position has been that Article 5 covers both finished audiovisual 
products and audiovisual produc ts imported for publication.38  Thus, China's comments do not result 
in a change in the United States' own position.  Moreove r, the United States is incorrect in saying that 
the Panel's analysis of the claim concerning Ar ticle 5 depended on the Panel's understanding of 
China's apparent view that Article 5 applies only to audiovisual products imported for publication.  
Paragraph 7.637 merely addresses the issue of whet her Article 5 covers audiovisual products imported 
for publication because they are the products at issue in the United States' claim.  Thus, we see no 
basis for accepting the Unit ed States' request, made for the first time in response to China's comments, 
that the Panel revise its analysis and findings with  respect to Article 5 so as to include finished 
audiovisual products. 
6.144  We also note that in its comments on China's comments, the United States contends that its 
claim concerning Article 5 is not limited to audi ovisual products imported for publication.  As 
indicated above, we decline the Un ited States' request to make chang es in response to this comment.  
At any rate, we do not agree with the United States' contention.  It is clear from paragraphs 261 and 
262 of the US first written submission that the Un ited States is challenging a designation requirement 
for finished audiovisual products and an approval  requirement for audiovisual products intended for 
publication.  The United States identified Article  27 as the relevant designation requirement and 
Articles 8-9 as the relevant approval requirement.39  As our discussion above concerning the US 
comment on paragraphs 7.612 and 7.626  explains, Articles 8-9 do not a ppear to be relevant to the 
activity of importing audiovisual products intended fo r publication.  In any event, the United States 
subsequently identified, in its response to questi on No. 1, Article 5 as a provision being challenged, 
and it no longer identified Articles 8-9 as provisions be ing challenged.  In our view, Article 5 can be 
considered an approval requirement inasmuch as it stat es that a permit, or licence, is needed in order 
to import audiovisual products.  Also, the text of Article 5 is different from, e.g., Article 27 which 
uses the concept of "designation".  The United St ates in its first written submission could have 
identified Article 5 alongside Article 27 as a designa tion requirement.  However, the United States 
chose not to do so.40  The fact that China in our view enjoys  discretion as to the entities to be licensed 
does not make it wrong to refer to Article 5 as an approval requirement, partic ularly considering the 
fact that only Article 27 uses the concept of "designation".   
                                                      
38 United States' response to question No. 155. 
39 United States' first written submission, footnote 166. 
40 We also recall that the United States' response to  question No. 1 continued to identify Article 27.  
The change indicated by the United States' response concerned Articles 8-10, which were no longer identified as 
provisions being challenged, and Article 5, which wa s identified for the first time as a provision being 
challenged.  Thus, it is reasonable to assume that Ar ticle 5 replaced Articles 8-10, since the latter provisions 
were no longer identified.    WT/DS363/R 
Page 114  
 
  6.145  This understanding, i.e., that the US claim in  respect of Article 5 concerns audiovisual 
products intended for publication and that the US cl aim in respect of Article 27 concerns finished 
audiovisual products is consistent with, and parallels, our understanding of the US claims in respect of 
Articles 7 and 8 of the Audiovisual Products Importation Rule .  We further note that we asked the 
United States whether its claim concerning Article 5 "relate[s] to finished or unfinished AVHE 
products".  The United States did not reply to this question about the US claim.  Instead, the United 
States addressed the product scope of Article 5, sta ting that Article 5, in its view, relates to both 
finished audiovisual products and audi ovisual products intended for publication.
41  Since 
paragraphs 261 and 262 of the US  first written submission clearly limit the claim regarding the 
approval requirement to audiovisual products intended for publication, and since Article 5 in our view 
can be considered to set forth an approval requi rement, and taking account of the other circumstances 
mentioned, including the fact that the United States identified only Article 27 as a designation requirement and that only Article 27 uses the concept of "designation" as well as the US claims concerning Articles 7 and 8 of the Audiovisual Products Importation Rule , we consider that the US 
claim concerning Article 5 is limited to audi ovisual products intended for publication.  
6.146  China  requests that the Panel change the second sentence of paragraph 7.708 in order to 
reflect more accurately China's position.  China not es that it is correct that it has not invoked the 
provisions of Article XX(a) to justify its measur es regulating the importation of motion pictures for 
theatrical release and audiovisual products intended for publication, and that it has not developed specific arguments in this respect.  China states, how ever, that this does not mean that it does not view 
these specific measures as also covered by its "right to regulate trade" in a WTO-consistent manner as 
laid down in paragraph 5.1 of the Accession Protoc ol.  In order to avoid any ambiguity, China 
therefore suggests to modify the sentence. 
6.147  The United States  does not agree with China's suggested  change to paragraph 7.708.  The 
United States notes that China's proposed revision is entirely inconsistent with its arguments before 
the Panel.  The United States observes that at no point did China express a view that its measures 
regulating the importation of films for theatrical  release and audiovisual products intended for 
publication are covered by its "right to regulate trade" in a WTO-consistent manner.  The United 
States considers that the Panel accurately explai ns that China argued on numerous occasions that its 
trading rights commitments do not apply to th e importation of films for theatrical release and 
audiovisual products intended for publication.  Th e United States notes that China similarly argued 
that audiovisual products intended for publication are not covered by its trading rights commitments, 
contending that, as the challenged measures regulate a service, i.e., the licensing of copyrights for 
publication of audiovisual content, China's commitm ents concerning the right to import goods do not 
apply to such measures.  Accordingly, the Unite d States requests that the Panel decline China's 
request to modify the second sentence of paragraph 7.708.  
6.148  The Panel  declines to make the requ ested changes at paragraph 7.708.  The Panel notes that 
China has not argued that its measures regulating the importation of motion pictures for theatrical 
release and audiovisual products intended for publica tion are covered by its "right to regulate trade" 
under paragraph 5.1.  Indeed, China's comment fails  to identify any such earlier argument.  As is 
pointed out, inter alia , at paragraphs 7.493, 7.620 and 7.725 of the Interim Report, on which China 
has not commented, China's position in respect of the relevant measures has been that they regulate 
services and, therefore, are not subject to the trad ing rights commitments set forth in the Accession 
Protocol.  The Panel notes that the interim review  stage is not the appropriate time to present new 
arguments that could have been put forward earlier .  The Panel therefore refrains from addressing this 
                                                     
 
41 United States' response to question No. 155.  At para. 18 of the US comments on China's comments, 
the United States appears to confirm that its response do es not discuss the US claim when it says that "the US 
answer to Panel question 155 confirms  that Article 5 applies to both finished audiovisual products and 
audiovisual products imported for publication".    WT/DS363/R 
 Page 115 
 
 
  new argument.  In any event, China provides no expl anation as to why and how the relevant measures 
are covered by China's "right to regulate trade".      
6.149  China  requests that the Panel add a reference to Article 3 of the 2008 Electronic Publications 
Regulation  at paragraphs 7.753 and 7.757, since Article  3 also contains a reference to prohibited 
contents. 
6.150  The United States  has not commented on China's request. 
6.151  The Panel  recalls paragraph 7.726 of the Interim Re port which lists the measures covered by 
China's Article XX defence.  Neither the 1997  Electronic Publications Regulation  nor the 2008  
Electronic Publications Regulation  are among these measures.  The Panel also recalls 
paragraph 7.453, where it is explained that th e measure to be examined in this case is the 1997  
Electronic Publications Regulation , not the 2008  Electronic Publications Regulation.  For these 
reasons, the Panel does not find it appropriate to refer to the 2008  Electronic Publications Regulation .  
Nevertheless, the Panel has added a clarif ication at paragraphs 7.753 and 7.757. 
6.152  China  points out that at paragraph 7.778 the Pa nel uses the term "sub-distribution".  China 
submits that the term "sub-distribution" does not appear in China's translation of the Audiovisual 
(Sub-)Distribution Rule .  China instead uses the term "distribution". 
6.153  The United States  recalls the Panel's discussion at pa ragraph 7.931 of the Interim Report, 
which specifically addresses the term "(sub-)distribution" .  In that paragraph, the Panel stated that it 
will use the term "(sub-)distribution" with respect  to the title of certain measures which contain the 
term Fen Xiao , as does the Audiovisual (Sub-)Distribution Rule .  Moreover, the United States notes 
that the Panel explained that it would use "wholesale and retail" to specify the relevant activities under 
discussion with respect to (sub-)distribution.    The United States further argues th at to the extent that 
China's comment is understood as a request to re-ope n the translation discussion regarding this term 
so as to replace the term "sub-distribution" with "distribution" or Fen Xiao  at paragraph 7.778, the 
United States notes that this translation issue has been resolved as described in paragraph 7.931.  
Accordingly, the United States requests that the Panel not replace "sub-distribution" with 
"distribution" or Fen Xiao . 
6.154  The Panel  notes that the US claim in respect of Article 21 concerns the right to import and 
not the type of "distribution" in which Chinese- foreign contractual joint ventures may engage.  
Having said this, the Panel at paragraph 7.778 has added a footnote to note China's different view, 
indicating China's proposed translation of Article 1 and referring to paragr aph 7.931 regarding the 
translation of the Chinese term Fen Xiao .  
6.155  China  requests that at paragraph 7.829 the Panel repl ace the term "distribution" with the term 
"layout".  
6.156  The United States  argues that for the reasons set fort h in its comments on China's comments 
on paragraph 7.410, it requests that the Panel declin e China's request to modify the second sentence of 
paragraph 7.829.   
6.157  The Panel  does not consider that the term "layout" is less likely to create confusion than the 
term "distribution".  Paragraph 156 of China's first written submission refers to "geographical 
coverage".  In order to avoid any potential confusion, the Panel at paragraph 7.829 has added the term 
"geographical coverage" in brackets.         WT/DS363/R 
Page 116  
 
  6.158  China  requests that the Panel correct a refere nce to China's second written submission in 
footnote 565 which accompanies paragraph 7.854.  Ch ina points out that the reference should be to 
China's first written submission. 
6.159  The United States  has not commented on China's request. 
6.160  The Panel  has made appropriate changes to footnote 565, which is attached to 
paragraph 7.854. 
3. Claims under the GATS 
(a) Comments by the United States 
6.161  The United States  requests that the Panel modify the first sentence of paragraph 7.1012 to 
specify that the wholesaling of reading materials (e.g. books, newspapers, periodicals, electronic 
publications) is covered by China's commitments under "Wholesale Trade Services" (Sector 4.B). 
6.162  China  has not commented on the United States' request. 
6.163  The Panel  notes that the claim with respect to master distribution concerns only books, 
newspapers and periodicals and that what needs to be  determined is whether these products fall within 
the scope of China's commitments on "Wholesale Trade Services" (Sector 4.B).   The Panel therefore 
considers that the original text of  paragraph 7.1012 is appropriate.  
6.164  The United States  requests that the fourth sentence of pa ragraph 7.1037 be modified so that it 
does not state that the Foreign Investment Regulation  gives legal effect to the Catalogue . 
6.165  China  has not commented on the United States' request. 
6.166  The Panel  has made appropriate changes to paragraph 7.1037. 
6.167  The United States  requests that the Panel replace the term "publications" with the term 
"reading materials" in paragraph 7. 1068 for the sake of consistency.  
6.168  China  has not commented on the United States' request. 
6.169  The Panel  has made appropriate changes to paragraph 7.1068. 
6.170  The United States  requests that the last sentence of paragraph 7.1117 be modified because it 
is not clear as a general matter that by inscribing limitations in their Services Schedule WTO 
Members necessarily consider those inscriptions to be discriminatory. 
6.171  China  has not commented on the United States' request.  
6.172  The Panel  has made the requested clarification. 
6.173  The United States  requests that the second sentence of paragraph 7.1174 be modified so as to 
more accurately track the US statements rega rding the meaning of the term "sound recording". 
6.174  China  has not commented on the United States' request. 
6.175  The Panel  has made the requested clarification.  WT/DS363/R 
 Page 117 
 
 
  6.176  The United States  requests that the sixth sentence of paragraph 7.1204 and the first sentence 
of paragraph 7.1340 be modified, with respect to th e scope of Sector 4 of China's Services Schedule 
because, in its view, a decision on the full scope of this sector is unnecessary in order to decide the meaning of China's commitments in Sector 2.D of its Schedule.   
6.177  China responds that China's GATS Schedule, in partic ular Sector 4, provides relevant context 
for the interpretation of the entry "sound record ing distribution services" in Sector 2.D.   
6.178  The Panel  has not made the requested modification.  The original text properly reflects the 
Panel's understanding of the scope of Sect or 4 of China's Services Schedule. 
(b) Comments by China 
6.179  China  requests that the Panel modify the first se ntence of paragraph 7.1068 to use the past 
tense because the measure in  question was repealed.   
6.180  The United States  has not commented on China's request. 
6.181  The Panel  has made the requested modification. 
6.182  China  requests that the Panel make changes to th e summary of China's argument provided at 
paragraph 7.1235 to add that China also denies th e commercial reality of network music services.  
6.183  The United States  has not commented on China's request. 
6.184  The Panel  has made appropriate changes to paragraph 7.1235. 
6.185  China  requests that the Panel make changes to th e summary of China's argument provided at 
paragraph 7.1238 to reflect China's position more ac curately.  According to China, it did not assert 
that the common intention regarding China's serv ices commitments was formed by the time the 
bilateral negotiations were conclude d, i.e., by 15 November 1999.  Rather, China merely defined the 
time-period within which the negotia tions on its GATS Schedule took place. 
6.186  The United States  disagrees with China's comments on this paragraph.  Referring to China's 
first written submission, the United States notes that  China did consider that 15 November 1999 was 
the relevant date for determining the intention of the parties regarding the meaning of China's services 
commitments for sound recording distribution services.    
6.187  The Panel  has modified the first sentence of paragraph 7.1238 by quoting China's answer to a 
Panel question.  The Panel has made further changes to this paragraph so as to enhance clarity and to 
indicate that the negotiations of China's GATS Sc hedule were not conclude d on 15 November 1999 as 
claimed by China. 
6.188  China  requests that the Panel modify paragra ph 7.1254 to ensure that China's position is 
reflected in a more accurate manner.  China explai ns that it relied on those "factors", not in support of 
its interpretation of "sound recording distributio n services", but only to rebut the United States' 
argument.  
6.189  The United States  responds that no revisions to the In terim Report are necessary based on 
China's comment related to this paragraph.  The United States indicates that  China merely provides a 
point of clarification, without providing the Pane l with any suggestions for modifying the Interim 
Report.  WT/DS363/R 
Page 118  
 
  6.190  The Panel  has deleted the wording "and not from other external tests or theories" in the 
second sentence of paragraph 7.1254 and made an editorial change. 
6.191  China  requests that paragraph 7.1259 be modified because China had recourse to those 
"factors" only to rebut the United States' argument.  China indicates that it has never contended that 
two distinct services could not be classified under the same entry. 
6.192  The United States  responds that no revisions to the In terim Report are necessary based on 
China's comment related to this paragraph.  The United States indicates that  China merely provides a 
point of clarification, without providing the Pane l with any suggestions for modifying the Interim 
Report. 
6.193  The Panel  has deleted the last two sentences of pa ragraph 7.1259, for clarity, and has made 
some editorial changes to the paragraph. 
6.194  China  requests that the Panel modify paragraph 7.1262 to avoid any ambiguity about China's 
position when referring to CPC version 2. 
6.195  The United States  responds that no revisions to the In terim Report are necessary based on 
China's comment related to this paragraph.  The United States indicates that  China merely provides a 
point of clarification, without providing the Pane l with any suggestions for modifying the Interim 
Report.  
6.196  The Panel  has not modified paragraph 1262.  The Panel considers that the original text 
clearly reflects its view and gives rise to no c onfusion or ambiguity about China's position.  
 
4. Claims under Article III:4 of the GATT 1994 
(a) Comments by the United States 
(i) Reading materials 
6.197  The United States  requests that the Panel modify the first sentence of paragraph 7.1504 to 
reflect that the Publications (Sub-) Distribution Rule  governs not only foreign-invested enterprises 
seeking to engage in the sub-distri bution of books, but also those fo reign-invested enterprises seeking 
to engage in the sub-distribution of newspapers and periodicals.  
6.198  China has not commented on the United States' request. 
6.199  The Panel has made the appropriate modification to the first sentence of paragraph 7.1504. 
6.200  The United States suggests that the Panel replace the term  "publications" in paragraph 7.1530  
with "reading materials" in order to maintain the consistent use of the latter term as explained in 
footnotes 111 and 775 of the Interim Report. 
6.201  China has not commented on the United States' request. 
6.202  The Panel has replaced the term "publications" in paragraph 7.1530 with the term "reading 
materials".  WT/DS363/R 
 Page 119 
 
 
  (ii) Sound recordings 
6.203  The United States requests that the Panel clarify in the second sentence of paragraph 7.1546  
that the United States arguments with respect to the content review process applicable to imported 
products relate to that process being "more onerous " than the one applicable to domestic products .   
6.204  China understands that in paragraph 7.1546 the Pane l refers to the United States' response to 
Panel question No. 123( b), which only refers to  a "more onerous" regime with respect to the Network 
Music Opinions .  
6.205  China recalls that the 2001 Audiovisual Products Regulation  imposes a content review 
requirement for sound recordings to be imported in  hard copy format, such content review taking 
place prior to importation. In turn, pursuant to the Network Music Opinions , the digitalized version of 
the music previously embedded in the hard co py format also undergoes a content review.  
6.206  According to China, it follows that what th e United States complains about is, on the one 
hand, the existence of a content review imposed  exclusively on imported hard copies prior to 
importation and, on the other ha nd, an allegedly more onerous content review regime for the 
digitalized content previously embedded in an im ported hard copy which is in the marketplace. 
Therefore, the Panel's statement is correct and co mplete insofar as it relates to the content review 
undergone by the hard copy sound recording.  
6.207  China respectfully submits that the request by the United States to insert additional wording is 
likely to result in confusion concer ning the existence of two distinct content review processes. Should 
the Panel accept the request for modification suggested  by the United States, the Panel should clarify 
that this statement is valid only in connecti on with digitalized products and insofar as the Network 
Music Opinions  is concerned, in accordance with th e full statement of the United States. 
6.208  The Panel notes that in paragraphs 369-372 of its first written submission the United States 
refers to the content review processes for im ported hard-copy sound recordings under both the 
Network Music Opinions and the 2001 Audiovisual Products Regulation as being "more onerous" than 
the ones applied to domestic products .  The Panel does recognize that the paragraph as originally 
worded could lead to some confusion as to whethe r there are actually two different content review 
regimes being referred to.  The Panel  has modified paragraph 7.1546 in a manner which it believes 
accurately reflects the United States' argument as well as clarifies that two different content regimes are being challenged. 
6.209  The United States requests that the Panel add additional portions of its response to Panel 
question No. 247(c) to paragraph 7.1638 so as not to omit certain important context.   
6.210  China acknowledges that the United States' re sponse to Panel question No. 247(c) 
encompasses the relevant sentence.  However, Chin a believes that this sentence does not reflect the 
context in which the United States' statement w as made, but only aims at creating confusion.  
6.211  China maintains that the Panel rightly notes in paragraph 7.1641 of the Interim Report that the 
United States uses the term "product" interchangeably to refer both to the hard copy (which is the 
imported product subject of its claim) and the digitalized content.  
6.212  According to China, due to this lack of preci sion, this sentence does not add anything to the 
Panel's reasoning, but would create confusion.  China submits that insofar as the "distribution" of the 
hard-copy is concerned, which is the subject of the Panel's examination und er this paragraph, the 
statement of the Panel is sufficient. WT/DS363/R 
Page 120  
 
  6.213  The Panel recognizes that the sentence referred to by the United States is part of the United 
States' response to Panel question No. 247(c).  For this  reason, in an effort to fully reflect the United 
States' argument we will add the sentence to paragr aph 7.1638.  However, as China points out, the 
statement highlights the United States' lack of consis tency with respect to its use of the term "the 
product" to refer to both the like "imported product" th at is the subject of its claim as well as further 
processed or downstream products.  This lack of cl arity can be confusing.  The Panel addressed the 
confusion caused by the United States' response to Panel question No. 247(c) as well as other 
instances in the United States' submissions in para graph 7.1641.  However, in the interest of 
completeness, the Panel has modified the footnote accompanying paragraph 7.1638 to reflect its interpretation of the additional sentence th at has been added to the paragraph.   
(iii) Films for theatrical release 
6.214  The United States  considers that a brief summary of its argument with respect to 
discriminatory treatment of imported films for theat rical release resulting from the alleged imported 
film distribution duopoly should be  included in paragraph 7.1658.
42   The United States also requests 
that its arguments with respect to the Domestic Film Distribution and Exhibition Rule  be introduced in 
paragraph 7.1658.43   
6.215  Specifically, the United States requests that the Panel refer to its argument that the Domestic 
Film Distribution and Exhibition Rule confirms that China Film Group and Huaxia are the only two 
distributors of imported films in China.  The United States also suggests that the texts of Article III(1), 
IV(II)(1) and V(1) of the Domestic Film Distribution and Exhibition Rule be included in a footnote to 
paragraph 7.1658.   
6.216  China recalls that the paragraph of the Interim Report for which the United States requests 
modification, as well as the part of the Interi m Report it belongs to, only concerns what allegedly 
creates a duopoly, not whether or how this duopoly allegedly discriminates against imported films. 
China argues that arguments related to the allege d discriminatory treatment of imported films should 
not be included in this part of the report.  Chin a also submits that the references quoted by the United 
States do not support any of the United States' requests for modification. 
6.217  With respect to the United States' request  concerning the alleged establishment of the 
duopoly, China submits that the Panel has fully reflected the United States' argument that the challenged measures create a duopoly, by notably citi ng the content of such measures. Consequently, 
China submits that granting the United States' request is unnecessary.  
6.218  Additionally, China submits that quoting the content of the full articles of the Chinese 
measures as the United States proposes would create inc onsistency with the rest of the Panel Report. 
China would also like to stress that  the United States itself does not cite  the content of these articles in 
any of its submissions.  In any case, the United States  has never cited Article V(1) of Exhibit US-40 to 
support its argument that Exhibit US-40 confirms the duopoly.  China respectfully requests the Panel, should it decide to insert the proposed footnote, no t to introduce any reference to Article V(1) of 
Exhibit US-40.  
6.219  Considering the above, China submits that in troducing the requested modification (with a 
plethora of quotations of this regulation in footnotes) in paragr aph 7.1658 of the Interim Report would 
only misrepresent the United States' claim.  
                                                     
 
42 See e.g. United States' first written submission, paras. 201-222 and 397-409. 
43 United States' first written submission, para. 203 (footnote 136) and 220;  United States' response to 
Panel questions Nos. 125(d) (paras. 247(footnote 168), 24 8, 251(footnote 172));  United States' second written 
submission, paras. 202 and 213; and United States' response to Panel question No. 248 (para. 230).  WT/DS363/R 
 Page 121 
 
 
  6.220  The Panel first notes that paragraph 7.1658 already ge nerally refers to the United States' 
argument that the alleged "duopoly" results in discriminatory treatment of imported films for 
theatrical release.  We are not persuaded by China's submission that arguments related to discriminatory treatment should not be included in this  part of the Report.  We think that including 
more explanation of the United States' argument on this point may promote clarity.  We also note that 
the United States, in paragraph 202 of its second written submission and in its response to Panel 
question No. 248, referred to the Domestic Film Distribution and Exhibition Rule  as confirming the 
existence of the "duopoly".   
6.221  With respect to the suggested footnote, we agree with China that it is unnecessary to cite the 
full texts of each of these articles as it would be in consistent with the rest of the Report and because 
Exhibit US-40 is part of the Panel record.  We also  note that in support of its arguments with respect 
to the Domestic Film Distribution and Exhibition Rule confirming the existence of the duopoly the 
United States only cited Articles III.1 and IV.II.1.  Th ere is a reference to Article V.1 in footnote 136, 
but this relates to the less favourable treatment that the United States believes the measure provides 
through the requirement that China Film Group a nd Huaxia give priority to domestic films.  
Therefore, the Panel only cites Articles III.1 and IV .II.1 in the new footnote.  As the Panel is 
including additional argumentation by the United States in  the Final Report, we also consider that it is 
appropriate to explain our unders tanding of the relevance of the Domestic Film Distribution and 
Exhibition Rule  to our analysis.  Therefore, we ha ve also made appropriate changes to 
paragraph 7.1682 of the Report.    
(b) Comments by China  
(i) Sound recordings 
6.222  China  believes that the Panel's summary in paragraph 7.1547  misrepresents China's 
argument. China contends that it did not argue that "the distribution of sound recordings imported in 
hard copy, but intended for so-called "electronic distribution" cannot be scrutinized under the rules 
governing trade in goods", but rather that what the United States actually targets is not the distribution 
of the hard copy intended for so-called "electronic distribution", but the "distribution" of digitalized 
content, and that such "distribution" of the dig italized content cannot be scrutinized under the rules 
governing trade in goods.  
6.223  Therefore, China requests that the Panel modify  paragraph 7.1547 and adopt the above more 
accurate representation of China's argument.  
6.224  The United States  has not commented on China's request. 
 
6.225  The Panel has reviewed paragraph 7.1547 and the ensu ing paragraphs of the Interim Report.  
The Panel has also reviewed Chin a's arguments in its submissions.  The Panel notes that the sentence 
China requests the Panel to modify is based on pa ragraph 550 of China's first written submission.  
Specifically, paragraph 550 reads: 
 
"Contrary to what the United States is alleging, the distribution of sound recordings imported in hard copy, but intended for so- called "electronic distribution", cannot be 
scrutinized under the rules governing trade in goods." 
6.226  The Panel also notes that the argument that  China would like the Panel to insert in 
paragraph 7.1547 is already reflected in paragra ph 7.1550.  The Panel does not believe the requested 
modification is necessary or useful.  
 WT/DS363/R 
Page 122  
 
  6.227  China maintains that the Panel's statement in pa ragraph 7.1551 that "China identifies a 
systemic concern that, pursuant to the United Stat es' logic, GATT rules would apply to any measure 
regulating services related to – intangible – content as long as there exists a physical carrier capable of 
being traded, since such a measure would always have the alleged effect on its carrier" does not 
accurately reflect China's concern which was actua lly expressed in respect of the United States' 
argument that measures affecting an intangible must be considered as affecting inter alia the 
distribution of its physical carrier. Therefore, Ch ina respectfully requests the Panel to modify its 
statement to reflect China's submissions.
44  
 6.228  The United States  has not commented on China's request. 
6.229  The Panel notes that the first sentence of paragraph 7.1551 is meant to reflect China's 
arguments in paragraph 201 of its seco nd written submission which reads:  
"The formally different treatment identified by the United States does not affect the 
'distribution' of hard copies and can therefore not be scrutinized under Article III:4 of the GATT. In fact, what the United States suggests should be compared is the 
allegedly different treatment applied to digitalized products. Following the United 
States' logic would entail major systemic implications, insofar as it would amount to 
applying rules on trade in goods to services provided over the Internet." 
6.230  The Panel also notes that the second sentence of paragraph 7.1551 reflects China's arguments 
in paragraphs 152 and 15 3 of its second oral statement, which read: 
"Moreover, by redefining the target of it s claim as being the imported hardcopy sound 
recording, the United States is in fact arguing that the Chinese measures affecting the 
content of imported hardcopy sound reco rdings should also be considered as 
measures affecting "the internal sale, offering for sale, purchase, distribution or use of" hardcopy sound recordings and thus  fall under Article III:4 of the GATT. 
Following this erroneous logic of the Un ited States, would mean that GATT rules 
would apply to any measure regulating servi ces related to – intangible - content as 
long as there exists a physical carrier capabl e of being traded, since such a measure 
would always have the alleged effect on its carrier." 
6.231  The Panel has made appropriate modifications to  paragraph 7.1551 to reflect more accurately 
the arguments made by China. 
(ii) Films for theatrical release 
6.232  China requests that the Panel delete the reference to designated distributors of imported films 
in the last sentence of paragraph 7.1667 because th e relevant measures set up an approval system, not 
a designation system.  
6.233  The United States has not commented on this request. 
6.234  The Panel  has made the requested deletion. 
6.235  China  notes that the Panel, in paragraphs 7.1668-7.1691  when analyzing the United States' 
claim based on Article III:4 of the GATT 1994 with r espect to films for theatrical release, considers 
that the United States has brought a claim that China's rules and regulations, as applied , also  create a 
                                                     
 
44 See China's second oral statement, paras. 152-153.  WT/DS363/R 
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  duopoly of film distribution. China notes that the Unit ed States' claim, as contained in particular in the 
US consultation requests, the panel request a nd the United States' written submissions, always 
appeared to be linked to the content of the Chin ese measures at stake, and not to their application.45  
6.236  China therefore submits that the US did not raise the " as applied"  claim which has been 
analyzed by the Panel.  Since this "claim" was not  brought before the Panel, there appears to be no 
need for the Panel to reflect it and make a corres ponding analysis in the Interim Report. If the Panel 
believes that such analysis is n ecessary, China respectfully requests th e Panel to clarify the basis on 
which it considers that there is a properly raised "as applied" claim requiring the analysis it has 
carried out.  
6.237  The United States does not agree with China's contentio n that the United States' claim under 
Article III:4 of the GATT 1994 with respect to f ilms for theatrical release is limited to China's 
measure as such, thereby excluding an "as-applied" challenge.  At no time, whether in its consultation 
requests, panel request or submissions, did the Unite d States confine its Article III:4 claim to China's 
measures at issue as such.  The United States relies on its supplemental Cons ultation Request and on 
its panel request to support its position that its cl aim was not limited to an "as such" claim.  
6.238  The United States also points to its arguments in its first written submission as well as its 
subsequent submissions to the Panel to argue that it did indeed raise the issue of the application of 
China's measures with respect to the distribution of imported films.   
6.239  The United States maintains that it did raise a claim under Article III:4 with respect to the 
application of China's measures governing the distri bution of imported films as compared to domestic 
films.  Accordingly, the United States asks that the Panel decline China's request with respect to 
paragraphs 7.1668 through 7.1691. 
6.240  The Panel first recalls its finding in paragraph 7.1667, which China has not commented on, 
that the "measure" challenged by the United States  is the distribution "duopoly" which it claims 
provides for discriminatory treatment of imported fi lms.  The United States' claim is based on the 
operation of the three challenged measures.  Chin a has argued that the "duopoly" was created by 
circumstance and not by any action attributable to China.  As noted in the Interim Report, for the 
United States to prove that the "duopoly" is a "meas ure" attributable to China it must demonstrate 
either that the measures on their face establish th e alleged "duopoly" or that through their operation 
and decisions made by the government of China that China has, in fact, created the alleged "duopoly".  
We note that the United States did not explicitly limit its  claim to an "as-such" one.  We also note that 
the United States provided argumentation in its writte n submissions to the Panel with respect to the 
distribution duopoly being discriminatory rega rdless of whether it was mandated by China's 
measures.46  Therefore, the Panel considers that it is  appropriate to address whether the measures, 
even if they do not create a duopoly on their face, ar e operated by China in such a manner that they 
create a duopoly in fact.  We recognize that the term "as applied" carries with it certain connotations 
that might cause confusion.  Therefore, although we have not deleted the discussion in 
paragraphs 7.1668–7.1691 we have ma de modifications in paragraphs 7.1671, 7.1684, 7.1685, 7.1689, 
7.1690 and in the heading to section VII.E.4(a)(ii) to reflect that we are discussing whether China 
established a de facto  "duopoly" for the distribution of imported films for theatrical release.  
                                                      
45 For instance, the US supplementary request for consultations mentions that: "The measures at issue 
appear to establish a dual distribution system for films for theatrical release" . The panel request is equally 
silent concerning the inclusion of a claim concerning the way the Chinese measures are applied. The US first 
written submission (see for example para. 398) also makes clear that in the US view, the dual distribution system is established by the measures, as such. 
46 United States' second written submission, para. 201; United States' response to question No. 258. WT/DS363/R 
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  5. Other changes to the Interim Report 
6.241  The Panel  has made a number of other changes which were not specifically requested by the 
parties.  These changes were made to eliminat e typographical errors or to edit the Report.  
VII. FINDINGS 
A. G
ENERAL ISSUES  
1. Burden of proof  
7.1 We recall the general principles applicable to burden of proof in WTO dispute settlement, i.e., 
that a party claiming a violation of a provision of a covered agreement by another Member must assert 
and prove its claim.47 We also recall that any party who asserts a fact, whether the claimant or the 
respondent, is responsible for providing proof thereo f. This is in conformity with generally accepted 
canons of evidence in civil law, common law, and, in  fact, in most jurisdictions, that the burden of 
proof rests upon the party, whether complaining or defending, who asserts the affirmative of a 
particular claim or defence. If that party adduces evidence sufficient to raise a presumption that what 
is claimed is true, the burden then shifts to th e other party, who will fail unless it adduces sufficient 
evidence to rebut the presumption.48 
7.2 These general canons also apply in WTO disput e settlement, such that once a complaining 
party has made a prima facie  case, the burden of proof moves to the defending party, which must in 
turn counter or refute the claimed inconsistency.49  The Appellate Body explained, in Canada – Dairy 
(Article 21.5 New Zealand and US II) that:  
"as a general matter, the burden of proof rests upon the complaining Member. That 
Member must make out a prima facie  case by presenting sufficient evidence to raise a 
presumption in favour of its claim. If the complaining Member succeeds, the 
responding Member may then seek to rebut this presumption. Therefore, under the usual allocation of the burden of proof,  a responding Member's measure will be 
treated as WTO- consistent , until sufficient evidence is presented to prove the 
contrary."
50 
7.3 It is also well to remember that "a prima facie  case is one which, in the absence of effective 
refutation by the defending party, requires a panel, as a matter of law, to rule in favour of the 
complaining party presenting the prima facie  case."51   
7.4 The Appellate Body also has clarified that in  the context of WTO dispute settlement "[a] 
prima facie  case must be based on "evidence and legal argument" put forward by the complaining 
party in relation to each of the elements of the claim.  A complaining party may not simply submit 
evidence and expect the panel to divine from it a claim of WTO-inconsistency. Nor may a 
complaining party simply allege facts wit hout relating them to its legal arguments."52 
                                                      
47 Appellate Body Report on US – Wool Shirts and Blouses , p. 16, DSR 1997:I, 323 at 337. 
48 Appellate Body Report on US – Wool Shirts and Blouses , p. 14, DSR 1997:I, 323 at 335. 
49 Appellate Body Report on EC – Hormones , para. 98. 
50 Appellate Body Report on Canada – Dairy (Article 21.5 New Zealand and US II) , para. 66. 
51 Appellate Body Report on EC – Hormones, para. 104. 
52 Appellate Body Report on US – Gambling , para. 140.  WT/DS363/R 
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  7.5 Precisely how much and precisely what kind of evidence will be required to establish such a 
presumption will necessarily vary from measure to  measure, provision to provision, and case to 
case.53 
7.6 Given this general rule, it is the complainant in a given case who initially bears the burden of 
proof to establish a prima facie case of inconsistenc y of a measure with a provision of a WTO covered 
agreement, before the burden of  showing consistency with a pr ovision or defending it under an 
exceptional provision (e.g. Article XX of the GATT 1994) shifts to the defending party. 
7.7 In the present case, therefore, it is the United States who has the initial burden of proof to 
establish a prima facie case of alleged inconsistenc ies of China's measures with the various provisions 
it has cited, including China's Protocol of Accession, Article XVI and XVII of the GATS and 
Article III:4 of the GATT 1994. With respect to the US claims regarding China's trading rights 
commitments in the Protocol of Accession, China, as the party making an affirmative defence of its 
measures under Article XX(a) of the GATT 199 4, bears the initial burden of proof. 
2. Treaty interpretation 
7.8 Article 3.2 of the DSU directs panels to cl arify the existing provisions of the covered 
agreements "in accordance with customary rules of interpretation of public international law". It is 
well settled in WTO case law that the principles codified in Articles 31 and 32 of the Vienna 
Convention on the Law of Treat ies ("Vienna Convention")  are such customary rules.54 These 
provisions read as follows: 
"Article 31: General ru le of interpretation 
1. A treaty shall be interpreted in good faith  in accordance with the ordinary meaning 
to be given to the terms of the treaty in their context and in the light of its object and 
purpose. 
2. The context for the purpose of the inte rpretation of a treaty shall comprise, in 
addition to the text, including its preamble and annexes: 
any agreement relating to the treaty which was made between all the parties in 
connection with the conclusion of the treaty; 
any instrument which was made by one or more parties in connection with the 
conclusion of the treaty and accepted by the other parties as an instrument related to the treaty. 
3. There shall be taken into account, together with the context: any subsequent agreement between the par ties regarding the interpretation of the 
treaty or the application of its provisions; 
any subsequent practice in the applica tion of the treaty which establishes the 
agreement of the parties regarding its interpretation; 
any relevant rules of international law appli cable in the relations between the parties. 
                                                     
 
53 Appellate Body Report on US – Wool Shirts and Blouses , p. 14, DSR 1997:I, 323 at 335. 
54 Appellate Body Report on US – Gasoline , p. 17, DSR 1996:I, 3 at  15-16; Appellate Body Report on 
India – Patents (US) , para. 45; and Appellate Body Report on US – Shrimp , para. 114. WT/DS363/R 
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  4. A special meaning shall be given to a term if it is established that the parties so 
intended. 
Article 32: Supplementary means of interpretation Recourse may be had to supplementary me ans of interpretation, including the 
preparatory work of the treaty and the circumstances of its conclusion, in order to 
confirm the meaning resulting from the application of article 31, or to determine the 
meaning when the interpretation according to article 31: 
leaves the meaning ambiguous or obscure; or leads to a result which is manifestly absurd or unreasonable."
55 
7.9 We shall apply these principles in interpreti ng the relevant provisions of the covered 
agreements. 
B. PRELIMINARY ISSUES  
7.10 In its first written submission to the Panel on 20 June 2008, China  raised a number of 
objections.  First, China argued that several measur es challenged by the United States are outside the 
Panel's terms of reference.  S econd, China argued that several requirements named by the United 
States in its first written submission were likewise out side the Panel's terms of reference.  Third, 
China argued that the US claim under Article III :4 of the GATT 1994 with respect to China's 
treatment of "reading materials" was outside the Panel's terms of reference because it was not consulted on.  China went on to argue that if the Pa nel found the claim within its terms of reference, 
the US aspects of that claim dealing with electr onic publications and with subscription requirements 
on purchasers of reading materials were nevertheless outside the Panel's terms of reference.  Finally, 
China asked the Panel to refrain from examining thr ee "measures" identified in the US panel request.   
7.11 The United States  has disputed each of these objections and argues that all of the measures, 
requirements, claims, and products are properly before the Panel. 
7.12 China did not request that the Panel make a preliminary ruling on these matters.  
Nevertheless, the resolution of these objections is a prerequisite for the Panel moving forward with a 
substantive analysis of the US claims.  Therefore,  we will address these issues first, before moving on 
to the substance of the US claims.  
1. Article 6.2 of the DSU 
7.13 China's objections centre, primarily around whet her the US panel request, in light of the 
claims and arguments presented by the United Stat es in its first written s ubmission and subsequent 
submissions, is consistent with the obligations set fo rth in Article 6.2 of the DSU.  Therefore, we will 
first undertake an analysis of the obligations set fo rth in Article 6.2 and then turn to whether the 
United States has complied with those obligati ons in its panel request in this case.   
7.14 Article 6.2 of the DSU provides as follows: 
"The request for the establishment of a pane l shall be made in writing.  It shall 
indicate whether consultations were held, identify the specific measures at issue and 
                                                     
 
55 The Vienna Convention on the Law of Treaties (the "Vienna Convention"), done at Vienna, 23 May 
1969, 1155 U.N.T.S. 331; 8 International Legal Materials 679.  WT/DS363/R 
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  provide a brief summary of the legal basis of the complaint sufficient to present the 
problem clearly. In case the applicant request s the establishment of a panel with other 
than standard terms of reference, the writte n request shall include the proposed text of 
special terms of reference". 
7.15 In Korea – Dairy, the Appellate Body explained that Article 6.2 contains four distinct 
obligations with respect to the panel request: 
"The request must:  (i)  be in writing;  (ii)   indicate whether consultations were held;  
(iii)  identify the specific measures at issue;  and  (iv)  provide a brief summary of the legal basis of the complaint suffici ent to present the problem clearly."
56   
7.16 The two obligations that have been implicated by China's arguments in this dispute are the 
latter two.  Therefore, we will examine what is requ ired of a party to satisfy the obligations to:  (i) 
identify the specific measures at issue;  and (ii) provide a brief summary of the legal basis of the 
complaint.  The Appellate Body has explained that  these two requirements are intended to ensure that 
the complainant present[s] the problem clearly in the panel request.57 
(a) Identify the specific measure at issue 
7.17 For purposes of compliance with Article 6.2 it is necessary for the complaining party to 
identify the measures at issue.  Although it may be su fficient to identify a measure by its form, (i.e., 
by the name, number, date and place of promulgation of a law, regulation, etc. ...) this is not the only 
manner of identification which could serve to satisfy  the obligation in Article 6.2 of the DSU.  A 
measure may also be identified by its substance58, e.g. by providing a narrative description of the 
nature of the measure, so that what is referred to  adjudication by a panel may be discerned from the 
panel request.59    
7.18 Additionally, references in a panel request to amendments, related measures, or implementing 
measures have been considered to  sufficiently identify measures not specifically named within a panel 
request to fulfil the requirements of  Article 6.2, such that the un-named measures were considered to 
be within a panel's terms of reference. 60    
7.19 The Panel in Japan – Film  also examined this issue.  In  that case Japan requested that the 
panel determine that eight measures were outside  its terms of reference because they were not 
mentioned in either the consultations or the pane l request.  The panel ultimately determined that 
because the measures implemented a broad framework la w that was identified in the panel request and 
because the panel request specified the form and ci rcumscribed the possible content and scope of such 
implementing measures that the eight measures were with in its terms of reference.  In its finding that 
panel  reiterated that, even in such circumstances, the identification of the measure must be such that 
the responding party has been adequately notified of  the case against it.  Specifically, the panel 
reasoned that: 
"To fall within the terms of Article 6.2, it seems clear that a 'measure' not explicitly 
described in a panel request must have a clear relationship to a 'measure' that is 
specifically described therein, so that it can  be said to be 'included' in the specified 
                                                      
56 Appellate Body Report on Korea – Dairy, para. 120 
57 Appellate Body Report on US – Continued Zeroing , para. 160. 
58 Panel Report on Argentina – Footwear (EC) , para. 8.40; also Panel Report on EC – Approval and 
Marketing of Biotech Products,  para. 7.47. 
59 Appellate Body Report on US – Continued Zeroing , para. 168. 
60 Appellate Body Report on European Communities – Bananas III , para. 140. WT/DS363/R 
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  'measure'.  In our view, the requirements of Article 6.2 would be met in the case of a 
'measure' that is subsidiary or so closely re lated to a 'measure' sp ecifically identified, 
that the responding party can reasonably be found to have receive d adequate notice of 
the scope of the claims asserted by the complaining party.  The two key elements -- close relationship and notice -- are inter-related:   only if a 'measure' is subsidiary or 
closely related to a specifically identif ied 'measure' will notice be adequate."
61 
7.20 Therefore, in determining whether a reference to measures which amend, are related to, or 
implement measures explicitly listed in a panel requ est is sufficient to satisfy the requirements of 
Article 6.2 a panel must analyse whether the measures that the complaining party is contesting were identified such that the respondent  party received "adequate notice."
62  In conducting its analysis of 
whether the respondent party received "adequate notice"  a panel must remain mindful of its obligation 
to examine the panel request as a whole and in light of attendant circumstances.63  
(b) Provide a brief summary of the legal basis of the complaint  
7.21 Article 6.2 of the DSU requires a complainant to provide a brief summary of the legal basis of 
its complaint.  In US – Oil Country Tubular Goods Sunset Reviews , the Appellate Body found that the 
term legal basis in Article 6.2 of the DSU refe rs to the claim made by the complaining party.64     
7.22 The Appellate Body has also clarified that a cl aim "sets forth the complainant's view that the 
respondent party has violated, or nullified or impaired the benefits arising from, an identified provision of a particular agreement."
 65    
7.23 Although a complainant must provide a "summary" of the legal basis of its complaint, this 
does not mean, however, that the complainant is requ ired, in its request for establishment, to set out 
the arguments in support of a particular claim.  We consider that there is a significant difference 
between the claims identified in the request for the establishment of a panel, which establish the 
panel's terms of reference under Ar ticle 7 of the DSU, and the arguments supporting those claims.  
While a claim sets forth the complainant's view that  the respondent party has violated, or nullified or 
impaired the benefits arising from, an identified pr ovision of a particular agreement,  arguments are 
what is adduced by a complaining party to demonstrate that the responding party's measure does 
indeed infringe upon the identified treaty provision. 66  The arguments in support of a claim may be set 
out and progressively clarified in the first written submission, the rebuttal submission and the first and 
second panel meetings with the parties.67  By contrast a party may not use its submissions to "cure" a 
deficient panel request.68    
(c) Sufficient to present the problem clearly 
7.24 The Appellate Body has explained that the requi rements in Article 6.2 to identify the specific 
measures at issue and the provision of a brief su mmary of the legal basis of the complaint "are 
intended to ensure that the complaining party 'pr esent[s] the problem clearly' in its panel request."69 
                                                      
61 Panel Report on Japan – Film , para. 10.8. 
62 Panel Report on EC – Bananas III , para. 7.27;  also Panel Report on US – Carbon Steel,  para. 8.41. 
63 Appellate Body Report on Korea – Dairy , paras. 124-127; also Appellate Body Report on US – 
Carbon Steel, para. 127. 
64 Appellate Body Report on US – Oil Country Tubular Goods Sunset Reviews , para. 162. 
65 Appellate Body Report on Korea – Dairy , para. 139. 
66 Appellate Body Report on Korea – Dairy , para. 139. 
67 Appellate Body Report on EC – Bananas  III, para. 141. 
68 Ibid., para. 143; Appellate Body Report on  United States – Carbon Steel , para. 127. 
69 Appellate Body Report on US – Continued Zeroing , para. 160.  WT/DS363/R 
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  7.25 The "problem" is not solely the obligations in the covered agreements nor the respondent 
Member's measures but rather wh ether the respondent Member's measures comport with those 
obligations.  Therefore, to sufficiently present the problem clearly, a complaining Member must 
"plainly connect the challenged measure(s) with th e provision(s) of the covered agreements claimed 
to have been infringed, so that the respondent part y is aware of the basis for the alleged nullification 
or impairment of the complaining party's benefits." 70  As the Appellate Body has explained, "[o]nly 
by such connection between the measure(s) and the relevant provision(s) can a respondent "know 
what case it has to answer, and ... begin preparing its defence".71"72   
(d) Relationship between the panel request and the Panel's terms of reference 
7.26 The particular importance of compliance with the two latter obligations  in Article 6.2 was 
highlighted by the Appellate Body which has explained that together the identification of the specific 
measure and the legal basis of the complaint compri se the "matter referred to the DSB" which forms 
the basis for a panel's terms of reference under Article 7.1 of the DSU.73 
7.27 The terms of reference have two essential purposes:  first, to give the parties and third parties 
sufficient information concerning the claims at issu e in the dispute to allow them an opportunity to 
respond to the complainant's case; and second, to est ablish the jurisdiction of the panel by defining the 
precise claims at issue in the dispute.74  The first of these purposes is concerned with the due process 
rights of the respondent and third parties involved in a particular dispute, while the second is 
concerned with ensuring that a panel does not exceed its limited mandate as set forth in the DSU.   
7.28 The Appellate Body has previously found that  the obligation to a fford due process is 
"inherent in the WTO dispute settlement system"75 and it has described due process requirements as 
"fundamental to ensuring a fair and orderl y conduct of dispute settlement proceedings".76  It has 
concluded that:  
"[T]he protection of due process is an essen tial feature of a rules-based system of 
adjudication, such as that established under the DSU.  Due process protection 
guarantees that the proceedings are conducted with fairness and impartiality, and that 
one party is not unfairly disadvantaged with respect to other parties in a dispute."77 
7.29 Moreover, as confirmed by the Appellate Body in US – Gambling , ensuring that the due 
process rights of parties are respected is required by Article 11 of the DSU. 78   
7.30 With respect to the second purpo se of the obligations set forth in Article 6.2 of the DSU to 
delineate the four corners of a panel's mandate, the Appellate Body has observed that the vesting of 
                                                      
70 Appellate Body Report on US – Oil Country Tubular Goods Sunset Review , para. 162. 
71 (footnote original ) Appellate Body Report on Thailand – H-Beams , para. 88. 
72 Appellate Body Report on US – Oil Country Tubular Goods Sunset Review , para. 162; see also 
Appellate Body Report on Brazil – Dessicated Coconut , p.20, DSR 1997:I, 167 at 186. 
73 Appellate Body Report on Guatemala – Cement I , paras. 69-76; see also Appellate Body Report on 
US – Carbon Steel, paras. 125-127. 
74 Appellate Body Report on Brazil – Desiccated Coconut , p. 22,  DSR 1997:I, 167 at 186. 
75 Appellate Body Report on Chile – Price Band System , para. 176.  See also Appellate Body Report on 
Mexico – Corn Syrup (Article 21.5 – US) , para. 107. 
76 Appellate Body Report on Thailand – H-Beams , para. 88. 
77 Appellate Body Report on US – Continued Suspension , para. 433. 
78 The Appellate Body in US – Gambling held that "[A]s part of their duties, under Article 11 of the 
DSU, to "make an objective assessment of the matter" before them, panels must ensure that the due process 
rights of parties to a dispute are respected." (Appellate Body Report on US – Gambling , para. 273.) WT/DS363/R 
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  jurisdiction in a panel is a fundamental pr erequisite for lawful panel proceedings.
79  Therefore, a panel 
must scrutinize carefully the request for establishmen t of a panel to ensure its compliance with both 
the letter and the spirit of Article 6.2 of the DSU.80   
7.31 Compliance with the requirements of Article 6. 2 must be determined on the merits of each 
case, having considered the panel request as a whol e, and in the light of attendant circumstances.81  
When reviewing a panel request, "it is important when examining the consistency of part of the 
request for establishment with Article 6.2 of the DSU, not to examine parts of this request in isolation. 
. . . the request must be considered as a whole,  and the different claims in the request for 
establishment must be read in their context."82  
7.32 In this case the Panel's terms of reference, c onsistent with Article 7.1 of the DSU, are: 
"To examine, in the light of the relevant provisions of the covered agreements cited 
by the United States in document WT/DS363/5,  the matter referred to the DSB by the 
United States in that document, and to ma ke such findings as will assist the DSB in 
making the recommendations or in giving the rulings provided for in those agreements."
83 
2. Measures China alleges are outside the Panel's terms of reference 
7.33 China alleges that, because the United States did not identify the Film Distribution and 
Exhibition Rule  with respect to its claim regarding China's trading rights commitments under the 
Accession Protocol in its panel request, the measur e is outside the Panel's terms of reference. 
7.34 China also argues that the 2001 Audiovisual Products Regulation  and the Audiovisual 
Products Importation Rule  are not properly before the Panel with respect to the US claims on China's 
compliance with Article III:4 of the GATT 1994 with  respect to sound recordings intended for 
electronic distribution.84 
7.35 The United States, in its first oral statement presented two arguments as to why the disputed 
measures are in fact identified in the US panel requ est and therefore included within the Panel's terms 
of reference.  First, because of the narrative d escription that accompanied the list of measures that 
were identified by name.  Second, because the US at the end of the list of measures included the 
phrase "as well as any amendments, related measures or implementing measures."  The United States relies on the panel reports in EC – Bananas III and Japan – Film  for the proposition that use of such 
                                                     
 
79 Appellate Body Report on Mexico – Corn Syrup (Article 21.5 – US) , para. 36. 
80 Appellate Body Report on EC – Bananas III , para. 142. 
81 Appellate Body Report on Korea – Dairy , paras. 124-127; also Appellate Body Report on US – 
Carbon Steel, para. 127 
82 Panel Report on Mexico – Anti-dumping Measures on Rice , para. 7.31 ( original footnote omitted ). 
83 United States' panel request WT/DS363/5. 
84 The Panel notes that its analysis will, of course , require reference to the content of China's laws, 
regulations, and other documents.  Because the United Stat es is the complaining part y and bears the burden of 
providing evidence of the cont ent of the Chinese measures being challenge d, as a general rule, when referring to 
one of China's laws, regulations or documents the Pa nel will utilize the US translation, unless the specific 
provision is one which the parties agreed to utilize Ch ina's translation or if based on the advice of the 
independent translator the Panel finds that the US translation is inappropriate.  However, we have reviewed both translations and may refer to China's versions to confir m our understanding of the measures.  Our citation to the 
US translation should not be construed as necessarily implying that it is an authoritative translation of China's 
measures or that we believe the United States is in a be tter position to provide an English translation of China's 
internal measures.  For a list of the measures as well as the corresponding exhib it numbers please see Annex A-
2 to this Report.  WT/DS363/R 
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  phrases in panel requests can serve to adequately identify measures for the purposes of Article 6.2 
even if they are not explicitly  listed in the panel request.85  The United States also argues that the Film 
Distribution and Exhibition Rule  is subsidiary and closely relate d to measures specifically identified 
in Part I of the US panel request, such that it can be said to be included in these measures.  
7.36 China  responds that a measure cannot be identified with precision based on a description of 
the alleged effects of a measure.  In China's view the US approach would imply that the complaining 
party may smuggle into the terms of reference any m easure not previously identified by alleging that 
it shares the same effects as a measu re originally identified in its panel request. This would leave 
scope for ambiguity and misinterpretation of the cl aim which is not permitted by Article 6.2 of the 
DSU. 
7.37 Additionally, China argues that the alleged effect s of the measure as set forth in the narrative 
are precisely the subject of the dispute at hand.  China maintains that as the responding party normally 
disputes that the measures have the effects alleged by the complaining party, it is unreasonable to 
expect the responding party to establish which measur es may have such alleged effect. As a matter of 
systemic concern, China submits that such a burde n as is implied by the United States is not imposed 
by any provision in the DSU. 
7.38 As to the use of such phrases as "any amendments, related measures or implementing 
measures" to include measures not explicitly listed in a panel request, China considers that measures 
cannot properly be put in issue merely because the Un ited States refers to "related" or "implementing" 
measures in the panel request, as this would prejudice  China and other parties' due process right to be 
sufficiently informed of the measures which are ch allenged by the United States. China argues that 
the United States' argument would have the eff ect of minimizing unreasonably the burden of the 
complaining party in this regard, so that it woul d only be required to identify one specific measure 
followed by a "catch-all" expression such as "as well as any amendments, related measures, or 
implementing measures" , as used by the United States in its  panel request in the present dispute. 
7.39 China argues that the United States' relia nce on the Appellate Body Report in EC – 
Bananas III  is inapposite.  China argues that all the meas ures which were considered to be within the 
Panel's terms of reference in that case through the use of the phrase "subsequent EC legislation, 
regulations and administrative measures [. . .] wh ich implement, supplement and amend that regime" 
were subsequent to the named EC regulation, which is not the case with respect to the Film 
Distribution and Exhibition Rule  which pre-dates both the Film Regulation  and the Film Enterprise 
Rule.86  Additionally, China contends that all the measures at issue in EC – Bananas III included a 
specific reference to the regulation named in the panel request thus allowing one to make an explicit 
link between the subsequent measure and the origin al regulation on which it is based or to which it 
relates. 
(a) Whether the Film Distribution and Exhibition Rule  is within the Panel's terms of reference 
7.40 China  argues that the Film Distribution and Exhibition Rule  was not explicitly, or even 
implicitly, referred to in the United States' panel re quest in relation to United States' claim concerning 
                                                      
85 Specifically, the United States relies on the Panel Report on EC – Bananas III , paras. 7.22-7.27 and 
Panel Report on Japan – Film , paras. 10.8-10.9) 
86 We note that the Exhibit US-21 does not contain the date of promulgation of the Film Distribution 
and Exhibition Rule .  Exhibit CN-12 which contains China's version of the same document lists the 
promulgation date as 18 December 2001.  We note that both Exhibit US-20 and Exhibit CN-11 which contain the Film Regulation  list the date of the State Council decision as 12 December 2001 with the promulgation date 
being 25 December 2001 and the measure taking effect on 1 February 2002. WT/DS363/R 
Page 132  
 
  trading rights and therefore cannot be considered to ha ve been adequately identified in the meaning of 
Article 6.2 the DSU. 
7.41 The United States  maintains that the measure was identif ied in the narrative description of its 
claim as well as by its reference to any amendments, related measures or implementing measures in its panel request. 
7.42 The Panel notes that it is undisputed that the United States, in the section of the panel request 
regarding China's trading rights commitments, did not explicitly name the Film Distribution and 
Exhibition Rule .  Therefore, we must determine if it was identified in some other way which would be 
consistent with the requirement in Article 6.2 of th e DSU to identify the speci fic measures at issue.   
(i) The narrative 
7.43 The United States' claim with respect to China's trading rights commitments under the 
Accession Protocol is listed in Section I of the pa nel request under the heading "Trading Rights".  The 
section has the following introductory paragraph: 
"The United States considers that China is acting inconsistently with its obligations 
under its protocol of accession to the World Trade Organization
87 ('WTO') and under 
the GATT 1994 by not allowing all Chinese enterprises and all foreign enterprises 
and individuals to have the right to import into the customs territory of China the following products (collectively, the 'Products'):  films for theatrical release, publications ( e.g., books, magazines, newspapers, and electronic publications), 
audiovisual home entertainment products ( e.g., video cassettes and DVDs), and sound 
recordings."
88  
7.44 The United States  contends that the Film Distribution and Exhibition Rule  is a legal 
instrument that falls within the scope of the meas ure described by this narrative.  In response to a 
question from the Panel, the United States also argued that the Film Distribution and Exhibition Rule  
also falls within the scope of "the second sentence of the second paragraph of Part I of the US panel 
request"89, which reads "China reserves to certain Chinese state-designated and wholly or partially 
state-owned enterprises the right to import the Products."90 
7.45 China  contends that the United States cannot use a statement which alludes to the effects of a 
measure to serve the purpose of identifying that measure to the respondent party as the respondent party will naturally believe that its m easure does not have such effects.   
7.46 The Panel agrees that this might be true if a measure were described merely by an alleged 
WTO-inconsistency, however we do not think that  is the case with this particular narrative.
91  Rather 
the two paragraphs in the US panel request refer to  the substantive nature of the specific measures at 
issue i.e., the prohibition on enterprises other than Chinese state-designated and wholly or partially 
state-owned enterprises from importing films for theatrical release. 
                                                      
87 Protocol on the Accession of the People's Republic of China , WT/L/432, 23 November 2001  (the 
"Accession Protocol"). 
88 United States' panel request, WT/DS363/5. 
89 United States' response to question No. 2. 
90 United States' panel request, WT/DS363/5. 
91 For example if the United States had merely iden tified those Chinese measures which provide less 
favourable treatment to imported products without sp ecifying the manner or content of the alleged less 
favourable treatment, China could not be expected to have had notice of which particular measures the United 
States was concerned with.  WT/DS363/R 
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  7.47 The Panel  recalls, as noted in paragraph 7.25 above, the important aspect of compliance with 
the requirement to identify the specific measure at i ssue is to identify it with sufficient particularity 
that the responding party can discern from the pane l request what has been referred to a panel for 
adjudication.92  It is also important to consider all aspects of the panel request when determining 
whether such identification has taken place.  Therefor e, we will look not just at the formal names of 
measures, but also at the narrative descriptions provide d by the complaining party in its panel request.   
7.48 Therefore, the question before us is  whether that narrative describes the Film Distribution and 
Exhibition Rule  with sufficient precision that China could discern from the panel request what the 
United States referred to this Panel for adjudication. 
7.49 The first two Articles of the Film Distribution and Exhibition Rule  read as follows: 
"I. The purpose of reforming the film di stribution and projection mechanisms is 
to establish effective mechanisms that are be neficial to the distribution and projection 
of outstanding domestically produced films so that they occupy a strong position in the market, layers of distribution are redu ced, channels for distribution are increased, 
the circulation of films is promoted, and the interests from film production, 
distribution, and projection are reasonably di stributed.  The reform shall uphold and 
promote micro-level competitiveness, and en sure enhancement of the principle of 
macro-management, give full play to the backbone role played by State owned channels for film distribution and projecti on, and increase the impact of films and 
their radiation capacity on the market.   
"II. Continue to uphold the principles of "unifying imports and using imports to 
generate exports" and "relying on our own and using it for our own."  Taking 
examination of the distribution and projec tion of domestically produced films as a 
prerequisite, adjust the supply mechanis m for imported films and maintain the 
separation of importing and distribution of films.  Establish China Film Group film import/export company, and entrust it to unify importing of films consigned from 
foreign countries, Hong Kong, Macao, and Ta iwan, while also fulfilling part of the 
administrative functions such as selecting films, preliminary examinations, submission for examination at higher levels, contract negotiations, customs and taxes, 
payments and settling accounts, supplying films, box office figures, and market supervision.  An appropriate amount s hould be taken from the overall box office 
receipts of each imported film and used to offset the circulation and administrative 
costs of rural films, children's films, an d for the development and import and export 
of science and educational films."
93 
7.50 The second article of the Film Distribution and Exhibition Rule  establishes the China Film 
Group film import/export company and entrusts it to "unify importing of films consigned from foreign 
countries, Hong Kong, Macao and Taiwan."  The Ne w Shorter Oxford English Dictionary defines 
"unify" as to "make, form in to, or cause to become one; reduce to unity or uniformity."94  It therefore, 
seems to us, in this context, that entrusting China Film Group film import/export company to "unify" imports of foreign films means that only Chin a Film Group film import/export company may import 
films.
95   
                                                      
92 Appellate Body Report on US – Continued Zeroing , para. 168. 
93 Film Distribution and Exhibition Rule , (Exhibit US-21). 
94 New Shorter Oxford English Dictionary , L. Brown (ed.) (Clarendon Press 1993), Vol. II, p. 3489. 
95 We note that China has not disputed the US contention that only the China Film Group import/export 
company is designated to import films for theatrical release.   WT/DS363/R 
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  7.51 The narrative description of the US claim in the panel request is concerned with China "not 
allowing all Chinese enterprises and all foreign enterp rises and individuals to have the right to import 
into the customs territory of China" film s for theatrical release.  Given that the Film Distribution and 
Exhibition Rule  provides that all imports of films will be unified by the China Film Group film 
import/export company, the Film Distribution and Exhibition Rule  fits within the narrative description 
of the specific measures at issue set forth by the United States in Part I of its panel request.  However, 
this does not mean that the Film Distribution and Exhibition Rule  was adequately identified as a 
specific measure at issue in this dispute as required by Article 6.2 of the DSU.   
7.52 We must also determine whether taking the pa nel request as a whole and in light of the 
attendant circumstances, the narrative description in Part I of the US panel request means that China 
could reasonably conclude, that the Film Distribution and Exhibition Rule  was a specific measure at 
issue with respect to the United States' complaint regarding China's trading rights obligations.   
(ii) Adequate notice 
7.53 The Panel  recalls that one of the essential purposes of the requirements in Article 6.2 of the 
DSU is to "give the parties and third parties suffici ent information concerning the claims at issue in 
the dispute to allow them an opportunity to respond to the complainant's case."
96  This information 
includes the measures which are being challenged.  We  note that this requirement serves to fulfil the 
due process rights of the respondent.  Due process requir es that a panel, in any dispute, ensure that 
"one party is not unfairly disadvantaged with respect to other parties in a dispute"97 otherwise the 
panel risks acting inconsistently with its own obl igations as set forth in Article 11 of the DSU. 98 
7.54 Adequate notice to a respondent is not determined  by examining one part of the panel request 
in isolation, but rather by considering the re quest as a whole, and in the light of attendant 
circumstances.99  We also recall that the Appellate Body h as explained that the different claims in the 
request for establishment must be read in their context.100  
7.55 Looking at the US panel request as a whole an d not examining the claim with respect to 
China's trading rights obligations in  isolation, raises concerns as to whether China received adequate 
notice that United States was challenging the Film Distribution and Exhibition Rule .  In particular we 
note that the United States listed th e measure by name in Part III of its panel request which relates to 
the US claims under Article III:4 of the GATT 1994.   
7.56 The inclusion of the measure in Part III of the pa nel request is an indication to us as well as to 
China and the third parties that the United Stat es was aware of and capable of identifying the Film 
Distribution and Exhibition Rule  through its formal name.101  The United States, in response to a 
question from the Panel, regarding why the measure w as included in Part III of the panel request and 
not Part I states that "it became clear upon further re finement of the translation that it also directly 
regulates the importation of films into China."  We  find this justification unavailing.  The United 
States had other options available to it to account fo r any uncertainty in the content of the Chinese 
measures which would not have left China unsur e as to the nature of the case against it.   
                                                      
96 Appellate Body Report on Brazil – Desiccated Coconut , p. 22, DSR 1997:I, 167 at 186.  
97 Appellate Body Report on US – Continued Suspension , para. 433. 
98 Appellate Body Report on US – Gambling , para. 273. 
99 Appellate Body Report on US – Carbon Steel, para. 127. 
100 Panel Report on Mexico – Anti-dumping Measures on Rice , para. 7.31 ( original footnote omitted ). 
101 We note that the panel in its report on India – Additional Duties , noted that the Un ited States argued 
that the use of phrases such as "any amendments, rela ted measures or implementing measures" were meant to 
refer to any measures of which the complaining party was not aware at the time of th e panel request.  (Panel 
Report on India – Additional Duties , para. 7.50.)  WT/DS363/R 
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  7.57 First, the United States could have referenced the Film Distribution and Exhibition Rule  in its 
claim with respect to China's Trading Rights commitm ents to ensure that it was within the Panel's 
terms of reference and then, upon "further refine ment of the translation" made a final decision 
whether to present argumentation on that measure under that claim.  We note that nothing prevents a party from not pursuing a claim that is within a panel's terms of reference.   
7.58 Alternatively, the United States could have held off filing a panel request when it did not have 
a full understanding of the measures it wished to cha llenge and what alleged in consistencies with the 
covered agreements might be caused by those meas ures.  Unlike in many domestic court systems, 
there is no statute of limitations in WTO dispute settle ment that would require the United States to file 
its case by a date certain or lose its standing to br ing its claim.  Therefore, the United States could 
have waited until it was comfortable with the accuracy of its translation of China's measures before it 
brought its claim.   
7.59 In addition to the panel request itself we also look to the attendant circumstances which 
include the fact that the United States and Ch ina consulted on this measure as well as the Film 
Regulation  and the Film Enterprise Rule .
102   China knew, therefore, that the United States was aware 
of the Film Distribution and Exhibition Rule  and its contents.  More importantly, China also saw that 
the United States had explicitly included a challenge to that very measure in Part III of its panel 
request.   
7.60 Considering the text of the panel request as a w hole as well as the attendant circumstances, it 
was reasonable for China to reasonabl y infer that the exclusion of the Film Distribution and 
Exhibition Rule  from Part I of the panel request was deliberat e in view of its explicit inclusion in Part 
III.103  Therefore, China could infer in good faith  that the omission of reference to the Film 
Distribution and Exhibition Rule  in Part I meant that the United States was not challenging the Film 
Distribution and Exhibition Rule  under this claim.104  Accordingly, despite the description in the 
narrative or even the reference to "amendments , related measures, or implementing measures"105, 
                                                      
102 Although, the United States consulted on this measure with respect to its claim under Article III:4 of 
GATT 1994, as noted by the United States with respect to  China's objection to the inclusion of the Article III:4 
of GATT 1994 claim with respect to "reading materials" infra,  this does not detract from the fact that such 
consultations demonstrate that th e United States was aware of the Film Distribution and Exhibition Rule  and 
that China knew and relied on this awareness. 
103 We note that our interpretation is consistent  with the general legal canon of construction expressio 
unius est exclusio alterius which holds that to express or include one thing implies the exclusion of the other or 
of the alternative (Black's Law Dictionary,  8th ed., B.A. Garner (ed) (West Group 2004), p. 620); also Ian 
Brownlie, Principles of Public International Law , 6th  ed. (2003) p. 602, 604.  We note that in its response to 
question No. 17, the United States itself relies on this principle with respect to wh ether "motion pictures" are 
audiovisual products under Chinese law.  Specifically, the United States argued  
"The exclusion of "motion pictures" from the restricted category of foreign investment in the distribution of audiovisual products, in conjunction with the corresponding absence of any 
exclusion for "motion pictures" from the prohibited category of foreign investment in the 
importation of audiovisual products, demonstrates that motion pictures are considered by China to be audiovisual products." 
104 Panel Report on US – Upland Cotton , paras. 7.151 -7-152 (finding that after consultations on 
cottonseed payments for the y ears 1999 and 2000 the lack of a referenc e to the appropriating law for the 1999 
payments in Brazil's panel request indicated that it was not challenging those payments and they were therefore, 
outside the panel's terms of reference). 
105 We are cognizant that the United States put forward two reasons as to why the Film Distribution 
and Exhibition Rule  was identified as a specific measure at issue in its panel request.  Because we determined 
that the Film Distribution and Exhibition Rule  fit within the narrative description in the panel request we did not 
examine whether it also fit within the US reference to "any amendments, related measures, or implementing measures."  We note howe ver, that even if the Film Distribution and Exhibition Rule  could fit within the 
category of an amendment, related measure, or implementing measure of the Film Regulation  and/or the Film WT/DS363/R 
Page 136  
 
  China in our view did not receive adequate notice that the Film Distribution and Exhibition Rule  is 
within the scope of the US claim with respect to  China's commitments on trading rights in the 
Accession Protocol.  As notice to the respondent of the claims being made ag ainst it is a fundamental 
purpose of the obligations in Article 6.2 of the DSU,  we conclude that the US panel request, in this 
respect, does not comply with Article 6.2 of the DSU and that the Film Distribution and Exhibition 
Rule is outside our terms of reference with respect to the US claim regarding China's trading rights 
commitments under the Accession Protocol.   
(b) Whether the 2001 Audiovisual Products Regulation  and the Audiovisual Products 
Importation Rule  are within the Panel's terms of reference 
7.61 China  argues that because the United States in its panel request, only mentioned the " Interim 
Regulations on Internet Culture Administration ", the " Circular of the Ministry of Culture on Relevant 
Issues of Implementation of the Interim Re gulations on Internet Culture Administration ", the 
"Catalogue for Guidance of Foreign Investment Industries ", the " Several Opinions […] on 
Introducing Foreign Investment into the Cultural Sector ", and the " Several Opinions on the 
Development and Regulation of Network Music " it did not properly identify the 2001 Audiovisual 
Products Regulation  and Audiovisual Products Importation Rule .
106  Therefore, China requests that 
the Panel should therefore conclude that these measu res do not fall within its terms of reference. 
7.62 The United States  maintains that the narrative description of its claim as well as its reference 
to any amendments, related measures or implemen ting measures in the panel request fulfilled its 
obligations under Article 6.2 to identify the specific measures at issue.  The United States recalls the 
panel report in Japan – Film  and argues that the 2001 Audiovisual Products Regulation  and the  
Audiovisual Products Importation Rule  are closely related to measures identified in the US panel 
request such that they can be said to be included in these measures, including th ose that fall within the 
scope of the term "amendments, related measures, or implementing measures" in the panel request.  
Thus, according to the United States, China had adequate notice that the 2001 Audiovisual Products 
Regulation  and the Audiovisual Products Importation Rule were included in the US claim under 
Article III:4 with respect to sound recordings.  
7.63 The Panel notes that it is undisputed that the United States, in the section of the panel request 
regarding China's conformity with its obliga tions under Article III:4 of the GATT 1994, did not 
explicitly name the 2001 Audiovisual Products Regulation  or the Audiovisual Products Importation 
Rule.  Therefore, we must determine if they were  identified in some other way which would be 
consistent with the requirement in Article 6.2 of th e DSU to identify the speci fic measures at issue.   
(i) The narrative 
7.64 The US claim with respect to the distribution of  sound recordings is contained in Section IV 
of the panel request, which reads: 
"The United States considers that China is acting inconsistently with its obligations 
under the GATT 1994 and the Accession Protocol by providing distribution 
opportunities for sound recordings imported into China in physical form that are less 
favourable than the distribution opportun ities for sound recordings produced in 
China.  
                                                                                                                                                                     
Enterprise Rule , we would still have had to conduct the same analysis with respect to whether China had 
received adequate notice and would have reached the same conclusion with respect to that element of the case. 
106 See United States' panel request WT/DS363/5, p.8.  WT/DS363/R 
 Page 137 
 
 
  China appears to require that sound recordings imported into China in physical form 
but intended for digital distribution must undergo content review by the Chinese Government prior to such distribution within China.  However, domestically produced sound recordings appear not to be subject to this requirement, but can instead be digitally distributed immediately.   It thus appears that sound recordings 
imported into China in physical form are treated less favourably than sound 
recordings produced in China in physical form."    
7.65 The Panel  notes that the 2001 Audiovisual Products Regulation  provides, generally, for the 
regulation of audiovisual products including the publishing and reproduction of  audiovisual products.  
The narrative description of the US claim specifica lly identifies the content review by the Chinese 
Government as applied to imports  prior to digital distribution
107 as the measure it is challenging.  In 
this respect, Chapter IV of the Regulation is entitle d "Import" and within it, Article 28 provides for 
content review of imports.108  Specifically, Article 28 states:   
"Audiovisual products imported for publica tion and finished audiovisual products 
imported for wholesale, retail or rental shall be submitted to the cultural 
administration under the State Council for review of their contents. The cultural 
administration under the State Council sha ll, within 30 days of receiving the 
application for review of the contents of audiovisual products, reach a decision as to 
whether to approve it or not and notify the applicant accordingly.  Upon approval, 
approval documents shall be issued.  U pon rejection, reasons shall be given. 
An entity which imports audiovisual produc ts for publishing and a business entity 
which imports finished audiovisual produc ts shall bring approval documents issued 
by the cultural administration under the State Council to process import procedures at Customs."
109 
7.66 All imported sound recordings are required to u ndergo the content review procedures in the 
2001 Audiovisual Products Regulation , prior to any kind of distribution in China.  We note that this 
regulation does not contain specific details about  the content review procedures required by 
Article 28, and that pursuant to the legal hierarchy in China it is the Audiovisual Products Importation 
Rule, which is based on the authority in the 2001 Audiovisual Products Regulation110, which interprets 
and implements the 2001 Audiovisual Products Regulation .111   
                                                      
107 We note that in its panel request the United States refers to "digital" distribution and in its 
subsequent submissions before the Panel to "electronic" distribution.  It is our understanding that the United 
States uses these terms interchangeably. 
108 We note that in its first written submission, this is the provision of the 2001 Audiovisual Products 
Regulation  that the United States identifies as that which give s rise to the violation of Article III:4 of the GATT 
1994 (see United States' first written submission, para. 372). 
109 2001 Audiovisual Products Regulation , (Exhibit US-16).  We note that China's translation of the 
measure states that importation entity shall "go through the importation formalities."  (Exhibit CN-2). 
110 Audiovisual Products Importation Rule , Article 1 (Exhibit US-17). 
111 See Article 72 of the Legislation Law  (Exhibit US-72) which states that "[m]atters governed by the 
rules of departments shall be those for the enforcement of the laws or administrative regulations, decisions and 
orders of the State Council."; see also Article 1 of the Audiovisual Products Importation Rule  which states that 
the rules therein are "based" on the 2001 Audiovisual Products Regulation  and "are drawn up in order to 
strengthen management over the import of audiovisual products, promote international cultural exchange, and 
enrich the cultural life of the people. WT/DS363/R 
Page 138  
 
  7.67 The Audiovisual Products Importation Rule  explains that the procedures therein apply to "all 
finished audiovisual products imported from abro ad and imported audiovisual products used in 
publishing, information network transmission, and other purposes."
112  
7.68 The Audiovisual Products Importation Rule  requires audiovisual product importing units to 
submit imported products to the Ministry of Cultu re ("MOC") for content review.  Article 14 sets 
forth the content review application procedures for audiovisual products imported for publication.113  
These procedures consist of an application form, th e copyright agreement and other copyright related 
documentation, samples of the program, and other n ecessary documents.  Article 16 clarifies that the 
procedures in Article 14 are also applicable for audiovisual products imported for use in network 
information transmission.114   The Rule also states that on ce approval documentation has been 
received it may only be used once with Customs and is not for accumulated use. 
7.69  Additionally, Article 19 explicitly states that "No unit or individual may publish, reproduce, 
wholesale, retail, rent out, show for business pur poses or use the information network to transmit 
audiovisual products which have not been appr oved for import by the Ministry of Culture." 
7.70 Reading the provisions of the Audiovisual Products Importation Rule  as an interpretation and 
implementation of Article 28 of the 2001 Audiovisual Products Regulation , we conclude that these 
measures require that sound recordings imported into  China in physical form but intended for digital 
distribution must undergo content review by the Chin ese Government prior to such distribution within 
China.  Our understanding is confirmed by China in  its response to a question from the Panel when it 
states "that the relevant Chinese measures require  any audiovisual product used for information 
network dissemination to go through content revi ew of the MOC before it may be imported."115  As 
content review occurs prior to importation and prod ucts may not be distributed within China before 
they are imported into China, regulations that a pply at the time or point of importation necessarily 
apply prior to distribution within China. 
7.71 China however argues that the measures govern only the import of sound recordings in 
physical form and not their distribution.  China maintains that because these measures apply at the 
importation stage they cannot by any means be cons idered as affecting the distribution of products 
that have already been imported.  In China's vi ews these measures have to be considered as "border 
measures" at the importation stage and Article III: 4 of GATT governing the treatment of imported 
goods cannot be interpreted as appl ying to the requirements in the 2001 Audiovisual Products 
Regulation  and the Audiovisual Products Importation Rule .  
                                                      
112 Audiovisual Products Importation Rule , Article 3 (Exhibit US-17). 
113 Ibid., Article 14 (Exhibit US-17). 
114 The parties have used a variety of terms to describe the distribution of sound recordings over the 
Internet.  The United States has referred to digital distribution as well as electronic distribution interchangeably in the panel request and in its written submissions.  The United States defines "electronic distribution" as "the 
distribution of sound recordings using any electromagnetic means, ( i.e., not physical copies), including 
distribution to other distributors or to end users over, e.g., the Internet or mobile te lecommunications networks."  
The United States contends that China's restric tions on electronic dist ribution are maintained inter alia  through 
the Internet Culture Rule  and the Network Music Opinions .   China has referred to this type of distribution in its 
submissions as "network music services".  China has defined "network music services" as "the dissemination of music in digital format through the Internet to us ers."  China refers the Panel to Article 3 of the Internet Culture 
Rule for its understanding of "network music services." Article 3 refers to "[p]utting cultural products online on 
the Internet, or sending cultural products through the In ternet to end user's computers."    Additionally, the 
Network Music Opinions , which implement and are based upon the Internet Culture Rule  refer to the 
"digitization and network transmission of outstanding music products."  We therefore conclude that references 
to "network transmission" or transmission over the network in China's measures refer to what the United States has described as "electronic distribution of sound recordings.     
115 China's response to question No. 133.  WT/DS363/R 
 Page 139 
 
 
  7.72 The United States , however, argues that the Ad Note to Article III provides that simply 
because a measure is enforced at the time or point of importation does not mean that it is outside the 
disciplines of Article III of the GATT 1994.   
7.73 We recall the reasoning of the panel in India – Autos  that "the fact that a requirement is 
imposed as a condition on importation is not necessar ily in itself an obstacle to its falling within the 
scope of Article III:4."116  Given the Ad Note and the prior interpretation thereof, without making any 
substantive determination on whether the 2001 Audiovisual Products Regulation  and the Audiovisual 
Products Importation Rule  are subject to Article III, we believe that the fact that the US claim was 
made under Article III:4 would not, in and of itself, indicate to China that the 2001 Audiovisual 
Products Regulation  and the Audiovisual Products Importation Rule  were not specific measures at 
issue.    
7.74 The narrative description provided in Part IV of  the US panel request refers to government 
content review requirements which apply to the im ported hard-copy sound recording which must be 
complied with prior to digital distribution.  As the 2001 Audiovisual Products Regulation  and the 
Audiovisual Products Importation Rule , when read together, contain just such rules, we conclude that 
they fit within the broad narrative description in Part IV of the Pane l.  However, this does not mean 
that the 2001 Audiovisual Products Regulation  and the Audiovisual Products Importation Rule  are 
adequately identified in the panel request as specific measures at issue in this dispute as required by 
Article 6.2 of the DSU.   
7.75 We must also determine whether taking the pa nel request as a whole and in light of the 
attendant circumstances, the narrative description in Part IV of the panel request means that China 
could reasonably conclude, that the 2001 Audiovisual Products Regulation  and the Audiovisual 
Products Importation Rule  are specific measures at issue with respect to the United States' complaint 
regarding China's obligations under Article III:4 of the GATT 1994.   
(ii) Adequate notice 
7.76 We recall that one of the essential purposes of the requirements in Article 6.2 of the DSU is to 
"give the parties and third parties sufficient informat ion concerning the claims at issue in the dispute 
to allow them an opportunity to r espond to the complainant's case."117  This information includes the 
measures which are being challenged.  Additionally,  due process is "fundamental to ensuring a fair 
and orderly conduct of dispute settlement proceedings".118  Due process requires that a panel ensure 
that "one party is not unfairly disadvantaged with respect to other parties in a dispute"119 or risk acting 
inconsistently with its ow n obligations as set forth in Article 11 of the DSU. 120 
7.77 We also recall that in determining the consis tency with Article 6.2 of a particular panel 
request we must consider it as a whole, and in the light of attendant circumstances.121  We must also 
not read parts of the request in isolation, but rath er consider the request as a whole, and the different 
claims in the request for establishm ent must be read in their context.122  
7.78 Given the importance of due process in the WTO dispute settlement system as a whole and in 
particular when evaluating a panel request for consis tency with Article 6.2, one particular aspect of 
the panel request gives rise to concerns as to whet her China received adequate notice that the United 
                                                      
116 Panel Report on India – Autos , para. 7.306 (original footnotes omitted). 
117 Appellate Body Report on Brazil – Desiccated Coconut , p. 22, DSR 1997:I, 167 at 186. 
118 Appellate Body Report on Thailand – H-Beams , para. 88. 
119 Appellate Body Report on US – Continued Suspension , para. 433. 
120 The Appellate Body Report, on US – Gambling,  para. 273. 
121 Appellate Body Report on US – Carbon Steel, para. 127 
122 Panel Report on Mexico – Anti-dumping Measures on Rice , para. 7.31 ( original footnote omitted ). WT/DS363/R 
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  States was challenging the 2001 Audiovisual Products Regulation  and the Audiovisual Products 
Importation Rule  as being inconsistent with China's oblig ations under Article III:4 of the GATT 1994, 
regardless of the description of the specific measures at  issue in the narrative portion of Part IV of the 
panel request  or even if the measure could fall wi thin the scope of the US reference to "related" 
measures in its panel request.  Specifically, we note that the United States listed the relevant measures 
by name in Part I of the panel request which relat es to the US claims regarding China's trading rights 
obligation in the Protocol of Accession and in Part  II of the panel request which relates to the US 
claims under Article XVII of the GATS.   
7.79 The inclusion of the measure in Parts I and II of  the panel request is an indication both to us 
and to China and the third parties that the United States was aware of and capable of identifying the 
2001 Audiovisual Products Regulation  and the Audiovisual Products Importation Rule  through their 
formal names.
123  We specifically asked the United States to  explain why it included the measures by 
name in Parts I and II of the panel request and not in  Part IV.  The United States did not provide such 
an explanation.  The United States  responded that it believed that the 2001 Audiovisual Products 
Regulation  and the  Audiovisual Products Importation Rule  fall within the scope of the measure 
described by the narrative found in the second paragra ph of section IV of the US panel request and are 
"related measures" that are encompassed by the phrase "any amendments, related measures, or implementing measures.  The United States also argued, relying on the panel's reasoning in Japan – 
Film,  that these measures were included in the US  claim under Article III:4 of the GATT 1994 
because these measures are "closely related to" meas ures specifically identified in the United States' 
panel request. 
7.80  In addition to examining the panel request as a whole and the various claims in context, we 
must also look to the attendant ci rcumstances.  To that end, we no te that the United States and China 
consulted on both the 2001 Audiovisual Products Regulation  and the Audiovisual Products 
Importation Rule .   
7.81 Based on the panel request and the attendant circumstances, China knew that the United 
States was aware of the measures and their conten ts.  China also saw that the United States had 
explicitly included a challenge to those very measur es in both Parts I and II of its panel request.   
China, based on the panel request as a whole and in light of the attendant circumstances, could 
reasonably infer from the decision of the United States to exclude the 2001 Audiovisual Products 
Regulation  and the Audiovisual Products Importation Rule  from Part IV of the panel request that the 
United States was not challenging the 2001 Audiovisual Products Regulation  and the Audiovisual 
Products Importation Rule  under this claim.
124  China therefore, desp ite the description in the 
narrative or the reference to "amendments, related measures, or implementing measures"125, did not 
                                                      
123 We note that the panel in India – Additional Duties , noted that the United Stat es argued that the use 
of phrases such as "any amendments, related measures or implementing measures" were meant to refer to any 
measures of which the complaining party was not aware at the time of the panel request.  (Panel Report, India – 
Additional Duties , para. 7.50.) 
124 Panel Report on US – Upland Cotton , paras. 7.151 -7-152 (finding that after consultations on 
cottonseed payments for the y ears 1999 and 2000 the lack of a referenc e to the appropriating law for the 1999 
payments in Brazil's panel request indicated that it was not challenging those payments and they were therefore, 
outside the panel's terms of reference).  We note, once again, that this reading of the meaning of the inclusion of measures in one part of the panel request and their exclusion from another is consistent with the canon of 
expressio unius est exclusio alterius . 
125 We are cognizant that the United St ates put forward two reasons why the 2001 Audiovisual 
Products Regulation  and the Audiovisual Products Importation Rule  were identified as a specific measure at 
issue in its panel request.  B ecause we determined that the 2001 Audiovisual Products Regulation  and the 
Audiovisual Products Importation Rule  fit within the narrative description in the panel request we did not 
examine whether they were also fit within the US reference to "any amendments, related measures, or 
implementing measures."  We note however, that even if the 2001 Audiovisual Products Regulation  and the  WT/DS363/R 
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  receive adequate notice of the scope of the US clai m with respect to its obligations under Article III:4 
of the GATT 1994.   
7.82 As the United States did not satisfy the requireme nts of Article 6.2 of the DSU by identifying 
the specific measures at issue such that China was adequately notified of the case that it had to defend, 
we find that the 2001 Audiovisual Products Regulation  and the Audiovisual Products Importation 
Rule are not within our terms of reference with resp ect to the US claim regarding the consistency of 
China's measures regarding sound recordings intende d for electronic distribution with Article III:4 of 
the GATT 1994. 
3. Certain requirements China alleges are outside the Panel's terms of reference 
7.83 China  argues that certain aspects of measures that  were identified in the panel request are 
also outside the terms of reference because these asp ects of the measures were not identified in the 
narrative portion of the US panel request.  Specifica lly, China argues that, in its panel request, the 
United States did not challenge the so-called "pre -establishment legal compliance" requirement; the 
approval process to engage in distribution of r eading materials and audiovisual products; or the 
"decision making criteria" that the GAPP woul d apply in approving foreign entities for the 
distribution of reading materials and that the MO C would apply in the approval of Chinese-foreign 
contractual joint ventures for the distribution of audiovisual products.  
7.84 China relies on the panel report in Japan – Film  for the premise that a reference to a general 
regulation in relation to specific issues covered by th is regulation could not be considered as covering 
other distinct issues not mentioned in the panel re quest.  China argues that in its panel request, the 
United States made just such a general reference.  China contends that the United States first referred 
to regulations dealing with a broad range of issues  in relation with the activity of distribution of 
reading materials and audiovisual products, and then  made specific and limited claims with regard to 
certain requirements. China maintains that the refe rence to the regulations governing publications and 
audiovisual products cannot be sufficient for c onsidering that the measures concerning the " pre-
establishment legal compliance ", approval process requirements and " decision-making criteria " have 
been adequately identified within the meaning of Article 6.2 of the DSU.  
7.85 Additionally, China cites the Appellate Body report in US – Carbon Steel , to argue that a 
reference to "certain aspects" of a general regula tion is not sufficient to identify a specific issue 
covered by this regulation.   Therefore, according to  China, even if the refe rence to the regulations 
was considered not to be limited to the claims  concerning capital requireme nts, operating terms and 
limitations based on the nature, content and origin  of publications, such a broad and unspecified 
reference to measures covering a br oad range of issues could not be read as referring specifically to 
the issues of " pre-establishment legal compliance ", "approval process requirements " and " decision-
making criteria ". 
7.86 The United States maintains that it complied with the obligation in Article 6.2 to identify the 
specific measures at issue.  Specifically, the Un ited States argues that consistent with this 
requirement, Part II of the US panel request identif ied all of the measures that provide for these three 
problematic requirements – i.e., the Publications (Sub-)Distribution Rule , the Sub-Distribution 
Procedure , the Audiovisual (Sub-)Distribution Rule , and the Several Opinions .  The United States 
argues that it also identified the WTO obligation that these measures breached.  According to the 
United States, it has satisfied Article 6.2 of the DS U by identifying each of the measures relevant to 
                                                                                                                                                                     
Audiovisual Products Importation Rule  could fit within the category of amendments, related measures, or 
implementing measures of the Internet Culture Rule  and/or the Network Music Opinions , we would still have 
had to conduct the same analysis with respect to whether China had received adequate notice and would have 
reached the same conclusion with re spect to that element of the case. WT/DS363/R 
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  its claim.  The United States maintains that cont rary to China's contentions, Article 6.2 does not 
require the party requesting a panel to identify each individual provision of th e relevant measures that 
may be inconsistent with the other party's obligations. 
7.87 The United States contends that China's reliance on Japan – Film and US – Carbon Steel  is 
inapposite.  According to the United States, in both of  those disputes, the complaining party sought to 
incorporate measures not identified in the pa nel request into the terms of reference.
126  This situation 
is not an issue in this dispute, since the US pane l request identified each of the measures relevant to 
the three discriminatory requirements at issue here.  This, together with identification of the relevant 
WTO obligation being breached, provided China with  sufficient notice regarding the measures and 
claims at issue.   
7.88 China  maintains that the United States' argument  that entirely different "discriminatory 
requirements" which were not mentioned at all in its panel request, are properly raised simply by 
virtue of the fact that they are complaints made in relation to measures mentioned in the panel request 
is not supported by the wording of Article 6.2 or by past WTO practice.  
7.89 China argues that the mere reference by the Unite d States to regulations in a list appearing at 
the beginning of their claims, and which could rela te to any one of a number of issues, cannot be 
considered to satisfy the "requirement of precision"  of a panel request and to respect "the letter and 
the spirit of Article 6.2 of the DSU".  
7.90 China contends that, contrary to the assertions of the United States it is not arguing that a 
complaining party should "identify each individual provision of the relevant measures that may be 
inconsistent with the other party's obligations", but  rather that Article 6.2 of the DSU requires the 
party requesting a Panel to identify the basis of its  complaint by identifying the issues that arise in 
relation to particular regulations, by at least mentioning them.  
7.91 China maintains that if a complaining party can fulfil the requirements of Article 6.2 merely 
by naming a measure in its panel request, and wher e the measure that is named covers a range of 
issues, the other parties would be unable to unde rstand clearly from the panel request the case being 
made, this would be contrary to the letter and spirit  of Article 6.2 of the DSU.  To China, the United 
States is attempting to extend the scope of the dis pute in a manner inconsistent with the due process 
objective of notifying the parties and third parties of the nature of a complainant's case pursued by 
Article 6.2 of the DSU. 
7.92 The United States  responds that its panel request e xplicitly refers to "discriminatory 
requirements" and "discriminatory limitation" in th e context of the US claims regarding reading 
materials and "requirements" and "discriminatory limitation" in the context of the US claims 
regarding AVHE products.  The United States maintain s that its panel request describes in detail the 
discriminatory requirements and the less favourable treatment they accord, and includes illustrative 
lists of those requirements for greater precision.  The United States argues that, contrary to China's 
contention, Article 6.2 does not require panel requ ests to identify each individual provision of each 
challenged measure. 
7.93 The Panel recalls, as noted in paragraphs 7.14-7.16 above, that Article 6.2 requires that the 
complaining part identify the specific measures at is sue and provide a brief summary of the legal basis 
of the complaint sufficient to present the problem clearl y.  We also recall that when a panel looks to a 
panel request to determine its c onsistency with Article 6.2 of the DSU it must look to the panel 
request as a whole and the attendant circumstances. 
                                                      
126 Panel Report on Japan – Film , paras. 10.7-10.20; and Appellate Body Report on US – Carbon Steel , 
para. 171.  WT/DS363/R 
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  7.94 The United States argues that the ordinary meaning of the requirement in Article 6.2 of the 
DSU for a panel request to "identify the specific me asures at issue" does not require the identification 
of the "specific aspects" of those "specific measures".127 
7.95 However, China is not arguing that all specific aspects of specific measures must be listed, 
but that by listing certain aspects the United States indicated that these were the only ones that were 
the subject of its claim and thus are the only on es within the panel's terms of reference.   
7.96 We find the circumstances of, and the pane l and Appellate Body's findings in, the US – 
Carbon Steel  case to be helpful in our own analysis.  In US – Carbon Steel , the European 
Communities challenged a particular sunset revi ew of a US countervailing duty order as well as 
"certain aspects" of the regulations governing sunset  reviews that led to the decision not to revoke the 
countervailing duty order.  The European Communities correctly referred to the relevant section of the 
US Code of Federal Regulations  which contained a provision governing the conduct of sunset 
reviews.   During the panel proceeding, the Europe an Communities attempted to include in its claim 
an aspect of the regulation dealing with the submis sion of evidence during sunset reviews. The panel 
read the European Communities' panel request in its entirety and found that the European 
Communities could only have been referring to tho se aspects of the regulation which were actually 
applied in the sunset review of carbon steel pr oducts and therefore other aspects of the same 
regulation, including those relating to the submi ssion of evidence, which were not applied were 
outside the panel's terms of reference.  In affirm ing the panel, the Appellate Body agreed that no 
explicit reference to opportunity to present evidence dur ing a sunset review was contained in the panel 
request.  The Appellate Body reasoned that: 
"[T]he references in the panel request to  'certain aspects of the sunset review 
procedure', to the United States statutory provisions governing sunset reviews, to related regulatory provisions, and to the Sun set Policy Bulletin, can be read to refer, 
generally, to United States law regarding th e determination to be made in a sunset 
review.   However, we do not believe they can  be read to refer to  distinct  measures, 
consisting of United States law, as such, and as applied, relating to the submission of 
evidence.  Accordingly, we agree with th e Panel that the matters relating to the 
submission of evidence in a sunset review were not within its terms of reference because the  specific measures at issue were not adequately identified   in the request 
for the establishment of the panel, as required by Article 6.2 of the DSU." 
128  
7.97 The United States attempts to distinguish that case from the situation presented here by saying 
the panel in US – Carbon Steel  was looking at whether particular "measures" were within its terms of 
reference.  We do not find this argument convincing.   That case specifically dealt with the question of 
whether  two different sub-parts of the same regul ation were included within that panel's terms of 
reference because of the European Communities' ge neral reference to that regulation in its panel 
request.  We find this directly relevant to the s ituation here, where the United States has specifically 
cited certain requirements of particular governme nt measures in its panel request and China is 
disputing whether certain other requirements in the same measures were also included in our terms of 
reference by virtue of that reference.    
                                                      
127 Panel Report on EC – Trademarks and Geographical Indications (Australia), para. 7.2; Panel 
Report on US – Upland Cotton , para. 7.127 (finding that the explicit lis ting of various pieces of legislation by 
name along with a reference to the "subsidies" granted thereunder was sufficient to identify specific types of payments granted under the laws). 
128 Appellate Body Report on US – Carbon Steel , para. 171 (original footnotes omitted). WT/DS363/R 
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  7.98 Following the logic of the panel and Appellate Body in US – Carbon Steel , we examine the 
narratives in the US panel request to see whether th ey indicate that the United States challenge is not 
limited to the certain named discriminatory requirements.  
(a) Distribution services for reading materials 
7.99 In Part II of its panel request, the United States listed 14 measures and then at the end of the 
list provided a narrative setting out the nature of its claim.  Section A of Part II deals with the US 
claim regarding China's treatment of the supplie rs of distribution services for reading materials.
129  It 
reads in relevant part:   
"Furthermore, to the extent that some fore ign service suppliers are allowed to engage 
in some aspects of the distribution of pub lications, there appear to be discriminatory 
requirements concerning such suppliers' registered capital and such suppliers' 
operating term, as well as discriminator y limitations (e.g., limitations by type, 
content, or origin of publication) on the publications that such suppliers may 
distribute." 
7.100  The US panel request does not merely identify "discriminatory requirements" in the broad 
sense, but discriminatory requirements concerning re gistered capital and operating terms.  This 
reference does not seem to us to be inclusive of the pre-establishment legal compliance, the process 
for becoming approved as a distributor, or the decision-making criteria applied by the approving agency.  Indeed, there is no indi cation that the enumeration of alleged discriminatory requirements 
was not intended to be exhaustive.  The narrative does not say, for instance, that there "appear to be 
discriminatory requirements, e.g., concerning …". This view is reinforced by the fact that the above-
quoted narrative provides another enumeration whic h is indicated to be illustrative only.  The 
narrative refers to "discriminatory limitations (e .g., limitations by type, content, or origin of 
publication)". 
7.101  The use of the parenthetical (e.g., limitations by type, content, or origin of publication) serves 
to explain what types of "discriminatory limitations" ar e subject to the US complaint.   The limitations 
referenced in the US panel request relate to the publications being distributed once a service supplier 
has obtained permission to distribute reading material, not to any requirements with respect to obtaining that permission, such as the pre-establishment legal compliance, approval process requirements, or decision-making criteria applied by the approving agency. 
(b) Distribution services for AVHE products 
7.102  Part II.B deals with the US claim regarding Ch ina's measures which govern  the distribution of 
AVHE products.  It reads in relevant part: 
"The measures at issue, however, appear  to prohibit foreign service suppliers 
(including wholly or partially foreign-ow ned or foreign-invested enterprises) from 
engaging in a type of distribution described in these measures as the 'master distribution' or 'master wholesaling' of audiovisual home entertainment products.  In 
addition, to the extent that foreign servi ces suppliers are permitted to engage in any 
distribution of those products, the measur es at issue appear to impose requirements 
that the service be supplied through a form of  entity that Chinese persons control, or 
in which Chinese persons have a dominant pos ition, or for which there are limitations 
                                                     
 
129 We note that in its panel request the United States referred to "publications" while in its submissions 
before the Panel it referred to "reading materials".  For consistency, unless we are directly quoting the United 
States, we will refer to the pr oducts as "reading materials".  WT/DS363/R 
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  concerning the participation of foreign capital.   The measures at issue also appear to 
impose discriminatory limitations on fore ign service suppliers' operating term in 
China; such limitations do not appear to be applied to Chinese suppliers of 
distribution services for audiovisual home entertainment products." 
7.103  The US panel request refers to requirements on the control of the entity that supplies the 
distribution services and the participation of foreig n capital in such entities.  Additionally, the United 
States refers, in its panel request, to discriminat ory limitations on the operating term in China of 
foreign service suppliers.  None  of these requirements or limitations identified as the specific 
measures at issue are related to the pre-establis hment legal compliance, the process for becoming 
approved as a distributor, or the decision-making criteria applied by government agencies for 
approving a request for permission to provide dist ribution services for AVHE products within China.  
In addition, we note that the narrative does not c ontain qualifying language that would indicate that 
the listing of requirements and limitations was illu strative, merely a listing of examples, or non-
exhaustive.    
(c) Conclusion 
7.104  Reading the panel request as a whole, we do not find that the mere reference to the legislative 
instruments in which the disputed requirements we re contained identified the pre-establishment legal 
compliance, the process for becoming approved as a distributor, or the decision making criteria 
applied by the approving agency as specific meas ures at issue such that  China could reasonably 
conclude that they were included within the US clai ms.  The United States did not inform China that it 
was challenging every possible discriminatory require ment in its measures, but rather the specific 
ones described in the narratives.  Ju st as the European Communities did in US – Carbon Steel , the 
United States has, through its description of its clai m in the panel request, only notified China that its 
claim concerned the specific requirements set forth in  the panel request.  Therefore, we find that these 
additional requirements (pre-establishment legal compliance, approval process requirements, and 
decision-making criteria) are outside our terms of reference. 
4. The US claim with respect to reading mat erials under Article III:4 of the GATT 1994 
7.105  China  makes several objections with respect to the US claim that its measures dealing with 
reading materials are inconsistent with its oblig ations under Article III:4 of the GATT 1994.  First, 
China argues that the entire claim is outside the Pa nel's terms of reference because the parties did not 
consult on it.  Second, China argues th at in the event the clai m is within the Panel's terms of reference, 
that the United States did not properly identify that  it was concerned with the treatment of electronic 
publications and that the treatment of these products is outside the Panel's terms of reference.  Finally, 
China also argues that the US panel request di d not identify the subscription requirements for 
imported newspapers and periodicals as well as books in the limited category as being the subject of 
its claim and that these requirements are, likewi se, outside the Panel's terms of reference. 
7.106  The United States  maintains that its claim that Ch ina's measures dealing with reading 
materials are inconsistent with its obligations under Article III:4 of  the GATT 1994 is within the 
Panel's terms of reference, including its concer ns with regard to the treatment of electronic 
publications and the subscription requirements for imported newspape rs and periodicals as well as 
books in the limited category.  
(a) The lack of consultations  
7.107  China argues that because the United States' claim under Article III:4 GATT with regard to 
different distribution opportunities for imported reading materials was not addressed during 
consultations it is not within th e Panel's terms of reference. WT/DS363/R 
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  7.108  The United States argues that China's objection is without merit, as the legal bases contained 
in a party's consultation request and panel request ne ed not be identical.  The United States goes on to 
explain that the United States and China consulted extensively on the Chinese distribution regime for 
reading materials.  As a result of those consultati ons the United States argues that it became clear to it 
that China's regime raised additional concerns with respect to the discriminatory distribution 
restrictions placed on imported reading materials.  The United States contends that its actions are 
consistent with the Appellate Body 's recognition that an important ra tionale of consultations is to 
afford the parties the opportunity to engage in an  "exchange of information necessary to refine the 
contours of the dispute, which are subsequently set out in a panel request".
130  The United States, 
therefore, maintains that its claim under Article III: 4 regarding different dist ribution opportunities for 
imported reading materials is therefore include d in the Panel's terms of reference.   
7.109  The Panel notes that neither party disputes that a claim under Article III:4 of the GATT 1994 
with respect to reading materials was not included in either the first or the supplemental request for 
consultations.131 
7.110  We note that "pursuant to Article 7 of the DS U, a panel's terms of reference are governed by 
the request for establishment of a panel" not the request for consultations.132  However, the Appellate 
Body has explained that "as a general matter, cons ultations are a prerequis ite to panel proceedings"133 
and has underscored the importance and benefits of consultations: 
"We agree ... on the importance of consu ltations.  Through cons ultations, parties 
exchange information, assess the strengths  and weaknesses of their respective cases, 
narrow the scope of the differences betw een them and, in many cases, reach a 
mutually agreed solution in  accordance with the explic it preference expressed in 
Article 3.7 of the DSU.  Moreover, even where no such agreed solution is reached, 
consultations provide the parties an opportuni ty to define and delimit the scope of the 
dispute between them.  Clearly, consultations  afford many benefits to complaining 
and responding parties, as well as to third par ties and to the dispute settlement system 
as a whole."134 
7.111  The requirements that apply to a request for c onsultations are set out in Article 4.4 of the 
DSU, which provides, in relevant part that any re quest for consultations shall be submitted in writing 
and shall give the reasons for the request, including identification of the measures at issue and an indication of the legal basis for the complaint. 
7.112  The Appellate Body observed in Brazil – Aircraft, that "Articles 4 and 6 of the DSU ... set 
forth a process by which a complaining party must request consultations, and consultations must be 
held, before a matter may be referred to the DSB for the establishment of a panel".
135   
                                                      
130 Appellate Body Report on Mexico – Anti-dumping Measures on Rice , para. 138. 
131 United States' request for consultations, WT/DS363/1 and Supplemental request for consultations, 
WT/DS363/1/Add.1.   
132 Appellate Body Report on US – Carbon Steel , para. 124.   
133 Appellate Body Report on Mexico – Corn Syrup (Article 21.5 – US) , para. 58.   
134 Ibid., para. 54. 
135 Appellate Body Report on Brazil – Aircraft , para. 131.  We note that in certain instances panels and 
the Appellate Body have recognized that a responding part y may be considered to have waived its objection to a 
lack of consultations if it does not object in  a timely manner.  Appellate Body Report on Mexico – Corn Syrup , 
para. 63; Appellate Body Report on US – FSC , paras. 165-166.  However, the United States did not allege that 
China's objection was untimely.  Therefore, we do not consider "waiver" as a possible basis for why the United 
States' claim under Article III:4 of the GATT 1994 with respect to reading materials might be included in our 
terms of reference despite the admitted absence of the claim from the consultations requests.    WT/DS363/R 
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  7.113  However, the Appellate Body has recognized that, Articles 4 and 6 of the DSU do not require 
a precise and exact identity between the request  for consultations and the panel request  
"As long as the complaining party does not expand the scope of the dispute, we 
hesitate to impose too rigid a standa rd for the "precise and exact identity"136 between 
the scope of consultations and the request for the establishment of a panel, as this 
would substitute the request for consultations for the panel request."137   
7.114  The Appellate Body expanded on this reasoning, in Mexico – Anti-Dumping Measures on 
Rice, when it explained that: 
"A complaining party may learn of additi onal information during consultations—for 
example, a better understanding of the operation of a challenged measure —that 
could warrant revising the list of treaty pr ovisions with which the measure is alleged 
to be inconsistent.  Such a revision may lead to a narrowing of the complaint, or to a reformulation of the complaint that takes into account new information such that 
additional provisions of the covered agreements become relevant .  The claims set out 
in a panel request may thus be expected to be shaped by, and thereby constitute a 
natural evolution of, the cons ultation process.  Reading the DSU , as Mexico does, to 
limit the legal basis set out in the panel requ est to what was indicated in the request 
for consultations, would ignore an important  rationale behind the requirement to hold 
consultations—namely, the exchange of in formation necessary to refine the contours 
of the dispute, which are subsequently set out  in the panel request.  In this light, we 
consider that it is not necessary that the provisions referred to in the request for 
consultations be identical to those set out in  the panel request, provided that the 'legal 
basis' in the panel request may reasonably be said to ha ve evolved from the 'legal 
basis' that formed the subject of consultations .  In other words, the addition of 
provisions must not have the effect of changing the essence of the complaint ."
138 
(emphasis added).    
7.115  It seems to us that the above statement by  the Appellate Body indicates that in some 
circumstances, a claim based upon a WTO provision of a covered agreement which was not contained 
in the request for consultations, can nevertheless be  considered to be within a panel's terms of 
reference.  If through consultations the compla ining party obtains a better understanding of the 
operation of a challenged measure such that additi onal provisions of the covered agreements become 
relevant it may reformulate its complaint to include these other provisions so long as the legal basis in 
the panel request may reasonably be said to have e volved from the legal basis that formed the subject 
of consultations.  This means that the addition of pr ovisions must not have the effect of changing the 
essence of the complaint. 
7.116  The United States , for its part, argues that its cl aim under Article III:4 of the GATT 1994 
regarding "different distribution opportunities" for imported reading materials resulted precisely from 
the sort of exchange of information identified by the Appellate Body in Mexico – Anti-Dumping 
Measures on Rice  as well as in Mexico – HFCS (Article 21.5)  and India – Patent Protection .  The 
United States contends that it revised the list of WTO provisions with which the challenged measures 
are inconsistent to include Article III:4, so as to incorporate information obt ained during consultations 
regarding China's discriminatory treatment of imported reading materials. 
                                                      
136 (footnote original) Appellate Body Report on  Brazil – Aircraft ,  para. 132. (emphasis omitted) 
137 Appellate Body Report on US – Upland Cotton , para. 293. 
138 Appellate Body Report on Mexico – Anti-Dumpin g Measures on Rice , para. 138. WT/DS363/R 
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  7.117  The United States argues that its Article III:4 claim regarding imported reading materials 
evolved directly out of its claims regarding the discriminatory treatment of distributors of reading 
materials.  These two closely related claims involve  the same measures, the same products, the same 
distributors and the same distribution channels.  Ther efore, the addition of this claim left the essence 
of the US complaint undisturbed – i.e ., that China's reading material distribution regime disadvantages 
other WTO Members, both in terms of their readin g material distributors and the reading materials 
themselves. 
7.118  China , argues that in the case of reading materials, there cannot have been any evolution in 
the legal basis between the cons ultations and the panel request, as the United States had failed to 
present a claim based on Article III:4 of the GATT 1994 with respect to reading materials in its 
request for consultations.  Moreover, the United States' claim under Article III:4 of the GATT 1994 in 
its panel request could in no way be "reasonably"  understood as having evolved from the claim it 
made, in its request for consultations, concerning distribution services for reading materials under the 
GATS. Indeed, China submits that the standard of  "reasonable evolution" flowing from the Appellate 
Body's statement in Mexico – Rice  could not lead the Panel to consider that a claim under Article III:4 
of the GATT 1994 could be said to have evolved fr om a claim under the GATS, a different agreement 
dealing with totally distinct aspects, i.e.  which concerns services and services suppliers.
139 
7.119  China further argues that while consultations  may allow a "clearer understanding derived 
from the exchange of  information", this very aspect should not lead to a situation where the defending 
party "discovers" claims on a new legal basis at the stage of the panel request, arguing that this would 
be inconsistent with the "reasonable evolutio n" standard set by the Appellate Body in Mexico – Anti-
Dumping Measures on Rice .140  
7.120  To the United States , however, detailed discussions with China in the consultation phase 
allowed it to develop a "bette r understanding of the operation of  the challenged measures during 
consultation".141 As a result of the discussion the United States "revised the list of provisions with 
which the challenged measures are inconsistent to include Article III:4 ... while leaving the essence of 
the US complaint the same".142 
7.121  The Panel does not agree with China's reading of th e Appellate Body's jurisprudence.  The 
Appellate Body did not limit its reasoning to differe nt provisions within the same covered agreement, 
although that may have been the factual situation before it in the Mexico – Anti-Dumping Measures 
on Rice  dispute.  Indeed the Appellate Body referred to  "provisions of the covered agreements" in the 
plural.  The relationship between the obligations in the provision contained in the consultations 
request and that ultimately cited in the panel requ est is certainly relevant to a determination of 
whether the legal basis in the panel request may reasonably be said to have  evolved from the legal 
basis that formed the subject of consultations.  Ho wever, we can envision a variety of examples where 
two covered agreements may contain provisions suffici ently related to each other that the fact that 
they are contained in different agreements is not a bar to concluding that consultations on the 
provision of one agreement might lead to a reform ulation of a complaint to include a provision of 
another.   For example, consultations regardi ng a measure under Article III:4 of the GATT 1994 could 
evolve into a complaint with respect to obligations in the TRIMS  Agreement  if the measure being 
consulted upon was an investment measure.  Likewi se, consultations regardi ng a TBT measure related 
to marking or labelling under the TBT Agreement might evolve into a complaint with respect to 
obligations under Article IX of the GATT 1994.  
                                                      
139 China's response to question No. 148. 
140 China's comments on the United Stat es' response to question No. 146(a). 
141 United States' response to question No. 146(b). 
142 United States' response to question No. 120.  WT/DS363/R 
 Page 149 
 
 
  7.122  We believe that the legal basis that formed th e subject of consultations under one provision of 
a covered agreement can evolve into the legal b asis for a claim under another provision, whether of 
the same or another agreement, without changing the "essence" of a complaint.   While we agree with 
the United States that the products and activiti es governed by the challenged measures under both 
claims is relevant to a determination of whether one has evolved from the other, these are not the only 
considerations:  a panel must also examine the typ es of products, measures, th e obligations cited, and 
the relationship between those obliga tions referred to in the consultati ons request and those referred to 
in the panel request.    
7.123  Part II of the US consultations request identif ies China's commitments on services as set forth 
in its GATS Schedule and states that despite tho se commitments, various measures taken by China 
impose market access restrictions or discriminatory limitations on foreign service providers seeking to 
engage in the distribution of publications and certain audiovisual home entertainment products.143 
7.124  With respect to "publications" the United States maintains that: 
"The measures at issue appear to prohibit foreign service suppliers (including wholly 
or partially foreign-owned or  foreign-invested enterprises) from engaging at least in a 
type of distribution described in these measures as the 'master distribution' of 
publications.  The measures at issue also appear to prohibit foreign service suppliers (including wholly or partially foreign-ow ned or foreign-invested enterprises) from 
engaging at least in the wholesaling of 'electronic publications' (a term that refers to a subset of publications).  Moreover, the me asures at issue may extend this prohibition 
more broadly to all distribution of all publi cations (whether at the 'master distribution' 
level or otherwise).  Furthermore, to the ex tent that some foreign service suppliers are 
allowed to engage in some aspects of the di stribution of publications, there appear to 
be discriminatory requirements concerning su ch suppliers' registered capital, such 
suppliers' operating term, and the particular publications that such suppliers may 
distribute."
144 
7.125  The United States then identifies Articles XVI and XVII of the GATS as provisions of the 
covered agreements that China's measures are incons istent with.  Article XVI of the GATS relates to 
market access commitments, while Article XVII of the GATS provides for "national treatment" to services and service suppliers in the sector s inscribed in a Member's Schedule. 
7.126  The US panel request repeats the GATS claim cont ained in the consultations request and then 
contends that the measures are also inconsistent with  the national treatment obligations with respect to 
like products contained in Article III:4 of the GATT 1994.  Specifically, the US panel request 
identifies the restrictions on distribution opportu nities for imported books, ne wspapers and periodicals 
and also notes that "[c]ertain foreign service-suppliers that are allowed to distribute books, newspapers and periodicals are not allowed to distribute imported books, newspapers and 
periodicals."     
7.127  Both the claim in the consultations request a nd the claim in the panel request relate to 
limitations on the distribution of reading materials within China.  We note additionally, that both 
claims deal with the na tional treatment obligations contained in the GATS and the GATT 1994, which 
prohibit discrimination that results in "less favourable treatment" of imports (either services, service suppliers, or products) vis-à-vis their domestic count erparts.  While the national treatment obligation 
in the GATS is limited to services and service s uppliers in sectors inscribed in a Member's GATS  
Schedule, the national treatment obligation in Ar ticle III:4 of the GATT 1994 is quite broad.  It 
                                                     
 
143 United States' consultations request WT/DS363/1. 
144 Ibid. WT/DS363/R 
Page 150  
 
  includes any laws, regulations, or requirements which affect  the internal sale, offer for sale, purchase, 
transportation, distribution or use.  Although th ey appear in two different agreements, the two 
obligations are not unrelated.  The Appellate Body  has recognized in the past that the scope of 
application of the two agreements may overlap, depending on the nature of the measures at issue.
 145   
7.128  Specifically, the Appellate Body report on EC – Bananas III , reasoned that:  
"Certain measures could be found to fall ex clusively within the scope of the GATT 
1994, when they affect trade in goods as goods.  Certain measures could be found to 
fall exclusively within the scope of the GATS,  when they affect the supply of services 
as services.  There is yet a third category of measures that could be found to fall within the scope of both the GATT 1994 and the GATS.  These are measures that 
involve a service relating to a particular  good or a service supplied in conjunction 
with a particular good.  In all such cases in this third category, the measure in question could be scrutinized under both the GATT 1994 and the GATS.  However, while the same measure could be scrutin ized under both agreements, the specific 
aspects of that measure examined under each  agreement could be different.  Under 
the GATT 1994, the focus is on how the measu re affects the goods involved.  Under 
the GATS, the focus is on how the measure affects the supply of the service or the 
service suppliers involved.  Whether a cer tain measure affecting the supply of a 
service related to a particular good is scr utinized under the GATT 1994 or the GATS, 
or both, is a matter that can only be determined on a case-by-case basis."
 146 
7.129  In this case, both the GATS claim in the consultations request and the GATT 1994 claim in 
the panel request challenge the same limitations on ser vice suppliers with respect to the distribution of 
imported reading materials as being inconsistent w ith China's national treatment obligations under the 
WTO agreements.  By virtue of the scope of app lication of the two agreements, the US claim under 
the GATS from the Consultation Request relates to  the national treatment of the service suppliers, 
while the US claim under the GATT 1994 in the panel request relates to  the national treatment of the 
reading materials.  However, the essence of both the GATS and GATT 1994 claims is the allegation 
that China's internal measures restri ct the distribution of imported reading materials in a way that fails 
to provide national treatment either to the service s, service suppliers, or to the imported products 
themselves.       
7.130  We, therefore, believe that it can reasonably be said that the legal basis of the GATT 1994 
claim in the panel request evolved from the legal b asis of the GATS claim in the consultations request 
that alleged that China was failing to provide na tional treatment to foreign service suppliers by 
denying them access to certain segments of the ma rket for distribution services for reading materials 
and that the addition of the GATT 1994 provisions do es not have the effect of changing the essence of 
the complaint.   
7.131  Because the US claim with respect to the consis tency of China's measures with Article III:4 of 
the GATT 1994 in its panel request can reasonably be said to have evolved from the US claim with 
respect to the consistency of China's measures wi th Article XVII of the GATS in its consultations 
request without changing its  essence, we find that the US claim under Article III:4 of the GATT 1994 
is within our terms of reference. 
7.132  China  argues that, if the Panel decides that the main claim under Article III:4 of the 
GATT 1994 with respect to reading materials is incl uded within its terms of reference, there are 
additional aspects of the US claim that would theref ore be outside the Panel's terms of reference.  
                                                      
145 Appellate Body Report on EC – Bananas III , para. 221. 
146 Ibid.  WT/DS363/R 
 Page 151 
 
 
  First, China argues that the US claim with respec t to a subset of reading materials, electronic 
publications, is outside the terms of reference because the US did not identify the specific product in its panel request.  Second, China argues that the US  claim with respect to subscription requirements 
are likewise not identified in the panel request  and are not properly before the Panel.   
7.133  As the  Panel has decided that the US claim under Article III:4 of the GATT 1994 with 
respect to reading materials is included in our te rms of reference we now address each of China's 
alternative objections in turn. 
(b) Electronic publications  
7.134  China  argues that the US panel request does not include a claim with respect to China's 
treatment of electronic publications within its claim on the inconsistency of China's measures 
governing "reading materials" with China's oblig ations under Article III:4 of the GATT 1994.  
According to China, the US panel request only targets "different distribution opportunities for 
imported and domestically produced books, newspapers and periodi cals".  Electronic publications, 
which are a different product, cannot be  considered to be included in this  limitative list. This is further 
confirmed by the fact that the United States, in other parts of the panel request, expressly included 
electronic publications in the list of reading materials.
147  
7.135  China maintains that the genera l references to regulations applying to electronic publications 
are not sufficient to consider that measures governing distribution opportunities for electronic 
publications have been adequately identified w ithin the meaning of Article 6.2 of the DSU. 
7.136  China therefore requests the Panel to find that th is aspect of the US claim is outside of its 
terms of reference and refrain from making a ruling or recommendation on this particular subgroup of 
reading materials. 
7.137  The United States , in its first oral statement, argues that its panel request specifically 
identified the measures at issue, noting that the di scriminatory treatment of electronic publications is 
provided for in the 1997 Electronic Publications Regulation  and in the Publications Regulation .148  
According to the United States, this means that  China's argument that the measures governing 
electronic publications should be considered outside  the Panel's terms of reference for purposes of the 
US claim under Article III:4 of th e GATT 1994 should be dismissed. 
7.138  The Panel, in question No. 120, asked the United Stat es to respond to China's contention that 
the specific product group "electronic publications" within the claim on read ing materials is not 
properly before the Panel.   The United States responds:  
"[A]s required by Article 6.2 of the DSU and as confirmed by the Appellate Body,149 
a panel request must 'identify the specific m easures at issue' in order for a measure to 
be part of a panel's terms of reference.  China, however, attempts to establish a new 
requirement, whereby provisions of a specifi c measure, rather than the measure itself, 
must be identified in a panel request.  This  interpretation of Article 6.2 is sustained 
neither by the text of that Article nor by the Appellate Body reports that have opined 
                                                      
147 (footnote original)  In its claim concerning trading rights fo r reading materials as well as in its claim 
concerning distribution services for reading materials, the United States referred to " reading materials (e.g., 
books newspapers, periodicals, and electronic reading materials )" (Emphasis added). 
148 We note that the US claim with respect to Article III:4 of the GATT 1994 is founded in the 
Imported Publications Subscription Rule  and the Publications (Sub-)Distribution Rule  and not in the 1997 
Electronic Publications Regulation  or the Publications Regulation . 
149 (footnote original) See  Korea – Dairy (AB) , para. 120; US – German Steel (AB) ; para. 125; and 
Guatemala – Cement (AB) , para. 69. WT/DS363/R 
Page 152  
 
  thereon.  Rather, and consistent with Ar ticle 6.2, the discriminatory impediments 
imposed on imported electronic publications ar e identified in the US panel request by 
way of the measures incorporating them. 
The US panel request explicitly identifies the Chinese measure that provides for the 
discriminatory treatment of imported electronic publications – the Imported 
Publications Subscription Rule .  This measure limits imported electronic publications 
in the limited distribution category to be distributed only through subscription
150 by a 
select few GAPP-designated Chinese wholly state-owned enterprises.151"152 
7.139  We note that China has not contended that th e measures which govern electronic publications 
were not properly identified in the panel request .  Instead, China has argued that by presenting a 
limited list of the products the US  claim was concerned with, the Un ited States has, by implication, 
excluded electronic publications from that coverage. 
7.140  Part II.A of the panel request is entitled "Publications (e.g ., books, newspapers, periodicals, 
and electronic publications)".  It then contains the four paragraphs dealing with the US claims under 
the GATS,  
"In Sectors 4A-4E of its Schedule, Chin a undertook market access and national 
treatment commitments with respect to the supply through commercial presence in 
China by service suppliers of other Members of, inter alia , distribution services for 
publications.   
The measures at issue, however, appear  to prohibit foreign service suppliers 
(including wholly or partially foreign-ow ned or foreign-invested enterprises) from 
engaging at least in types of distribution described in these measures as the 'master 
distribution' or 'master wholesaling' of publications.  The measures at issue also 
appear to prohibit foreign service suppliers  (including wholly or partially foreign-
owned or foreign-invested enterprises) from  engaging in the distribution of 'electronic 
publications' (a term that refers to a sub set of publications) generally, whether at the 
'master wholesale' level, the 'wholesale' level, or otherwise. 
Furthermore, to the extent that some fore ign service suppliers are allowed to engage 
in some aspects of the distribution of pub lications, there appear to be discriminatory 
requirements concerning such suppliers' registered capital and such suppliers' operating term, as well as discriminator y limitations (e.g., limitations by type, 
content, or origin of publication) on the publications that such suppliers may 
distribute. 
The measures at issue therefore appear to accord to foreign suppliers of distribution 
services for publications treatment less favourable than that accorded to Chinese 
suppliers of distribution services for publica tions.  Moreover, the measures at issue do 
not appear to fall within the terms, limita tions, conditions, or qualifications on market 
access or national treatment that China has specified in its Schedule for the 
distribution of publications through commercial presence in China by service 
suppliers of other Members.  Accordingly, the measures at issue appear to be inconsistent with China's obligatio ns under Article XVII of the GATS." 
                                                     
 
150 (footnote original)  Imported Publications Subscription Rule , Article 3 (Exhibit US-30). 
151  (footnote original)  Imported Publications Subscription Rule , Article 4 (Exhibit US-30). 
152 United States' response to question No. 120.  WT/DS363/R 
 Page 153 
 
 
  7.141  The panel request then contains a final pa ragraph dealing with the US claim under the 
GATT 1994: 
"In addition, the measures at issue also appear to establish different distribution 
opportunities for imported and domestically  produced books, newspapers and 
periodicals.  Imported books, newspapers and periodicals are restricted in their 
distribution opportunities.  Certain forei gn service-suppliers that are allowed to 
distribute books, newspapers and periodicals are not allowed to distribute imported books, newspapers and periodicals.  By contrast, domestically produced books, 
newspapers and periodicals are not restricted  in this way. Accordingly, the measures 
at issue also appear to be inconsistent w ith China's obligations under Article III:4 of 
the GATT 1994 and the provisions of para graph 5.1 of Part I of the Accession 
Protocol as well as China's obligations under the provisions of paragraph 1.2 of Part I 
of the Accession Protocol (to the extent that it incorporates commitments in 
paragraph 22 of the Working Party Report)."  
7.142  As noted in paragraph 7.140, in the title of Part  II.A of the panel request the United States has 
delineated which subgroups of products it is concerned with when it makes a reference to 
"publications".  In the second paragraph, the panel re quest itself refers to "electronic publications" as 
"(a term that refers to a subset of publications)."  In the rest of the discussion on the GATS claims the 
United States refers to "publications" without referring to any specific subset.  In the 
paragraph describing its claim under the GATT 1994, however, the United States took a different tack.  Instead of referring to "publications" th e United States refers to "books, newspapers and 
periodicals" and repeats this list five times.   
7.143  The United States was quite specific in its panel request and China has argued that it 
reasonably believed, therefore, that electronic publi cations were not of concern to the United States 
with respect to its claims under Article III:4 of the GATT 1994. 
7.144  Panels and the Appellate Body ha ve rejected arguments in the past that a reference to a broad 
product groups or no specific product group was too va gue to give the responding party notice that a 
particular subset of that group was included.
153  The panel in US – FSC , noted that even "in the 
absence of any specification as to the products at issue" the United States was on notice that the 
European Communities was asserting an inconsistenc y with the US measures with respect to all 
agricultural products.154  
7.145  In this case we are presented with the opposite situation where the complainant has specified 
a particular list of products at issue in its pane l request and then in its written submissions included 
additional products within the ambit of its claim.  We are not being asked to determine whether a 
broad term was too vague to put China on notice that the United States was concerned with its 
treatment of a particular subset of products, but rather, whether the United States use of a limited list 
of products, i.e. "books, newspape rs, and periodicals" was sufficien t to put China on notice that the 
United States was making a claim with respect to China's treatment of electronic publications.   
7.146    The United States used the term "publications",  which it defined in the parenthetical in the 
title to that part of the panel request as incl uding newspapers, periodical s, books and electronic 
publications, in the paragraphs immediately precedi ng the portion of the narrative where it sets forth 
its claim under Article III:4 of the GATT 1994.  Howe ver, in the paragraph covering its Article III:4 
claim, the United States did not refer to "publicati ons" but rather spelled out  "books, newspapers, and 
                                                      
153 Appellate Body Report on EC – Computer Equipment , paras. 67-68 and 70; Panel Report on Korea 
– Alcoholic  Beverages , paras. 10.14-10.16; Panel Report on US – FSC , para. 7.29. 
154 Panel Report on US – FSC , para. 7.29. WT/DS363/R 
Page 154  
 
  periodicals."  Therefore reading the panel request as a whole and the claims in context, we attach 
meaning to the fact that the United States, expressly limited the scope of its claim to "books, newspapers, and periodicals" and did not refer to the broader category of "publications", which 
includes electronic publications.   
7.147  Thus, China could reasonably conclude, in good faith, that the United States was not 
including the treatment of electronic publications in its claim under Article III:4 of the GATT 1994.  
As such, to the extent that we make any findings  with respect to the consistency of the challenged 
measures with Article III:4 of the GATT 1994 those findings are limited to the application of the 
measures to newspapers, periodicals, and books. 
(c) Subscription requirements  
7.148  China  argues that in its panel request the Un ited States only challenged the fact that: 
"Imported books, newspapers and periodicals are restricted in their distribution opportunities. Certain 
foreign service suppliers that are allowed to di stribute books, newspapers and periodicals are not 
allowed to distribute imported books, newspapers and periodicals".
155  According to China, such a 
claim relates to the prohibition imposed on foreig n service suppliers to distribute imported reading 
materials and its restrictive effect on the distri bution opportunities of these reading materials. The 
subscription regime as such and conditions imposed on subscribers of imported reading materials are 
clearly a distinct issue. 
7.149  Moreover, the United States did not, in its pa nel request, refer to provisions that would 
specifically deal with the channelling requirement  and the conditions imposed on subscribers of 
imported reading materials. It only made a general reference to the " Administrative measures on 
Subscription of Imported Publications ".  However, such a general reference is not sufficient to 
consider that the measures concer ning the conditions imposed on subscribers have been adequately 
identified within the meaning of Article 6.2 of the DSU. 
7.150  The United States  maintains that the US panel request specifically identifies the measures at 
issue, and those measures in turn include provisions  setting forth the discriminatory aspects raised in 
China's objection – i.e., (i) China's discriminator y subscription regime is provided for in the Imported 
Publications Subscription Rule ; (ii) the conditions imposed on subscribers are also provided for in the 
Imported Publications Subscription Rule .  According to the United States, as it has explicitly 
identified in its panel request the measures that set  forth the restrictive subscription regime and the 
onerous conditions on subscribers, these provisions are properly before the Panel and within its terms 
of reference. 
7.151  The Panel  notes that once again, the issue rela tes to whether the narrative description 
provided by the United States in its panel request limi ts its claim in a way that would exclude from it 
the subscription requirements contained in the Imported Publications Subscription Rule .  China's 
objection is two-fold.  It covers the "channelli ng requirements", i.e. the requirement that all 
newspapers and periodicals and certain books can  only be distributed through the "subscription" 
channel, and the conditions imposed on subscribers.    
7.152   In its panel request, the United States described its complaint with respect to whether China's 
measures governing the distribution of reading materi als was in conformity with its obligations under 
Article III:4 of the GATT 1994, by identifying several distinct situations.   
7.153  First, the United States noted that the measu res at issue appeared to establish different 
distribution opportunities for imported and domestic ally produced books, newspapers and periodicals.  
                                                      
155 (footnote original) See United States' panel request WT/DS363/5, p.5.  WT/DS363/R 
 Page 155 
 
 
  Secondly, the United States asserted that the products are restricted in their distribution opportunities.  
Thirdly, the United States noted that certain fore ign service-suppliers are not allowed to distribute 
imported books, newspapers and periodicals.  Finally, the United States noted that domestically 
produced books, newspapers and periodicals are not restricted in this way.  
7.154  The United States identified the Imported Publications Subscription Rule  in its panel request 
as the act of the Chinese Government which contained th e restrictions that were the specific measures 
at issue.  Article 1 of the Imported Publications Subscription Rule  states that the purpose of the rule is 
to "satisfy the reading needs of domestic units and individuals, foreign organizations in China, foreign 
nationals of enterprises with foreign investment, and personages from Hong Kong, Macao and Taiwan 
for imported publications and reinforce the management  of imported publications."  Article 3 of that 
measure states that:  
"[T]he state manages the distribution of imported publications by categories.  In 
regard to imported newspa pers and periodicals, and imported books and electronic 
publications in the limited distribution category, they shall be distributed under subscription to subscribers, and supplied by categories."
156  
7.155  Article 4 of that measure states that subscrip tions for imported newspapers and periodicals 
and books and electronic publications in the limite d category shall be handled by publication import 
business units designated by the General Admini stration on Press and Publications ("GAPP"). 
7.156  We believe that the references to "different  distribution opportunities" and restriction on 
distribution opportunities in the US panel request are broad enough to include the requirement that all 
newspapers and periodicals and certain books be distributed through the subscription channel.  
Therefore, and in view of the fact that the Imported Publications Subscription Rule , has been 
specifically identified in the relevant part of the panel request, we find that this requirement, as it is 
embodied in Articles 3 and 4 of the Imported Publications Subscription Rule  is within our terms of 
reference.   
7.157  China has also objected to the inclusion in the US  claim of the restrictions on subscribers 
embodied in Articles 5-8 of the Imported Publications Subscription Rule , because they were not 
identified in the US panel request.   
7.158  The United States maintains that these provisions were identified in the narrative description 
of its claim in the panel request. 
7.159  The Panel notes that Article 5 requires those wishing to subscribe to publications in the non-
limited category to bring a subscription applica tion to the import business unit designated by the 
GAPP.   Article 6 states that the GAPP will decide  which domestic unit subscribers may subscribe to 
imported newspapers, periodicals, books , and electronic publications in the limited  category, while 
Article 7 describes the application process for that  approval.  Finally, Article 8 sets forth the 
procedures for how foreign organizations in China can obtain subscriptions to imported newspapers 
and periodicals.   
7.160  Unlike the restrictions in Articles 3 and 4 of the Imported Publications Subscription Rule , 
Articles 5-8 do not relate to the manner in, or ch annel through, which imported newspapers and 
periodicals as well as books in the limited category are distributed or who may distribute them, but rather deal with the manner in which entities or  individuals may purchase those products. We note 
that, whereas the US panel request refers to the r estricted distribution opportunities for the products, it 
does not refer in any way to requirements or limitations imposed on the purchasers of the products.    
                                                     
 
156 Imported Publications Subscription Rule , Article 3 (Exhibit US-30). WT/DS363/R 
Page 156  
 
  7.161  Therefore, we cannot read the narrative of the US panel request as being inclusive of 
Articles 5-8 of the Imported Publications Subscription Rule . We thus consider that, because the 
narrative of the US panel request does not identify the subscription procedures imposed on purchasers 
of imported books, newspapers , and periodicals by their nature or substance, China did not receive 
adequate notice, within the meaning of Article 6.2 of  the DSU, of any US claim with respect to those 
requirements.  Therefore, those provisions of the Imported Publications Subscription Rule  are outside 
our terms of reference.  
5. 'Measures' China argues the Panel should not examine  
7.162  In the context of its claims, the United States  has argued that certain provisions of the 
Several Opinions  and the Importation Procedure  are inconsistent with China's trading rights 
commitments under the Accession Protocol.  Additi onally, the United States argues that certain 
provisions of the Several Opinions  and the Sub-Distribution Procedure  are inconsistent with China's 
obligations under Article XVII of the GATS.    
7.163  China  has asked the Panel not to examine the Several Opinions , the Importation Procedure , 
and the Sub-Distribution Procedure  because "the Several Opinions  and the Importation Procedure  are 
not regulatory documents", with the Several Opinions  merely constituting "internal guidance" and the 
Importation Procedure  and Sub-Distribution Procedure  being summaries "of the procedures and 
requirements contained in applicable regulations and aimed at facilitating the application process".  
7.164  The United States  argues that China "concedes" that  these documents are "measures" and 
that it does not contest that they were identified in  the US panel request and included in the Panel's 
terms of reference.  The United States continues to  seek findings on these measures particularly given, 
in its opinion, the absence of any grounds for China's objections.
 157 
7.165  Article 3.3 of the DSU states: 
"The prompt settlement of situations in wh ich a Member considers that any benefits 
accruing to it directly or indirectly under the covered agreements are being impaired 
by measures taken by another Member  is essential to the effective functioning of the 
WTO and the maintenance of a proper balan ce between the rights and obligations of 
Members." (emphasis added) 
7.166  This means that only measures taken by anothe r Member are subject to review under the 
DSU.  The Appellate Body has explained that: 
"[I]n principle, any act or omission attri butable to a WTO Member can be a measure 
of that Member for purposes of dispute settlement proceedings.158  The acts or 
omissions that are so attributable are, in the usual case, the acts or omissions of the 
organs of the state, including those of the executive branch.159"160 
                                                      
157 United States' second written submission, para. 220. 
158 (footnote original ) We need not consider, in this appeal, re lated issues such as the extent to which 
the acts or omissions of regional or local governments, or even the actions of private entities, could be attributed 
to a Member in particular circumstances.   
159 (footnote original ) Both specific determinations made by a Member's executive agencies and 
regulations issued by its executive branch can constitute ac ts attributable to that Member.  See, for example, the 
Panel Report on  US – DRAMS , where the measures referred to the pa nel included a USDOC determination in 
an administrative review as well as a regulatory provision issued by USDOC.   
160 Appellate Body Report on US – Corrosion-Resistant Steel Sunset Review , para. 81.  WT/DS363/R 
 Page 157 
 
 
  7.167  Although China has not explicitly asserted that the Several Opinions , Importation Procedure , 
and Sub-Distribution Procedure  are not measures taken by a Member as required by Article 3.3 of the 
DSU, it has argued that they cannot "serve as the legal basis for any administrative acts." 161  
7.168  The Panel, therefore, believes that this is the appr opriate standard against which we must 
measure whether we can and should examine the Several Opinions , the Importation Procedure , and 
the Sub-Distribution Procedure .  We also note that China has not raised any other basis for excluding 
the Several Opinions , the Importation Procedure , and the Sub-Distribution Procedure  from review 
(such as a lack of consultations, or non-compliance of  the United States with Article 6.2 of the DSU), 
therefore a finding that the Several Opinions , the Importation Procedure , and the Sub-Distribution 
Procedure  are not measures within the meaning of Ar ticle 3.3 of the DSU is the only basis upon 
which the Panel would be able to accede to China's request.  We note that a faculty of a panel is not 
limited to the arguments of the parties when developing its own reasoni ng so long as a party has 
raised a claim under that issue.162  China has raised the issue before us of whether these documents are 
subject to panel review. 
7.169  We note that the Appellate Body, in the context of a discussion of Articles 6.2 and 7.1 of the 
DSU, has held that "panels cannot simply ignore issu es which go to the root of their jurisdiction – that 
is, to their authority to deal with and dispose of matte rs.  Rather, panels must deal with such issues – if 
necessary, on their own motion – in order to satisfy  themselves that they have authority to proceed."163  
7.170  Given that Article 3.3 of the DSU limits the sc ope of what may be brought before the DSB for 
adjudication to "measures taken by another Member",  we believe that whether a claim brought before 
a panel relates to a "measure" within the meaning of Article 3.3 likewise goes to the root of our 
jurisdiction and must be dealt with, even on our own motion, so that we may satisfy ourselves that we 
have the authority to proceed.      
7.171  Because China has raised the issue generally and because it is an issue that is a prerequisite 
for lawful panel proceedings, we will examine th e three documents identified by China as those the 
panel "should not examine" to determine whether they constitute measures within the meaning of 
Article 3.3 of the DSU.       
7.172  A determination of whether something is a "measure" "must be based on the content and 
substance of the instrument, and not merely on its form or nomenclature."164  Acts setting forth rules 
or norms that are intended to ha ve general and prospective applic ation are measures subject to WTO 
dispute settlement.165 
7.173  For example, the panel and the Appellate Body in US – Oil Country Tubular Goods Sunset 
Reviews, determined that a non-binding policy bulletin had normative value because it provided 
administrative guidance and created expectations among the public and among private actors.166 
7.174  This guidance from the Appellate Body deals with  attempts to challenge "rules or norms" as 
such.  The United States is also challenging the Several Opinions , the Importation Procedure , and the 
                                                      
161 China's  response to question No. 39. 
162 Appellate Body Report on EC – Hormones , para. 156; Appellate Body Report on Korea – Dairy , 
para. 139; and  Panel Report on Egypt – Steel Rebar , para. 7.58; Appellate Body Report on Chile – Price Bands , 
paras. 166-168. 
163 Appellate Body Report on Mexico – Corn Syrup (Article 21.5 – US) , paras. 36 and 53. 
164Appellate Body Report on US – Corrosion Resistant Sunset Review , footnote 87. 
165 Ibid., para. 82. 
166 Appellate Body Report on US – Oil Country Tubular Goods Sunset Reviews , para. 187. WT/DS363/R 
Page 158  
 
  Sub-Distribution Procedure  "as such".
167  Therefore, the reasoning of the Appellate Body is apposite 
to the present case.  
7.175  Our task, then, is to determine whether the Several Opinions , the Importation Procedure , and 
the Sub-Distribution Procedure  are attributable to China and whether they set forth rules or norms 
that are intended to have genera l and prospective application. 
(a) The Several Opinions  
7.176  The United States  argues that the Several Opinions  prohibits foreign-invested enterprises 
from importing the products, from participating in the "m aster distribution" of reading materials, limit 
the amount of equity foreign investors can hold in enterprises sub-distributing audiovisual products, that they must satisfy pre-establishment legal compliance requirements
168, and prohibits foreign-
invested enterprises from electronically distributing sound recordings.   
7.177  Specifically, the United States argues that Article 1 of the Several Opinions  is inconsistent 
with China's obligations under the GATS.  Article 1 states in part that "[u]nder the condition where 
the right of our country to examine the content of audiovisual products is not harmed, foreign 
investors are permitted to set up enterprises for the sub-distribution of audiov isual products, with the 
exception of motion pictures, in the form of Ch inese-foreign contractual joint ventures where the 
Chinese partner holds a dominant position."  The Un ited States also argues that Article 4 of the 
Several Opinions is inconsistent with China' s GATS commitments as well as its trading rights 
commitments in its Protocol of Accession.  Article 4 provides that "foreign investors are prohibited from setting up and operating ... businesses dealing with  internet culture ..., motion picture import and 
distribution companies.... Foreign investors are pr ohibited from engaging in the publication, master 
distribution and import of books, ne wspapers and periodicals, and pu blishing, production, master 
distribution, and import of audiovisual products and electronic publications."  
7.178  The United States also argues that Articles 5 and 6 are inconsistent with China's obligations 
under the GATS.  Article 5 states that:  
"Administrations of culture, press and publica tion, and radio, film and television are 
responsible for doing a good job of guarding the door of entry into the relevant 
industry, carry out pre-examination and appr oval of applications for setting up wholly 
foreign owned enterprises and Chinese-foreign equity and contractual joint ventures in accordance with the law, standardize the scope of utilization of foreign capital and 
the ratio of shares." 
7.179  Additionally, Article 6 directs agencies ex ecuting the administrative examination and 
approval to "give priority to cultu ral enterprises outside China whose capability is strong , 
management is standardized , technology is advanced , and are friendly  towards us in conducting 
equity and contractual joint ventures , and ensure that the quality of the foreign investment introduced 
is reliable ." 
7.180  The United States maintains that these provisions  establish restrictions on who may import 
and distribute the relevant products which are the subject of its claims. 
7.181  China  argues that the Several Opinions  is merely an internal guideline for the formulation 
and improvement of implementation procedures by the authorities competent in the cultural sectors 
                                                     
 
167 United States' first written submission, paras. 253, 257. 
168 We note that we have found that this particul ar requirement is outside our terms of reference.  WT/DS363/R 
 Page 159 
 
 
  concerned and is consequently not relevant for th e purpose of addressing the consistency of China's 
trading rights system with its commitments under its Accession Protocol. 
7.182  In its response to questions from the Pane l, China maintains that pursuant to its Legislation 
Law, the hierarchy of Chinese laws and regulations at  central government level is composed of three 
levels: (i) laws enacted by the National Peopl e's Congress or its Standing Committee; (ii) 
administrative regulations enacted by the State Counc il; (iii) departmental rules enacted by ministries 
or agencies under the State Council. 169   According to China, the Several Opinions  does not fit into 
any of the three categories of laws and regulations  within China and as an internal guideline is not 
applicable in the context of administrative acts.170   
7.183  The United States  disputes that the Several Opinions  is merely internal guidance.  The 
United States relies on Exhibit US-62, which is an opinion from China's Supreme People's Court, 
which it argues demonstrates that legal instruments such as the Several Opinions  are legally binding 
on their issuing agencies, guide the enforcemen t of law and implementation of administrative 
measures and serve as a basis for particular administrative acts.171 
7.184  Additionally, the United States  argues that the Several Opinions  was issued jointly by the five 
national-level agencies responsible for the products at issue and were approved by the highest organ 
of the executive branch: the State Council.  Th erefore, according to the United States, the Several 
Opinions  is an "other regulatory document", which is a type of legal instrument that the Supreme 
People's Court of China has confirmed is binding on the agencies that issue them.   
7.185  The United States points to the No tice issued together with the Several Opinions  which 
requires these national-level agencies and their region al counterparts to "implement them earnestly" as 
demonstration that the substance of the measur e imposes obligations and prohibitions on private 
sector actors that must be adhered to under penalty of law.172 
7.186  China, for its part, contends that the exhortation in the Notice issued together with the 
Several Opinions  to agencies to "please implement them earne stly" means that the requirements in the 
Several Opinions  must be implemented by the promulgation of specific departmental rules by various 
agencies and its provisions are not directly applicable. 173 
7.187  The Panel notes that the Several Opinions  was issued by the MOC, the State Administration 
of Radio, Film, and Television, the General Admi nistration of Press and Publication, the National 
Development and Reform Commission, and the Minist ry of Commerce with the "approval of the State 
Council".  It is directed to  
"[A]ll people's governments of provinces, autonomous regions and municipalities 
directly under the Central Government, all ministries and commissions under the 
State Council and all agencies directly unde r the State Council, cultural departments 
(bureaus), radio, film and television de partments (bureaus), press and publication 
bureaus, commissions of development and reform, and administrative departments of commerce of provinces, autonomous regions , and municipalities directly under the 
Central Government."  
                                                     
 
169 China's response to question No. 37(a). 
170 China's responses to question Nos. 37(a) and (b). 
171 Exhibit US-62. 
172 United States' response to question No. 142. 
173 China's responses to question Nos. 37(a) and (b). WT/DS363/R 
Page 160  
 
  7.188  With respect to China's argument that the Several Opinions  does not fall within any of the 
three categories of laws or regulations within Ch ina, we recall that although an understanding of 
China's administrative law system is useful, what is  important for purposes of our analysis is not the 
nomenclature used by the domestic legal system of the Member, but whether the act falls within the 
meaning of the term "measure" as it is used in Article 3.3 of the DSU.    
7.189  We note that the Several Opinions  was issued jointly, with "the approval of the State 
Council", by several executive agen cies of the Chinese Government.  Therefore, it is an act taken by 
the organs of the state.  As such, regardless of wh ether it fits within one of the categories of Chinese 
nomenclature for its laws and regulati ons, it is attributable to China. 
7.190  As the Several Opinions  is attributable to China the next question is whether it sets forth rules 
or norms that are intended to have ge neral and prospective application.   
7.191  In response to a question from the Panel, China e xplains that the Notice issued together with 
the Several Opinions  addressed to a number of Central Government or State Council agencies (and 
not just those identified in Article 13) is a no tification process that communicates the internal 
guidelines to various government agencies and tells them to "[p]lease implement them earnestly."  
China contends that the wording of "earnest implementation" does not mean that the various 
government agencies to which the notice is addressed can implement the Several Opinions  directly.
174 
7.192  The Several Opinions  includes a variety of provisions about the types of corporations and 
investors that may invest in certain cultural sector s of the Chinese economy.  Articles 1 to 9 contain 
explanations of the various areas where foreign cap ital investment is restricted and the conditions 
under which foreign investme nt will be permitted.   
7.193  Articles 10 to 12 set forward various requirements for administering agencies.  For example, 
Article 10 states that "[d]epartments everywhere may not expand the scope of bringing in foreign 
capital on their own; they may not overstep their aut hority in drawing up policies that open up regions 
or industry, or examine and approve such programs."      Article 11 discusses the strictness of the licensing regime and the punishment for foreign-invest ed enterprises which have violated regulations.  
Article 12 states:  
"[C]ulture, radio, film and television, and press and publication administrations at 
every level shall strengthen macro-contro l and daily supervision regarding the 
introduction of foreign capital and seriously  implement relevant regulations on the 
management of bringing in foreign capital.   The weak links shall be reinforced, 
supervision methods improved,  and follow-up supervision enhanced.  Comprehensive 
law enforcement shall be vigorously promot ed and the crack-down on violations of 
the law and regulations strengthened." 
7.194  Finally, Article 13 of the Several Opinions  states that "the Ministry of Culture, the State 
Administration of Radio, Film and Television,  and the General Administration of Press and 
Publication shall, based on these Opinions, draw up  and improve concrete implementation measures 
for their own departments."   
7.195  In response to a question from the Panel, Chin a explained that "Article 13 requires MOC, 
SARFT and GAPP to "formulate and improve" the relevant impl ementation procedures for their 
respective sectors according to the Several Opinions . This requirement in Article 13 must be 
                                                     
 
174 China's response to question No. 37(a).  WT/DS363/R 
 Page 161 
 
 
  "implemented earnestly" by various government agencies through the promulgation of relevant 
departmental rules."175   
7.196  Even accepting China's arguments that the Several Opinions  merely provides internal 
guidance and is not directly applicable would not be  enough to exclude it from review by this Panel.  
It is already well established that  internal government doc uments that provide administrative guidance 
to agencies in how they carry out their duties can be "measures" with in the meaning of Article 3.3 of 
the DSU.176  Additionally, accepting that the restrictions described in the Several Opinions  do not 
have direct effect, but must be  implemented by government agen cies promulgating regulations, does 
not mean that they do not set forth rules or norms that are intended to have  general and prospective 
application.   
7.197  We have examined the provisions of the Several Opinions  which set forth various restrictions 
on the participation of foreign capital in various  cultural sectors, combined with the provisions 
directed at government agencies.  The provisions  not only make pronouncements such as prohibiting 
foreign investors from participating in certain bus inesses (see Article 4), but they also provide 
guidance for administrative agencies about how they are to do their jobs (e.g, Article 6 which sets 
forth the type of businesses that agencies examining a pplications for licences "shall give priority to").  
Finally, Article 13 states that agencies "shall"  draw up and improve c oncrete implementation 
measures for their own departments based on the Several Opinions .  We also take note of China's own 
description of the Several Opinions  as internal guidelines for the formulation and improvement of 
implementation procedures by the authorities comp etent in the cultural sectors concerned.   
7.198  China confirms that the Several Opinions  serves as a guideline for the formulation of 
implementation procedures by the competent authorities, that "guidance" includes proclamations 
regarding which sectors will be permitted to ha ve foreign investment and which will not.  
Additionally, the guidance in the Several Opinions  relate to how government agencies will perform 
their application approval functions.  This guidan ce, which the Notice issued together with the Several 
Opinions  indicates should be implemented earnestly,  creates the expectation that going forward the 
government agencies addressed therein will conduct th emselves in their administration of foreign 
investment in the cultural sectors in a manner cons istent with the provisions set forth in the Several 
Opinions .  Therefore, the Several Opinions  sets forth rules or norms intended to have general and 
prospective application and, as such, are a "measure" within the meaning of Article 3.3 of the DSU.  
Accordingly, we will examine this measure, in par ticular Articles 4 and 6, in the course of this 
proceeding. 
(b) The Importation Procedure  and the Sub-Distribution Procedure  
7.199  China  argues that the Importation Procedure  and the Sub-Distribution Procedure  only 
summarize the legal requirements of other measures to  provide guidance to applicants and the texts 
are not binding. 
7.200  The United States  argues that the Importation Procedure  and the Sub-Distribution Procedure  
are measures within the meaning of Article 3.3 of the DSU.  According to the United States, the two 
procedures bind the General Administration of Pr ess and Publication (GAPP) and were issued 
pursuant to its administrative law obligations u nder the Administrative Licensing Law.  The United 
                                                      
175 China's response to question No. 37(a). 
176 Appellate Body Report on US – Oil Country Tubular Goods Sunset Reviews , para. 187; Appellate 
Body Report on US – Corrosion-Resistant  Steel Sunset Review , paras. 74 and 82; and Panel Report on Japan – 
Film , paras. 10.43-10.44; and Panel Report on EC – Approval and Marketing of Biotech Products , paras. 7.438 -
7.456. WT/DS363/R 
Page 162  
 
  States maintains that these procedures implement the provisions of the Publications Regulation  and 
the Publications (Sub-)Distribution Rule , respectively.
177 
7.201  The United States argues that under Chinese law these two documents are examples of 
Chinese legal instruments called "other regulatory documents", which are widely used in routine 
administration and are fully recognized in Chinese administrative law.  The United States cites an 
opinion of China's Supreme People's Court to support its contentions that "other regulatory 
documents" are binding on the agencies that issu e them and often serve as the basis for the 
administrative acts taken by these agencies. 178 
7.202  According to the United States, the Supreme People's Court has found that other regulatory 
documents bind the agencies that issue them, in that  these instruments are used by their agencies to 
enforce laws, to implement administrative measures and to serve as the basis for administrative acts.  
The binding force of other regulatory documents, however, is limited and does not extend to the 
courts.  While a court may examine the underlying other regulatory documents in its review of an 
agency's actions, those other regulatory document s remain binding on their issuing-agency unless the 
court finds that those documents are not "leg al, effective, reasonable or appropriate". 
7.203  China , in response to a question from the Panel about the relevance of the decision of the 
Supreme People's Court cited by the United States, reiterates that the Importation Procedure  and the 
Sub-Distribution Procedure  are summaries of the procedures and requirements contained in 
applicable regulations and aimed at facilitating the application process.179 
7.204  The United States  also cites to the Administrative Licensing Law of the People's Republic of 
China  ("Administrative Licensing Law")180 which refers to four categories of legal instruments, 
including other regulatory documents.   Additionally, the United States argues that the Importation 
Procedure  and the Sub-Distribution Procedure  were issued by GAPP pursuant to its administrative 
law obligations under the Administrative Licensing Law.   Specifically, Article 5 which requires that 
administrative licensing requirements be announced to  the public and Articles 30 and 33 of the Law 
which further require government agencies to displa y in their offices, and announce on their websites, 
all requirements related to the administrative licences for which the agency is responsible.181 
7.205  According to the United States, the Importation Procedure  and Sub-Distribution Procedure  
therefore fulfil GAPP's administrative law obligatio ns pursuant to the Administrative Licensing Law 
by implementing and elaborating upon China's lega l regime governing the ex amination and approval 
of licencees engaged in the importation and sub-dist ribution of reading materials pursuant to the 
Publications Regulation  and the Publications (Sub-)Distribution Rule .   
(i) Importation Procedure 
7.206  China  argues that the Importation Procedure  is merely a webpage and that all the 
requirements contained in this webpage are requ irements established by applicable published 
regulations.  According to China, this documen t is merely a summary of the procedures and 
requirements contained in such regulations and aims  at facilitating the application process.  China 
maintains that it cannot serve as the basis for admini strative acts and as such is not relevant for the 
                                                      
177 United States' response to question No. 142. 
178 Exhibit US-62. 
179 China's response to question No. 147. 
180 Administrative Licensing Law of th e People's Republic of China  ("Administrative Licensing Law"), 
adopted at the 4th Session of the 10th National People's Congress on August 27, 2003; promulgated under Order 
of the President of the People's Republic of China No. 7 on August 27, 2003; effective as of July 1, 2004; 
Articles 14, 15 and 17 (Exhibit US-63). 
181 United States' response to question No. 4.  WT/DS363/R 
 Page 163 
 
 
  purpose of addressing China's consistency with its trading rights commitments in the Accession 
Protocol. 
7.207  The United States , in its first written submission, argues that the Importation Procedure , 
issued by GAPP, implements Article 43 of the Publications Regulation .  According to the United 
States, it confirms, and to some extent elaborat es upon, the licensing requirements for the importation 
of reading materials, AVHE products, and sound recordings into China.   
7.208  Specifically, the United States contends that the Importation Procedure  begins with the 
heading "Licensing Requirements" which, just as in the Publications Regulation , sets as the second 
condition for an enterprise to import these products that it is a wholly state-owned enterprise.  
Additionally, the United States notes that there is a quantity restriction on licences based on the "state 
plan regarding the total number, structure and de ployment of publication import business units".  
Therefore, the United States argues that the Importation Procedure  reconfirms the prohibition on any 
foreign-invested enterprise or foreign individual, or  any privately-owned Chinese enterprise, engaging 
in the importation of reading materials,  AVHE products, and sound recordings.   
7.209  The Panel  must determine whether the Importation Procedure  is attributable to China and if 
so, whether it sets forth rules or norms of genera l and prospective application such that it would 
constitute a "measure" within the meaning of Article 3.3 of the DSU. 
7.210  We note that the Importation Procedure  is located on the GAPP website and that the text 
indicates that its "stated basis" is the Publications Regulation  (State Council Order No. 343) 
Article 43.  We also note that the last line of text of the Importation Procedure  reads "Laws, 
regulations, and standardization doc uments which form the legal basis of this administrative licence: 
[Publications Regulation ]."  China also confirms that this doc ument was generated internally by the 
GAPP to facilitate an application process that the GAPP administers.  Therefore, we conclude that this 
document was generated by an organ of the State, i. e., the executive branch, and is attributable to 
China.   
7.211    With respect to whether the Importation Procedure  sets forth rules or norms of general and 
prospective application, it seems to  us that the references to the Publications Regulation  as the "basis" 
of the Importation Procedure  support China's position that this document merely summarizes legal 
requirements that actually derive  their legal effect from the Publications Regulation .  The Law on 
Licensing , which the United States cites, further supports  China's view.  Articles 5, 30 and 33 thereof 
require government agencies to announce existing rules to  the public and display them in their offices.  
Nothing in these provisions provides the authority to interpret regulations or provide for new 
obligations.  Accepting, as the United States itself claims, that the Importation Procedure  was 
promulgated to fulfil this requirement, then the docu ment is merely a publication of existing licensing 
requirements and not the source of new requirements. 
7.212  With respect, to the US reliance on a decision of the Supreme People's Court of China, to 
support its position that these  "ther regulatory document s" are part of the Chinese legal hierarchy, we 
note that the Supreme People's Court of China stated that  
"[I]n judicial practice, the hearings of ad ministrative cases often involve particular 
interpretation of legal application issues by  related departments, as well as other 
regulatory documents issued by the latter, both for the purpose of guiding the enforcement of law or implementing administrative measures."
182   
                                                      
182 Exhibit US-62. WT/DS363/R 
Page 164  
 
  7.213  Additionally, the Court went on to explain that  "administrative organs often directly take 
these particular interpretation and other regulator y documents as the basis for their particular 
administrative acts."
183 However, the United States does not point to anything in the Importation 
Procedure  that would indicate that it serves to guide the enforcement of law, implement 
administrative measures or serve as the basis of admi nistrative acts.  Instead, as China indicates, the 
Importation Procedure  seems to simply advise the public of the existence of a variety of requirements 
that originate and derive their legal force from the Publications Regulation .184    
7.214  We therefore determine that the Importation Procedure  does not itself establish rules or 
norms that are intended to have ge neral and prospective application.  We recall the reasoning of the 
panel in US – Export Restraints , which was examining whether partic ular measures challenged in that 
case could individually give rise to a violation of WTO obligations.  That panel concluded that:  
"[T]he central question that must be answ ered is whether each measure operates in 
some concrete way in its own right.  By this we mean that each measure would have to constitute an instrument with a functional lif e of its own, i. e., that it would have to 
do something concrete, independently of any ot her instruments, for it to be able to 
give rise independently to a violation of WTO obligations."
185 (emphasis original)  
We find this reasoning relevant to the situation he re, where we are trying to determine whether an 
instrument by itself establishes rules or norms of ge neral and prospective application such that it can 
constitute a "measure" subject to WT O dispute settlement adjudication. 
 7.215  As indicated, the Importation Procedure  merely notifies the public of the existence of the 
rules or norms which may have general and prospective application contained in the Publications 
Regulation s.  The Importation Procedure  does not have a functional life of its own and does not do 
something concrete, independently of any ot her instruments.  Therefore, although the Importation 
Procedure  does list various requirements, the rules a nd norms themselves and any expectations 
formed as to the conduct of the Ch inese Government are based on the Publications Regulation  which 
give them their legal force, and not on the basis of the document summarizing them.
186  W e  t h u s  
conclude that the Importation Procedure  does not constitute a "measure " of a Member within the 
meaning of Article 3.3 of the DSU.  As  a result, we do not further examine the Importation 
Procedure , nor do we rule on the US claims relating to the Importation Procedure .   
(ii) Sub-Distribution Procedure 
7.216  China, in its first written submission, contends that the United States bases its claim, inter 
alia on a document (the Sub-Distribution Procedure ) that is not relevant for the purpose of addressing 
the consistency of China's trading rights system wi th its commitments under its Accession Protocol.   
Particularly, China argues that, this text is in  fact a webpage from the GAPP's website, which is 
intended to provide guidance for applicants. As a c onsequence, China argues that this text, which is 
not binding, should not be examined by the Panel. 
                                                      
183 Exhibit US-62. 
184 Additionally, we note that the Supreme People's Court noted that "these particular interpretation and 
other regulatory documents are not formal sources of law, and shall not bind upon the People's Courts in the 
sense of legal norms."  The Court went on to find that it would "recognize their legal force" in examining particular administrative acts based on such documents if the Courts deemed them to be "legal, effective, 
reasonable, and appropriate."  (Exhibit US-62, p. 3) 
185 Panel Report on US – Export Restraints , para. 8.85. 
186 We note in this respect, that the United States has challenged the provisions in the Publications 
Regulation  that are summarized in the Importation Procedure .  This challenge will be addressed further below.    WT/DS363/R 
 Page 165 
 
 
  7.217  The United States  maintains that the Sub-Distribution Procedure  sets out the requirements 
and examination and approval procedures for foreig n-invested enterprises seeking to engage in the 
sub-distribution of books, newspapers a nd periodicals published in China.   
7.218  The United States  submits that China is incorrect in its ch aracterizations of this measure.  The 
United States argues that although the Sub-Distribution Procedure  may also be found on GAPP's 
website, so are many of the other challenged measure s.  The United States contends that, as with the 
Importation Procedure , this measure is more than mere "gui dance for applicants;" it fulfils GAPP's 
administrative law obligations by implementing a nd elaborating upon China's legal regime governing 
the importation and sub-distribution of reading materials.   
7.219  The United States argues that, the Sub-Distribution Procedure  implements State Council 
Order No. 412 (State Council Decision on Setting Up Administrative Licensing for Administratively 
Examined and Approved Projects That Truly Need to be Preserved), which is the same decision of the 
State Council which is the basis for the Network Music Opinions .   The United States maintains that 
China's assertion that only one of two measures im plementing the identical State Council decision is a 
legal instrument further undermin es China's supposition that the Sub-Distribution Procedure  is 
merely internal guidance. 
7.220  China  argues that the United States' argument is  based on an erroneous assumption that since 
the Sub-Distribution Procedure  and the Network Music Opinions  share the same State Council 
decision as their legal basis, the Sub-Distribution Procedure  must share the same legal effect as the 
Network Music Opinions .187  According to China, the Sub-Distribution Procedure  summarizes the 
procedures and requirements for the approval of foreign-invested enterprises engaged in the 
distribution of reading materials. This approval can find its legal authorization from that State 
Council's decision. The summary itself is not a lega l instrument based on the State Council's decision. 
7.221  The Panel  examines the Sub-Distribution Procedure , just as with the Importation Procedure , 
to determine whether it is attributable to China an d whether it sets forth rules and norms that are 
intended to have general and prospective application.   
7.222  We note that the Sub-Distribution Procedure  is located on the GAPP website and that the text 
indicates that its "source" is the "Policies, Laws and Regulations Division, General Administration of 
Press and Publication."  Additionally, the text of the procedure lists a State Council decision, several 
laws, regulations and rules as the "basis" for the document ( see paragraph 7.223 below).  China also 
confirms that this document was ge nerated internally by government agencies to serve as internal 
guidance.  Therefore, we conclude that this documen t was generated by an organ of the State, i.e., the 
executive branch, and is attributable to China.   
7.223  Next, we must determine whether the Sub-Distribution Procedure  establishes rules and norms 
that are intended to have general and prospective application.  The Sub-Distribution Procedure  does 
set out various licensing requirements and pro cedures relating to the distribution of books, 
newspapers and periodicals.  However, at the en d of the document it is stated that the "laws, 
regulations and standardized docum ents which serve as the legal basi s for this administrative licence" 
are "the P.R.C. Chinese-Foreign Joint Venture Law, the P.R.C. Chinese-Foreign Contractual Venture Law, the P.R.C. Foreign-Capital Enterprise Law, th e Regulations on the Mana gement of Publications, 
Rules for the Management of Foreign-Invested Enterprises Sub-Distributing Books, Newspapers and 
Periodicals."  
7.224  The source of the rules and norms described in the Sub-Distribution Procedure  is therefore, 
not the procedure itself, but rather the laws, regulat ions, and rules listed at th e end of the document.  
                                                     
 
187 United States' second written submission, para. 218. WT/DS363/R 
Page 166  
 
  The rules and norms that  are described in the Sub-Distribution Procedure  originate in and derive their 
legal authority from other sources of law.  The Sub-Distribution Procedure  is merely a composite of 
all the requirements and procedures that relate to the particular topic, i.e. licensing of sub-distributors 
of books, newspapers and periodicals, set fo rth in other legal documents including the Publications 
(Sub-)Distribution Rule .    
7.225  As is the case with the Importation Procedure , the Sub-Distribution Procedure  merely 
notifies the public of the existen ce of the rules or norms which may have general and prospective 
application contained in the Publications Regulation s.  The Sub-Distribution Procedure  does not have 
a functional life of its own and does not do some thing concrete, independently of any other 
instruments.  Therefore, although the Sub-Distribution Procedure  does list various requirements, the 
rules and norms themselves and any expectations  formed as to the conduct of the Chinese 
Government are based on other legal documents, including the Publications (Sub-)Distribution Rule , 
which give them their legal force, and not on the basis of the document summarizing them.
188  We 
thus conclude that the Sub-Distribution Procedure does not constitute a "measure" of a Member 
within the meaning of Article 3.3 of the DSU.   As a result, we do not further examine the Sub-
Distribution Procedure , nor do we rule on the US claims relating to the Sub-Distribution Procedure .   
6. Summary of conclusions 
7.226  In sum, in response to China's various objecti ons to the inclusion of various measures and 
claims of the United States within the Panel's term s of reference, we have  concluded the following: 
(a) The Film Distribution and Exhibition Rule  is outside the Panel' s terms of reference 
with respect to the US claim that it is inconsistent with China's trading rights 
commitments in its Protocol of Accession because China did not receive adequate 
notice that it was a specific measure at issue, with respect to this claim, as required by 
Article 6.2 of the DSU. 
(b) The 2001 Audiovisual Pro ducts Regulation  and the Audiovisual Products Importation 
Rule are outside the Panel's terms of reference with respect to the US claim that 
China's measures are inconsistent with Article III:4 of the GATT 1994 because the 
panel request did not adequately notify Ch ina that these were specific measures at 
issue, with respect to this claim, as required by Article 6.2 of the DSU. 
(c) The so-called "pre-establishment legal comp liance" requirement, the approval process 
to engage in distribution of reading ma terials and audiovisual products and the 
"decision making criteria" that the MOC would apply in the approval of Chinese-
foreign contractual joint ventures for the distribution of reading materials and 
audiovisual products are not within the Pane l's terms of reference.  When read as a 
whole, including the listing of the specific requirements that are the subject of its complaint, the US panel request did not notify China that these requirements were 
"specific measures at issue" within the meaning of Article 6.2 of the DSU.  
(d) The United States' claims that  China's measures on reading materials are inconsistent 
with Article III:4 of the GATT 1994 is within  the Panel's terms of reference, despite 
the lack of consultations.    
                                                     
 
188 We note that the provisions of the Sub-Distribution Procedure  with which the United States is 
concerned are identical to those contained in the Publications (Sub-)Distribution Rule  and/or the Several 
Opinions  (United States' first written submission, paras. 100- 102) which are still within the Panel's terms of 
reference.  These challenges will be addressed further below.  WT/DS363/R 
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  (i) The United States, through its description of its claim in the panel request, 
excluded electronic publications from its claim under Article III:4 of the GATT 1994.  Therefore, the Panel's findings as to whether China's measures are inconsistent with Article III:4 of the GATT 1994 will relate only to 
whether books, newspapers, and peri odicals are treated no less favourably 
than like domestic products. 
(ii) The requirements, set forth in Articles 3 and 4 of the Imported Publications 
Subscription Rule , that newspapers and periodicals, as well as books in the 
limited category may only be sold through subscription, are within the Panel's 
terms of reference as they are adequate ly identified in the US panel request. 
(iii) The requirements on purchasers of imported newspapers and periodicals, as 
well as books in the limited category, embodied in Articles 5 through 8 of the Imported Publications Subscription Rule , are not within the Panel's terms of 
reference as they were not adequately identified as specific measures at issue within the meaning of Article 6.2 of the DSU. 
(e) The Several Opinions  is attributable to China and establishes rules or norms intended 
to have general and prospectiv e application.  It is therefore a "measure" within the 
meaning of Article 3.3 of the DSU and is a proper subject of these dispute settlement 
proceedings. 
(f) The Importation Procedure  and the Sub-Distribution Procedure  are attributable to 
China, but they do not establish rules or  norms intended to have general and 
prospective application.  Therefore, they are not "measures" within the meaning of 
Article 3.3 of the DSU.  As such, they are not a proper subject of these dispute settlement proceedings. 
C. US
 CLAIMS REGARDING CHINA 'S TRADING RIGHTS COMMITMENTS  
7.227  The Panel  now turns to assess the US claims of vi olation based on China's trading rights 
commitments.  The United States raises claims of violation under the provisions of China's Accession 
Protocol.189  These claims are directed at a series of Chinese measures relating to reading materials, 
audiovisual home entertainment products (hereafte r "AVHE products"), sound recordings and films 
for theatrical release.  China considers that none of the US claims has merit.  China argues that some 
of the measures challenged by the United States ar e not subject to the relevant provisions of the 
Accession Protocol, and that those which are subject to these provisions are not inconsistent with the 
Accession Protocol or in any event justified under the provisions of Article XX of the GATT 1994.     
7.228  The Panel will first determine whether the Un ited States has established that any of the 
specific measures at issue is inconsistent with the Accession Protocol.  Thereafter, if one or more measures are inconsistent with the Accession Prot ocol, the Panel will proceed to address China's 
defence under Article XX of the GATT 1994, to the ex tent China has asserted an Article XX defence 
in relation to the relevant measure(s).    
1. US claims of violation of China's Accession Protocol 
7.229  The Panel  notes that the United States bases its claims of violation on three paragraphs of the 
Accession Protocol: (i) paragraph 1.2, to the extent that it incorporates paragraphs 83(d) and 84(a) and 
                                                     
 
189 Protocol on the Accession of the People's Republic of China, WT/L/432 (Exhibit US-1). WT/DS363/R 
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  (b) of the Report of the Working Party on th e Accession of China (hereafter the "Working party 
Report"); (ii) paragraph 5.1; and (iii) paragraph 5.2.    
(a) Paragraphs 1.2, 5.1 and 5.2 of the Accession Protocol   
7.230  Paragraph 1.2 of the Accession Protocol provides:  
"2. The WTO Agreement to which Chin a accedes shall be the WTO Agreement 
as rectified, amended or otherwise modified  by such legal instruments as may have 
entered into force before the date of accessi on.  This Protocol, which shall include the 
commitments referred to in paragraph 342 of  the Working Party Report, shall be an 
integral part of the WTO Agreement." 
7.231  Paragraph 342 of the Working Party Report provides (underlining added): 
"The Working Party took note of the e xplanations and statements of China 
concerning its foreign trade regime, as reflected in this Report.  TheWorking Party  took note of the commitments given by China in relation to certain specific matters 
which are reproduced in paragraphs 18-19,  22-23, 35-36, 40, 42, 46-47, 49, 60, 62, 
64, 68, 70, 73, 75, 78-79, 83-84
, 86, 91-93, 96, 100-103, 107, 111, 115-117, 119-120, 
122-123, 126-132, 136, 138, 140, 143, 145, 146, 148, 152, 154, 157, 162, 165, 
167-168, 170-174, 177-178, 180, 182, 184-185, 187, 190-197, 199-200, 203-207, 210, 212-213, 215, 217, 222-223, 225, 227-228, 231-235, 238, 240-242, 252, 256, 259, 263, 265, 270, 275, 284, 286, 288, 291, 292, 296, 299, 302, 304-305, 307-310, 312-318, 320, 322, 331-334, 336, 339 and 341 of this Report and noted that these commitments are incorporated in paragraph 1.2 of the Draft Protocol." 
7.232  Accordingly, the commitments set out in, inter alia , paragraphs 83(d) and 84(a) and (b) of the 
Working Party Report are commitments that are inco rporated into paragraph 1.2 of the Accession 
Protocol.  
7.233  Paragraph 83(d) of the Working Party Report provides: 
"The representative of China confirmed that during the three years of transition, 
China would progressively liberalize the scope  and availability of trading rights.  
... (d) The representative of China also conf irmed that within three years after 
accession, all enterprises in China would be  granted the right to trade. Foreign-
invested enterprises would not be required to establish in a particular form or as a separate entity to engage in importing and exporting nor would new business licence 
encompassing distribution be required to  engage in importing and exporting." 
The Working Party took no te of these commitments.  
 
7.234  Paragraphs 84(a) and (b) of th e Working Party Report provide:  
"(a) The representative of China reconfirmed that China would eliminate its 
system of examination and approval of trading rights within three years after 
accession.  At that time, China would permit all enterprises in China and foreign enterprises and individuals, including sole pr oprietorships of other WTO Members, to  WT/DS363/R 
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  export and import all goods (except for the sh are of products liste d in Annex 2A to 
the Draft Protocol reserved for importation and exportation by state trading enterprises) throughout the customs territory of China.  Such right, however, did not permit importers to distribute goods within China.  Providing distribution services 
would be done in accordance with China' s Schedule of Specific Commitments under 
the GATS. 
(b) With respect to the grant of tr ading rights to foreign enterprises and 
individuals, including sole proprietorships of other WTO members, the representative 
of China confirmed that such rights woul d be granted in a non-discriminatory and 
non-discretionary way.  He further confirmed that any requirements for obtaining 
trading rights would be for customs and fiscal purposes only and would not constitute 
a barrier to trade.  The representative of China emphasized that foreign enterprises 
and individuals with trading rights ha d to comply with all WTO-consistent 
requirements related to importing and e xporting, such as those concerning import 
licensing, TBT and SPS, but confirmed that requirements relating to minimum capital 
and prior experience would not apply." 
The Working Party took no te of these commitments.  
7.235  Furthermore, paragraphs 5.1 and 5.2 of the Accession Protocol provide: 
"1. Without prejudice to China's right to regulate trade in a manner consistent 
with the WTO Agreement, China shall pr ogressively liberalize the availability and 
scope of the right to trade, so that, within  three years after accession, all enterprises in 
China shall have the right to trade in all goods throughout the customs territory of 
China, except for those goods listed in Anne x 2A which continue to be subject to 
state trading in accordance with this Protocol.  Such right to trade shall be the right to 
import and export goods.  All such goods sh all be accorded national treatment under 
Article III of the GATT 1994, especially para graph 4 thereof, in respect of their 
internal sale, offering for sale, purchase, tran sportation, distribution or use, including 
their direct access to end-users.  For t hose goods listed in Annex 2B, China shall 
phase out limitation on the grant of trading rights pursuant to the schedule in that Annex.  China shall complete all necessary  legislative procedures to implement these 
provisions during the transition period. 
2. Except as otherwise provided for in this  Protocol, 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." 
7.236  Before addressing any of the US claims under the above provisions, it is useful to deal with a 
number of interpretative issues.  We will first examine paragraphs 5.1 and 5.2 of the Accession 
Protocol.  Thereafter, we will examine paragr aphs 83(d), 84(a) and 84(b), all of which are 
incorporated into the Accession Protocol th rough paragraph 1.2 thereof.        
(i) Paragraph 5.1 of th e Accession Protocol 
7.237  Regarding paragraph 5.1 of the Accession Protocol, the United States  is of the view that 
pursuant to this paragraph every enterprise throughou t the entire customs territory of China, without 
exception, must have the right to trade.  The Unite d States argues that as long as an enterprise is in 
China, the obligation in paragraph 5.1 contains no additional conditions or restrictions on which 
enterprises shall have the right to trade.  Ther efore, the United States maintains, China may not WT/DS363/R 
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  reserve the right to trade to a s ubset of enterprises in China that are wholly state-owned or wholly 
Chinese-owned.  The United States further submits  that, likewise, any limitations on who may 
exercise the right to trade, based on criteria such as  sources of investment, would be inconsistent with 
paragraph 5.1. 
7.238  As the United States further points out, the righ t to trade applies to "all goods" except those 
listed in Annexes 2A and 2B.  The United States s ubmits that Annex 2B is not relevant to these 
proceedings because none of the relevant products  is covered by Annex 2B, and because this 
limitation is no longer applicable to China's trading rights commitments, since it expired in December 
2004.  As regards Annex 2A, the Un ited States notes that since the US claims concern the right to 
import, only Annex 2A1 – entitled "P roducts Subject to State Trading (Import)" – is relevant.  The 
United States notes that Annex 2A1 contains a list of eight product headings excepted from China's 
obligations – grain, vegetable oil, sugar, tobacco , crude oil, processed oil, chemical fertilizer, and 
cotton – that are divided into 84 products identified by the eight-digit Harmonized System (HS) product classification code and by the state trading enterprises that import these products.
190  Since 
none of the relevant products is covered by Annex 2A1, the United States considers that limiting the 
right to import any of the relevant products woul d be inconsistent with China's trading rights 
commitments. 
7.239  China  points out that paragraph 5.1 expressly st ates that China's commitment to liberalize 
trading rights is without prejudice to China's right to regulate trade in a manner consistent with the WTO Agreement.  China therefore does not agree with the United States that the only exception to 
China's commitment to liberalize th e right to trade is Annex 2A.  According to China, the United 
States intentionally ignores the unambiguous first part  of paragraph 5.1 that provides for China's right 
to regulate trade, which constitutes a second exception to China's commitment to liberalize the right to 
trade.  China therefore considers that it is committed to grant the right to import and export goods to all companies and for all goods except those listed in  Annex 2A and that this commitment is without 
prejudice to China's right to regulate trade in a manner consistent with the WTO Agreement. 
7.240  China submits that, literally, the "right to regulat e trade" means the right to take measures for 
the purpose of regulating trade.  China considers that "t rade" covers the "right to trade" itself, which is 
by definition one of its elements.  China maintains th at the right to regulate trade is the expression of a 
general exception to Members' ob ligations, which leaves room for the implementation of public 
policies and is crucial for the preser vation of China's sovereignty.  
7.241  China notes that pursuant to paragraph 5.1 the ri ght to regulate trade must be exercised in a 
manner consistent with the WTO Ag reement, and that the term "W TO Agreement" includes the WTO 
Agreement and all its Annexes.  China argues th at since China's commitment in paragraph 5.1 
concerns the right to import and export goods, China's right to regulate trade must be interpreted in 
conjunction with WTO agreements applicab le to trade in goods, including the GATT 1994.
191  China 
considers, therefore, that it has the right to take measures pursuing policy objectives in a manner 
consistent with Article XX of th e GATT 1994.  More specifically, China considers that it has the right 
under paragraph 5.1 to impose restrictions and cond itions on the grant of trading rights, such as a 
limitation of the right to import to a number of selected entities, provided that these measures are 
consistent with Article XX of the GATT 1994. 
7.242  The United States  responds that China's reading of its "ri ght to regulate trade" is inconsistent 
with the structure and operation of paragraph 5.1,  read as a whole.  In the United States' view, 
paragraph 5.1 provides a specific mechanism for excluding products from China's trading rights 
                                                      
190 The United States refers to the Accession Protocol, WT/L/432, Annex 2A1, p. 20 (Exhibit US-1). 
191 China notes that Annex 1A on "Multilateral Agreements on Trade in Goods" of the WTO 
Agreement includes the GATT 1994.    WT/DS363/R 
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  commitments – i.e., Annexes 2A and 2B of the Accession Protocol.  The United States argues that 
China's interpretation of the right to regulate trad e would make the specific mechanisms in Annexes 
2A and 2B superfluous.  In particul ar, the United States considers that  the "right to regulate trade" 
does not permit China to reserve certain products per se  to state trading.  In the United States' view, 
doing so would amount to eliminating China's tradi ng rights commitments altogether, not simply to 
regulating trade.  The United States submits that to give effect to the entire first sentence of 
paragraph 5.1, the scope of China's right to re gulate trade cannot extend to the domain covered by 
these Annexes.  According to the United States, th e language and structure of paragraph 5.1 make 
clear the intent of WTO Members to agree on a sel f-contained, complete, and agreed set of excepted 
products – to be found in Annexes 2A and 2B.192  The United States maintains that if China wished to 
deny trading rights for the products at issue, it s hould have availed itself of the mechanism provided 
by Annexes 2A and 2B at the time of its accession,  which it did not do.  The United States considers, 
therefore, that China is trying to construct a "secr et entrance" into the Annexes of paragraph 5.1, 
contrary to the agreement negotiated by WTO Members.   
7.243  The United States further argues that the right to  regulate trade in a manner consistent with 
the WTO Agreement applies to measures addressing the goods being traded rather than the traders of 
those goods.  The United States considers that und er the first clause of paragraph 5.1 China may 
require that goods being imported into China sa tisfy other requirements allowed under the WTO 
Agreement, such as import licensing, TBT and SPS requirements.193  The United States notes that 
China could, e.g., prevent imports of wholly proh ibited goods by all importe rs, or apply tariffs and 
health and safety requirements to  imported goods without infringing its trading rights commitments.  
In the United States' view, the first clause of paragraph 5.1 thus does not detract from China's 
commitments to allow the three enumerated categories of importers – i.e ., all foreign enterprises, all 
foreign individuals and all ente rprises in China – to trade in  the goods being regulated. 
7.244  China  responds that its right to regulate trade is  distinct from the derogations negotiated and 
agreed upon with respect to state trading, and that  the Panel should dismiss the United States' attempt 
to blur the distinction.  China argues in this r espect that Annexes 2A and 2B reflect the negotiated 
right of China to preserve state trading for a certa in number of products and sectors.  China submits 
that these products are outside the scope of China's trading rights commitments and can (or could, in the case of Annex 2B), therefore, be regulated and ma de subject to restrictions by China without any 
further justification than their inclusion in these Annexes.  China argues that the right to regulate 
trade, on the other hand, does not create a right to exclude products from the scope of China's trading 
rights commitments, but rather to adopt or mainta in measures that are consistent with the WTO 
Agreement.  In China's view, the right to regulat e trade is the expression of a general right of WTO 
Members to maintain certain measures and to pursue legitimate policy objectives.  In particular, China 
argues, the "without prejudice" clause affirms Chin a's right to adopt or maintain measures with the 
potential consequence of imposing certain limitations on the right to trade, e.g., on the type of 
enterprise that may trade in goods.  China submits that to interpret the "without prejudice" clause 
differently would fail to give meani ng to all words in paragraph 5.1. 
7.245  Thus, China is of the view that the situation pertaining to the "without prejudice" clause is 
very different from that pertaining to the products listed in Annexes 2A and 2B.  According to China, 
while the products listed in Annexes 2A and 2B can (or could) be made subject to state trading and 
other restrictions on the right to trade without any justification other than their presence in these 
Annexes, other restrictions implemented under the "without prejudice" clause may only result from 
measures which are justified by another provision of the WTO Agreement and fully consistent with 
                                                     
 
192 The United States notes that according to paragr aphs 80 and 84(a) of the Working Party Report 
China's trading rights commitments are to give "all enterp rises ... the right to import and export all goods (except 
for the share of products listed in Annex 2A ...)".   
193 The United States refers to paragraph 84(b) of the Working Party Report. WT/DS363/R 
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  such provision.  China submits that the "without prej udice" clause thus aims at providing the basis for 
a coherent reading of China's commitments, on the one hand, and China's right to implement certain 
policy objectives through the adoption of WTO-consiste nt measures, on the other hand.  In China's 
view, the "without prejudice" clause is the recognition on the part of WTO Members of the need to maintain a balance between China's right to regul ate trade on the basis of other provisions of the 
WTO Agreement and China's commitments with rega rd to the granting of the right to trade. 
7.246  The Panel  notes that paragraph 5.1, first sentence,  imposes on China the obligation to ensure 
that, within three years after acce ssion, "all enterprises in China … ha ve the right to trade in all goods 
throughout the customs territory of China", except for those goods listed in Annex 2A to the Accession Protocol.
194  Paragraph 5.1, second sentence, defines the "right to trade" as including the 
"right to import … goods".  Paragraph 5.1, fourth sentence, further stipulates that for those goods 
listed in Annex 2B, any lim itations on the grant of trading rights were to be phased out pursuant to the 
schedule in that Annex.  Annex 2B indicates that for all goods listed therein, liberalization was, 
likewise, to be completed "within 3 years after accession".    
7.247  China acceded to the WTO on 11 December 2001.195  As a result, the three-year transition 
period referred to in paragraph 5. 1 expired on 11 December 2004, whic h is well before the date of 
establishment of this Panel. 
7.248  Regarding whether the products at issue are s ubject to the obligation in question, as noted 
above, the United States raises claims in respect of the following products:196 reading materials (e.g., 
books, newspapers, periodicals and electronic publi cations), finished physical AVHE products 
(including video cassettes, VCDs and DVDs) and ph ysical AVHE products in tended for publication 
(e.g., master copies), finished physical sound r ecordings (including tapes, records and CDs) and 
physical sound recordings intended for publication (e .g., master recording discs), and physical films 
for theatrical release.197  None of these products is part of the eight categories of goods listed in Annex 
2A1198 or the six categories of goods listed in Annex 2B.  It is not in dispute, and we agree, that the 
relevant reading materials, finished AVHE products and finished sound recordings are "goods" within 
the meaning of paragraph 5.1.199  However, China appears to disp ute the United States' view that 
                                                      
194 To recall, paragraph 5.1 reads: 
"Without prejudice to China's right to regulate trade in a manner consistent with the WTO Agreement, China shall progressively liberalize th e availability and scope of the right to trade, 
so that, within three y ears after accession, all enterprises in China shall have th e right to trade 
in all goods throughout the customs territory of China, except for those goods listed in 
Annex 2A which continue to be subject to state trading in accordance with this Protocol.  Such 
right to trade shall be the right to import and export goods.  All such goods shall be accorded national treatment under Article III of the GATT 1994, especially paragraph 4 thereof, in 
respect of their internal sale, offering for sale, purchase, transportation, distribution or use, 
including their direct access to end-users.  For those goods lis ted in Annex 2B, China shall 
phase out limitation on the grant of trading rights pursuant to the schedule in that Annex.  
China shall complete all necessary legislative procedures to implement these provisions 
during the transition period." 
195 WT/INF/43/Rev.8 (Exhibit US-41). 
196 In response to a question from the Panel, the United States stated that "all of  the products at issue in 
the US trading rights claims are physical goods" (United States' response to question No. 22). 
197 By AVHE products and sound recordings intended for publication – the United States refers to 
unfinished AVHE products and sound recordings –  the United States means master copies to be used to publish 
and manufacture copies for sale in China (United States' respon se to question No. 18).   
198 Annex 2A2 is not relevant to this dispute, in that it relates to goods to be exported. 
199 The United States has stated that  sound recordings include songs, ringtones and ringback tones.  We 
understand the United States to mean that the recorded audio content can be a song, a ringtone or a ringback tone.  We recall in this respect that the United States has made clear that all of the pr oducts at issue in the US 
trading rights claims consist of a carri er medium carrying content (United States' response to question No. 22).    WT/DS363/R 
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  physical AVHE products and physical sound record ings intended for publication as well as films for 
theatrical release are, likewise, "goods".  For reasons we explain below when addressing the 
consistency of the relevant measures with the Ac cession Protocol, we consider that the products 
which are the subject of US claims under the Accession Protocol are all goods.200   
7.249  Paragraph 5.1 provides that "all enterprises in Chin a" must have the right to trade in all goods.  
In view of the absence of further textual qualificati on, we consider that the phrase "all enterprises in 
China" encompasses both Chinese ente rprises registered in China and foreign enterprises invested and 
registered in China.201  In other words, we think that paragraph 5.1 requires China to grant the right to 
trade even to enterprises that  are wholly Chinese-invested.202  The absence of further textual 
qualification also suggests to us that the phrase "a ll enterprises in China" encompasses both state-
owned and privately owned enterprises in China.   
7.250  Regarding the category of foreign enterprises invested and registered in China, we find 
support for our view in paragraph 83(d) of the Wo rking Party Report, which sets out a commitment 
incorporated into the Accession Protocol through para graph 1.2 of the Accession Protocol.  Paragraph 
1.2 is part of the context of paragraph 5.1.  Like  paragraph 5.1, the first sentence of paragraph 83(d) 
commits China to grant the right to trade to "all enterprises in China".  Th e second sentence then goes 
on to state that "[f]oreign-invested enterprises" would not be required, e.g., to establish in a particular 
form or as a separate entity to engage in importing and exporting.  It is clear that the second sentence 
is about foreign-invested enterprises wishing to engage in importing into China or exporting from 
China, i.e., about foreign-invested enterprises in Chin a.  In the light of this, and since paragraph 83(d) 
only has two sentences, it is also clear that th e second sentence of paragraph 83(d) explains and 
clarifies, with specific reference to foreign-invested  enterprises in China, the commitment given in the 
first sentence.  In other words, we consider that the second sentence of paragraph 83(d) indicates that 
the phrase "all enterprises in China" in the first sentence is meant to include foreign-invested 
enterprises in China.   
7.251  In view of the parallelism between the first sente nce of paragraph 83(d) and paragraph 5.1, we 
think the phrase "all enterprises in Ch ina" in paragraph 5.1 should, likew ise, be interpreted to include 
foreign-invested enterprises in China.203  We note in this respect that both parties agree that the phrase 
"all enterprises in China" in paragraph 5.1 includes foreign-invested enterpri ses registered in China.204  
It is useful to note, as well, that according to Ch ina there are only three types of "foreign-invested 
enterprises" in China: wholly foreign-owned ente rprises, Chinese-foreign equity joint ventures and 
Chinese-foreign contractual joint ventures.205  With specific regard to  Chinese-foreign equity or 
contractual joint ventures, in view of the absence of indications to the contrary in paragraph 5.1 of the 
Accession Protocol or paragraphs 83-84 of the Wo rking Party Report, we consider that such 
                                                      
200 See infra , paras. 7.526 and 7.642.  
201 Both parties appear to agree that the phrase in question covers enterprises which are registered in 
China, and that it does not include foreign enterprises which are not registered in China (parties' responses to 
question No. 50(c)(i) and (ii)).  China has indicated th at "registration" includes, but is not limited to, the 
incorporation of an enterprise (China 's response to question No. 23(a)).  
202 This would appear to be confirmed by paragraph 83(b) of the Working Party Report, which sets out 
a commitment incorporated into the Accession Protocol through paragraph 1.2 of the Accession Protocol.  Paragraph 83(b) commits China to eliminate, in respect of "wholly Chinese-invested enterprises", its 
examination and approval system at the end of  the phase-in period for trading rights. 
203 Since paragraph 83(d) indicates th at China is to grant trading rights also to foreign-invested 
enterprises in China, it is unnecessary to examine, in th e context of an analysis of paragraph 5.1, whether there 
exists a plausible rationale for other WTO Members to seek trading rights for such enterprises, or for China to 
grant trading rights to such enterprises. 
204 Parties' responses to question No. 50(c). 
205 China's response to question No. 50(c)(iii).   WT/DS363/R 
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  enterprises would qualify as "foreign-invested enterp rises" regardless of whether they are owned or 
controlled by foreign investors or by Chinese investors.    
7.252  It follows from the above that as of the date of establishment of this Panel, China was under 
an obligation to ensure that "all enterprises in  China", including foreign-invested enterprises 
registered in China (wholly foreign-owned ente rprises, Chinese-foreign equity joint ventures and 
Chinese-foreign contractual joint ventures), have  the right to import all goods into China.
206  
7.253  We now turn to examine the introductory clause of paragraph 5.1, that is to say, the phrase 
"[w]ithout prejudice to China's right to regulate trade in a manner consistent with the WTO Agreement".  That phrase (hereafter the "'without  prejudice' clause") makes clear that China's 
obligation to ensure that all enterprises in Chin a have the right to trade in all goods is "without 
prejudice to" China's right to regulate trade in a manner consistent with the WTO Agreement.  The 
phrase "without prejudice to" is defined in dictionaries as meaning "without detriment to any existing claim or right; spec. in law, without damage to one's own rights or claims"
207, or "[w]ithout loss of 
any rights; in a way that does not harm or can cel the legal rights or privileges of a party"208.   
7.254  In the light of this, we consider that the phr ase "without prejudice to" is intended to indicate 
that China's obligation to ensure th at all enterprises in China have the right to trade must not, and does 
not, detrimentally affect China's right to regulate trad e in a WTO-consistent manner.  In our view, this 
implies that if China regulates trade in a WTO-cons istent manner, and this results, contrary to the 
obligation set forth in paragraph 5.1,  in "enterprises in China" not "h av[ing] the right to trade in all 
goods", China's right to regulate trade in a WTO- consistent manner takes precedence over China's 
obligation to ensure that all ente rprises in China have the right to  trade.  Consequently, in the 
aforementioned hypothetical situation, the end re sult would be that China could introduce, or 
maintain, the relevant measure even though it is in breach of paragraph 5.1.   
7.255  China appears to argue, however, that when a measure regulates trade in a WTO-consistent 
manner, China would not actually breach its obligation under paragraph 5.1, even if as a result of this 
measure not all enterprises in Ch ina have the right to trade.209  We do not agree.  Nothing in 
paragraph 5.1 suggests that the obligation to grant tr ading rights would not arise, or would cease to be 
applicable, in situations where China has regulat ed trade in a WTO-consistent manner.  To the 
contrary, we think that the phrase "without prejudice to " supports the view that China is subject to the 
obligation to grant trading rights irrespective of  whether China has regulated trade in a WTO-
consistent manner.210  Accordingly, we consider that by faili ng to comply with its obligation to ensure 
that all enterprises in China have the right to tr ade, China would be acting inconsistently with 
paragraph 5.1, first sentence.  Hence, to establish an  inconsistency with paragr aph 5.1, first sentence, 
a complaining party in our view need only establis h that China has acted in consistently with the 
                                                      
206 We note that paragraph 5.1 states that "all enterpri ses in China" must "have" the right to trade within 
three years after China's accession to the WTO.  It does not state that all en terprises meeting certain 
qualifications must have the right to trade within three year s.  Nonetheless, as we explain below, at para. 7.408, 
it appears that the right to trade may be made subject to compliance with customs and fiscal requirements that do not constitute a barrier to trade.   
207 Shorter Oxford English Dictionary , 5th ed. (Clarendon Press 2002), Vol II, p. 2324. 
208 Black's Law Dictionary , 7th ed., B.A. Garner (ed.) (West Group 1999), p. 1596. 
209 China's first written submission, para. 234.   
210 Indeed, the view that the obligation in question is applicable also in situations where China has 
regulated trade in a WTO-consistent manner helps explain the existence of the "without prejudice" clause.  Absent such a clause, the obligation in question could po tentially prejudice China's right to regulate trade in a 
WTO-consistent manner.  The "without prejudice" clau se clarifies that no such effect is intended.  WT/DS363/R 
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  aforementioned obligation.211  As we have indicated in the preceding paragraph, however, if a 
measure which does not ensure that all enterprises in China have the right to trade, and which is 
therefore inconsistent with paragraph 5.1, at th e same time regulates trade in a WTO-consistent 
manner, the end result would be that China could neve rtheless maintain that measure because in such 
cases China's right to regulate trade takes preced ence over China's obligation to ensure that all 
enterprises in China have the right to trade.     
7.256  The next issue for us to consider is the meani ng of the phrase "China's right to regulate trade".  
The verb "regulate" is defined in relevant part as "[ c]ontrol, govern, or direct by rule or regulations; 
subject to guidance or restrictions …".212  In the context of paragraph 5.1, the regulator is China, i.e., a 
government.  Thus, China's right to "regulate" trade can be understood as meaning China's right to 
subject trade to governmental control, guidance, di rection or restrictions, by rule or regulations.  
7.257  The noun "trade" is defined in relevant pa rt as "[b]uying and selling or exchange of 
commodities for profit, spec. between nations …".213  It is clear to us that in the specific context of 
paragraph 5.1, the concept of "trade " is intended to refer to interna tional, or cross-border, trade in 
goods.214  Accordingly, the phrase "right to regulate tr ade" in paragraph 5.1 could be understood as 
meaning the right to regulate the exchange of goods across international borders.  We find significant, 
however, the fact that the second sentence of paragraph 5.1 defines the "right to trade" as the "right to 
import and export goods".  Given this, we consider it appropriate , in the specific context of 
paragraph 5.1, to interpret the phrase "right to regulat e trade" in the light of, and consistently with, the 
language used in the second sentence.  This leads us to the view that the "right to regulate trade" can 
be understood as the "right to regulate imports and exports".  Needless to say, in the context of 
paragraph 5.1, we use the terms "imports" a nd "exports" to mean goods that are imported and 
exported, respectively.215    
7.258  Our analysis thus far suggests that China's "right  to regulate trade" is China's right to subject 
imports or exports – i.e., the goods that are imported into China or exported from China – to governmental control, guidance, direction or rest rictions, by promulgating appropriate rules or 
regulations.  
7.259  We next look to the wider context of paragr aph 5.1, which includes paragraph 1.2 of the 
Accession Protocol.  Paragraph 1.2 incorporates, inter alia , paragraphs 86 and 84(b) of the Working 
Party Report.  We consider that our  interpretation of the phrase "right to regulate trade" fits with the 
text of paragraphs 86 and 84(b).  Paragraph 86, which concerns the grant of trading rights for goods 
specified in Annex 2B, actually uses the terms "imports" and "exports".
216  Specifically, it sets out a 
                                                      
211 It is important to recall in this connection that, as explained previously, a finding of inconsistency 
with paragraph 5.1, first sentence, would not necessarily mean that the measure at is sue cannot be introduced or 
maintained. 
212 Shorter Oxford English Dictionary , 5th ed. (Clarendon Press 2002), Vol II, p. 2516. 
213 Ibid., p. 3316. 
214 Paragraph 5.1 defines the right to trade as the right to import or export goods. 
215 The term "import" is defined as "something imported or brought in ..." ( Shorter Oxford English 
Dictionary , 5th ed. (Clarendon Press 2002), Vol I, p. 1331).  In the context of paragraph 5.1, it is goods that are 
imported or exported. 
216 Paragraph 86 reads in relevant part: 
"Members of the Working Party noted China's commitment that it would phase out the 
limitation on the grant of trading rights for goods specified in Annex 2B of its Draft Protocol within three years after accession. … The repr esentative of China added that China would 
eliminate import and export volume as a criterion for obtaining the right to trade these 
products, reduce minimum captalization requirements and extend the right to register as designated importing and exporting enterprises to enterprises that used such goods in the 
production of finished goods and enterprises that distributed such goods in China.  At the end WT/DS363/R 
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  commitment by China that "none of the criteria [for obtaining the right to trade] applicable under the 
designated trading regime would constitute a quan titative restriction on imports or exports".   
7.260  Paragraph 84(b), which the United States is invoking in this dispute, is not about the grant of 
trading rights to "enterprises in China", but about th e grant of trading rights to "foreign enterprises and 
individuals".  Nonetheless, we find the pr ovisions of paragraph 84(b) instructive.
217  The second 
sentence of paragraph 84(b) confirms that "any re quirements for obtaining trading rights … would not 
constitute a barrier to trade".  We think that the second sentence of para graph 5.1 and the afore-
mentioned commitment set out in paragraph 86 suppor t understanding the term "barrier to trade" as 
meaning "barrier to imports or exports".    
7.261  In addition, we also find relevant to the inte rpretation of paragraph 5. 1 the final sentence of 
paragraph 84(b), according to wh ich "[t]he representative of Ch ina emphasized that foreign 
enterprises and individuals with trad ing rights had to comply with all WTO-consistent requirements 
related to importing and exporting, such as tho se concerning import licensing, TBT and SPS, but 
confirmed that requirements relating to minimum ca pital and prior experience would not apply".   
7.262  In analysing the final sentence, we note, fi rst of all, the phrase "foreign enterprises and 
individuals with trading rights".  We consider th at this phrase refers to foreign enterprises and 
individuals who have trading rights in accordance w ith the Accession Protocol.  Or to put it more 
clearly, we consider that it refers to foreign ente rprises and individuals in respect of whom China has 
an obligation, under the Accession Prot ocol, to grant the right to trade.218  In our view, the final 
sentence makes clear that even though they are foreign enterprises and individuals "with trading 
rights" (in that the Accession Protocol prescribes th at they must be granted such rights), such 
enterprises and individuals must still comply w ith "all WTO-consistent requirements related to 
importing and exporting, such as those concerning im port licensing, TBT and SPS".  Thus interpreted, 
the final sentence is plainly very similar in function to the "without prejudice" clause of paragraph 5.1.   
7.263  China suggests that "foreign enterprises and indi viduals with trading rights" are enterprises 
and individuals who actually enjoy trading rights, that is to say, who have actually been granted 
trading rights without restriction.219  China appears to infer from this  argument that the final sentence 
                                                                                                                                                                     
of three years, all enterprises in China and all foreign enterprises and individuals would be 
permitted to import and export such goods throughout the customs territory of China.  During 
the transition period , none of the criteria app licable under the designated trading regime 
would constitute a quantitative restriction on imports or exports.  The Working Party took note of these commitments." 
217 We recall that paragraph 84(b) reads: 
"With respect to the grant of trading rights to foreign enterprises and individuals, including sole proprietorships of other WTO members, th e representative of Chin a confirmed that such 
rights would be granted in a non-discriminatory and non-discretionary way.  He further 
confirmed that any requirements for obtaining trading rights would be for customs and fiscal purposes only and would not constitute a barrier to trade.  The representative of China 
emphasized that foreign enterprises and individuals  with trading rights had to comply with all 
WTO-consistent requirements related to importing and exporting, such as those concerning import licensing, TBT and SPS, but confirmed that  requirements relating to minimum capital 
and prior experience would not apply." 
218 The phrase "with trading rights" may have been adde d to reflect the fact that  there was a three-year 
transition period during which the availability and scope of the right to trade was progressively liberalized, and 
that foreign enterprises and individuals wishing to import or export goods listed in Annex 2A would not have 
the right to trade. 
219 China's response to question No. 169; China's comments on the United States' response to question 
No. 159.  WT/DS363/R 
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  of paragraph 84(b) only addresses situations where tr ading rights have actually been granted and says 
nothing about situations where trading rights are being restricted.220   
7.264  The United States, in response to a question from the Panel, suggests that the phrase "with 
trading rights" is intended to recognize the fact th at in those cases where Ch ina has imposed fiscal or 
customs requirements for obtaining trading rights,  as contemplated in the second sentence of 
paragraph 84(b), some foreign enterprises or individuals may not yet have trading rights.221   
7.265  We are not persuaded by the parties' interpre tations of the phrase "with trading rights".  We 
first note the last part of the sentence in questi on, which confirms that "requirements relating to 
minimum capital and prior experience would not apply" .  In our view, certainly a requirement relating 
to prior experience in importing and exporting is a requirement which would be imposed as a 
condition for obtaining the right to trade, not for maintaining it.222  Furthermore, there is no indication 
in the final sentence of paragraph 84(b) that, unlike the first part of that sentence, the last part is not 
about foreign enterprises and individuals "with tradin g rights".  To the contrary, the conjunction "but" 
indicates that a contrast is being drawn between requirements with which foreign enterprises and 
individuals "with trading rights" must comply and requirements with which they can expect not to 
have to comply.223   
7.266  If, then, the last part of the sentence in question also concerns foreign enterprises and 
individuals "with trading rights", under China's suggested interpre tation of the phrase "with trading 
rights" the last part would "confirm" that enterpri ses and individuals who have already been granted 
trading rights will not need to comply with, inter alia , a requirement relating to prior experience.  
Such an interpretation does not seem appropriate, in  that a prior experience requirement could not 
logically be imposed on enterprises or individuals w ho have already been granted trading rights.  We 
think the interpretation suggested by the United States  is, likewise, difficult to reconcile with the last 
part of the second sentence of paragraph 84(b).  In contrast, our interpretation comports well with the 
last part of the sentence in question.  Under our inte rpretation, the last part "confirms" that China will 
not apply "requirements relating to minimum capital and prior experience" to foreign enterprises and 
individuals in respect of whom China has an obligation, under the Accession Protocol, to grant the 
right to trade.224   
7.267  Another element of the final sentence is the phrase "all WTO-consistent requirements related 
to importing and exporting, such as those concer ning import licensing, TBT and SPS".  We find it 
relevant because it is substantively similar to th e reference in pa ragraph 5.1 to WTO-consistent 
regulation of trade.  In our view, the phrase "requi rements related to importi ng and exporting" covers 
                                                      
220 China's comments on the United States' response to question No. 159.  At the same time, China 
maintains that the phrase "with trading rights" does no t mean that WTO-consistent requirements related to 
importing and exporting may not restrict trading rights (China's response to Panel question No. 197(d). 
221 United States' response to question No. 197(d). 
222 It is relevant to note in this context that paragraph 83(a) of the Working Party Report commits China 
to eliminate, for Chinese and foreign- invested enterprises, "any export performance, trade balancing, foreign 
exchange balancing and prior experience requirements, such as in importing and exporting , as criteria for 
obtaining or maintaining the right to import or export" (emphasis added).  We also note that paragraph 83(b) 
indicates that China in the past applied minimum capital requirements to wholly Chinese-invested enterprises as 
a condition for obtaining trading rights. 
223 If no connection was intended between the first part and the last part of the final sentence, it would 
have been more natural for the last part to be a new sentence beginning, like the second sentence of paragraph 84(b), with the words "He further confirmed that…".   
224 Understanding the last part in this way is also consistent with the second sentence of 
paragraph 84(b) which makes clear that China may apply customs or fiscal requirements to foreign enterprises and individuals in respect of whom it has an obligation to grant the right to trade, provided they do not constitute 
barriers to trade. WT/DS363/R 
Page 178  
 
  requirements concerning whether particular goods  may be imported or expor ted.  This view draws 
support from the three examples that are provided.  All of them can be inte rpreted as examples of 
requirements relating to goods that are imported or exported.
225  Thus, for certain goods, it may be 
necessary to obtain an import or export licence.  For other goods, there may be TBT- or SPS-type requirements governing their importation.  For inst ance, China might have a requirement that only 
cars meeting certain technical safety standards may be imported, or that certain agricultural products 
may not be imported because they present risk s to human, animal or plant health.
226   
7.268  We find further confirmation for our view in the text of the phrase "requirements related to 
importing and exporting".  The phrase uses the terms "i mporting" and "exporting", which indicate that 
it is about requirements related to the activ ity, or process, of importing and exporting.227  Also, the 
phrase uses the term "related to", which means "[h]aving relation; having mutual relation; 
connected".228  In contrast, the last part of the same final sentence of paragraph 84(b) refers to 
requirements "relating to" minimum capital and prior experience, i.e., requirements that concern the 
activity of importing or exporting.  Thus, "requi rements related to importing and exporting" are 
requirements that have a connection to the activ ity of importing and exporting, not requirements 
"relating to", or concerning, the activity of importing or exporting.229  The above-noted hypothetical 
requirement that only cars meeting certain technical  safety standards may be imported would seem to 
be a requirement that has a connection to the activ ity of importing, via the good it regulates.  It does 
not appear to be a requirement that concerns th e activity of importing, as it does not determine who 
may engage in the activity, etc.     
7.269  We think that in view of its functional and s ubstantive similarity to the "without prejudice" 
clause of paragraph 5.1, the final sentence of paragr aph 84(b) is relevant to the interpretation of the 
phrase "right to regulate trade" in paragraph 5.1.  More specifically, we think the final sentence of 
paragraph 84(b) is consiste nt with our view that the phrase "right to regulate trade" in paragraph 5.1 
should be understood as meaning the right to regulate im ports and exports.  It is clear to us that the 
phrase "requirements related to importing and exporti ng" covers requirements regulating imports and 
exports.  We also consider that the examples provided in the final sentence can be viewed as 
requirements regulating imports and exports.  We obser ve in this respect that, in our view, regulation 
of imports and exports comprises both regulation dir ected explicitly at imports or exports (such as 
"requirements concerning import licensing") and regula tion which is directed at particular goods but 
affects also imports or exports of such goods (such as "requirements concerning TBT").      
7.270  While the final sentence of paragraph 84(b) in  our view supports our understanding of the 
phrase "right to regulate trade", the reference in that  sentence to "import licensing" also indicates that 
we need to undertake further analysis of what is incl uded in the "right to regulate trade".  The explicit 
reference to "import licensing" in the final sentenc e of paragraph 84(b) makes clear that China could 
impose a WTO-consistent requirement under which a li cence is needed to import a particular good.  
This leads logically to the further and separate qu estion of whether China could impose, in addition, a 
                                                      
225 We understand both parties to agree (China's response to question No. 169; US comments on 
China's response to question No. 169).   
226 We take no position on whether such requirements would be WTO-consistent, which is a separate 
issue. 
227 We note that paragraph 83(d) of the Working Party Report uses the phrase "to engage in importing 
and exporting".  We think that the final sentence of paragraph 84(b) refers to requirements related to 
"importing" and "exporting" because th e final sentence is about foreign ente rprises and individuals "with trading 
rights", i.e., about enterprises and individuals in respect of whom China must grant the right to engage in importing or exporting. 
228 Shorter Oxford English Dictionary , 5th ed. (Clarendon Press 2002), Vol II, p. 2520. 
229 The fact that the final sentence is about foreign en terprises and individuals "with trading rights" is a 
further indicator that the requirements in question are those that have a connection to importing and exporting as 
opposed to those that are about importing and exporting.  WT/DS363/R 
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  WTO-consistent requirement under which only impo rters meeting specified criteria could obtain a 
licence to import the good at issue.  Neither para graph 84(b) nor paragraphs  5.1 or 5.2 explicitly 
answer that question.  Since we are concerned in th is case with measures that are alleged to restrict the 
right to trade, we will attempt to answer this questi on.  We do not mean to suggest that different types 
of additional requirements could not give rise to si milar questions.  For instance, the question could 
arise in respect of additional requireme nts concerning the process of importation stricto sensu , such as 
requirements relating to the operating practices to be followed by importers.       
7.271  Having regard to the question we are concer ned with – whether China could impose an 
additional, WTO-consistent require ment under which only importers m eeting specified criteria could 
obtain a licence – it would, in our view, be problematic to argue, based on paragraph 84(b), that all 
foreign enterprises and individuals in respect of wh om China has an obligation to grant the right to 
trade would have to be given an import licence if they wish to import the good in question.  Indeed, we would be concerned about such an interpretati on of the aforementioned provisions, as it could lead 
to unreasonable results.  A hypothetical example serves to illustrate this point.   
7.272  Suppose that China maintained a general prohib ition on the importation of narcotic drugs, but 
that it had the authority under its laws exceptiona lly to grant licences for the import of such drugs, 
e.g., for purposes of pharmaceutical research (e.g., on a possible cure for drug addiction) or for 
medico-therapeutic purposes (e.g., to  provide palliative care to certain cancer patients).  Considering 
the well-known societal problems associated with ille gal trade in, and consump tion of, narcotic drugs, 
China might conceivably see fit to stipulate that  import licences could be granted only to entities 
authorized to use narcotic drugs (e.g., appropriate research institutes or hospitals).  If, however, China 
were required to allow foreign enterprises not regist ered in China, and foreign individuals not in 
China, to import into China narcotic drugs which they are not authorized to use, China might be 
significantly impaired in its ability, or unable, to en sure that the narcotic drugs imported into China 
are in fact used exclusively for the purpose for which their importation has been authorized.   
7.273  We are not suggesting that limiting imports of narcotic drugs to authorized users thereof 
would always and necessarily be WTO-consiste nt.  However, we think the above example 
demonstrates that if China imposes a WTO-consistent  requirement under which a licence is needed to 
import a particular good, it may in certain cases be appropriate for China to impose, in addition, a 
WTO-consistent requirement under which only impo rters meeting specified criteria could obtain a 
licence to import the good in question.       
7.274  Arguably, import or export licensing requirements are the most obvious cases in which it 
could be appropriate to impose additional require ments to prescribe who may import or export the 
relevant good(s).  We see no reason to assume, how ever, that they would necessarily be the only 
requirements concerning goods which it would be appropriate to complement by requirements 
regulating who may import or export such goods.  Having said this, it is clear that not every WTO-
consistent requirement concerning a good that is imported or exported entails a need for an additional 
requirement concerning who may import or export that good.  
7.275  In the light of the foregoing, we consider that  China's "right to regulate trade" in a WTO-
consistent manner includes, by implication, a conseq uent right to regulate importers or exporters of 
the relevant good(s) in a WTO-consistent manner.
230  To interpret the phrase "right to regulate trade" 
as not including a consequent right to regulate importe rs or exporters of regulated goods could either 
                                                      
230 An example of such incidental regulation of importers would be the above-mentioned hypothetical 
requirement that only entities authorized to use narcotic drugs, such as research institutes or hospitals, may be 
granted licences for the import of narcotic drugs. WT/DS363/R 
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  render illusory China's "right to regulate tr ade" or significantly undermine that right.
231  We do not 
mean to suggest that the "right to regulate trade" could not include, by implication, the right to impose 
other types of related requirements, e.g., concerni ng operating practices to be followed by importers.  
Since the issue is not presented in this case,  we take no position in this respect.   
7.276  With regard to regulation of who may import or export a regulated good, consistent with the 
foregoing considerations it would, in our view, depend notably on two elements whether China's 
"right to regulate trade" would in a particular case permit China to regulate not only the goods that are 
imported or exported, but also who can be importe rs or exporters of these goods: (i) whether the 
regulation of importers or exporte rs of these goods has a reasonable link to the regulation of the goods 
at issue (notably to the rationale underpinning the regulation of the goods), i.e., whether it is 
incidental (or necessary) to the regulation of the relevant goods, and (ii) whether the regulation of 
importers or exporters is WTO-consistent.   
7.277  We should recall at this point that "regulation" may mean restriction.232  Therefore, in keeping 
with our view that the "right to regulate trade" implies a consequent right to regulate, in a WTO-
consistent manner, importers or e xporters of a regulated good, we consider that the "right to regulate 
trade" would, in appropriate cases, permit China to restrict or limit, in a WTO-consistent manner, the 
class of entities or individuals who may engage in  importing or exporting the good in question.   
7.278  It is worth noting in this regard that at a late  stage in the proceedings  even the United States 
appeared to accept that China could permissibly introduce or maintain certain WTO-consistent 
limitations on the right to trade that are the con sequence of regulating the goods being traded.  In 
response to a question from the Panel the United States stated that it did not argue that paragraphs 5.1 
and 5.2 of the Accession Protocol or paragraph 84(b) of the Working Party Report would prevent 
China from ever restricting the right to trade.233  The United States notably stated that it recognizes 
that "the regulation of traded goods may have in cidental effects on individual traders' trading 
rights".234  The United States appears to accept, for in stance, that China could impose restrictions on 
individual importers based on their capability to import or export particular goods that entail risks 
inherent to the importation process.235    
7.279  The United States argues, correctly, that interpre tation of the phrase "right to regulate trade" 
in paragraph 5.1 must not render superfluous th e mechanisms in Annex 2A and Annex 2B for 
excluding certain goods from disciplines which would otherwise be applicable.  We do not consider 
that the references in paragraph 5.1 to Annex 2A and Annex 2B cast doubt on our interpretation of the 
phrase "right to regulate trade".  In particular, we  do not think our interpretation makes those Annexes 
redundant.  The goods listed in Annex 2A are goods in r espect of which China is not required to fulfil 
its obligation to ensure that all enterprises in China have the right to trade in all goods.  For these 
goods, China may limit the right to trade to state-trading enterprises.236  The only applicable condition 
                                                      
231 As regards the final sentence of paragraph 84(b), we similarly consider that China's right to impose 
"WTO-consistent requirements related to importing and exporting, such as those concerning import licensing, TBT and SPS" implies a right to impose incidental WTO-consistent requirements relating to importing and 
exporting.    
232 As noted above, the dictionary meaning of the ve rb "regulate" includes "subject to guidance or 
restrictions". 
233 United States' response to question No. 160(a). 
234 Ibid. (stating also that "[i]mporters must comply with … WTO-consistent requirements on goods, 
including incidental requirements regarding the good being imported") and United States' response to question 
No. 160(b) (referring to "incidental effects of the legitimate regulation of trade"). 
235 United States' response to question No. 160(b). 
236 We note, however, the provisions of paragraph 213 of the Working Party Report, which have been 
incorporated into the Accession Protocol.  In paragraph 213, China confirmed that notwithstanding  WT/DS363/R 
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  is that the good be included in the list.  In contrast, under our interpretation of the "right to regulate 
trade", for goods not included in the Annex 2A list, any incidental restriction of the right to trade would only be permissible if it is  WTO-consistent.  Therefore, if as a consequence of regulating a 
particular good not included in Annex 2A, China want ed to limit the right to trade in that good to 
state-owned enterprises, it could only do so if denyi ng other enterprises in China the right to trade 
would not breach any of China's obligations under the WTO Agreement.  Given this restrictive 
condition, we see no basis for an argument that such an  interpretation of the "r ight to regulate trade" 
would, in effect, permit China to add ne w goods to the Annex 2A list.     
7.280  Essentially the same considerations apply rega rding Annex 2B.  Under Annex 2B, limitations 
on the grant of the right to trade in listed goods needed to be phased out in accordance with the 
schedule in Annex 2B.  Subject to that condition bei ng met, the limitations could be maintained.  As 
indicated, under our interpretation of the "right to regulate trade", any incidental limitations would need to be WTO-consistent.  Therefore, even if after the phase-out period China were to introduce an 
incidental WTO-consistent restriction of the right to trade in a good listed in Annex B, we think this 
could not reasonably be considered to amount to an effective extension of the phase-out period.  
Rather, it would be a legitimate exercise of China's "right to regulate trade" in a WTO-consistent 
manner.     
7.281  Having considered the text of the phrase "right to regulate trade" in its context, we turn, 
finally, to consider that phrase in light of the object and purpose of the Accession Protocol. We discern no inconsistency between our interpretation of the phrase "right  to regulate trade" and the 
object and purpose of the Accession Protocol.  We observe that the Accession Protocol sets forth the 
terms of China's accession to the WTO.  The preamble to the Accession Protocol refers to the fact that 
these terms are the result of negotiations between th e WTO and China.  This being so, we must be 
mindful of the possibility that the Accession Protoc ol may impose obligations on China that are not 
imposed on other Members under the WTO Agreement, or are stricter than those that are applicable to 
other Members.  However, this element does not logica lly lead to the conclusion that the obligation to 
grant trading rights stipulated in paragraph 5.1 was intended to prejudice China's ability to regulate 
imports and exports and, incidentally, importers or exporters of the regulated goods.  As explained 
above, other elements and consider ations lead us to a different conclusion.  We therefore do not 
consider that our interpretation of the phrase "right to regulate trade" is in any way at variance with 
the object and purpose of allowing the WTO and China to establish, by mutual agreement, the terms 
under which China could accede to the WTO.    
(ii) Paragraph 5.2 of th e Accession Protocol 
7.282  Regarding paragraph 5.2 of the Accession Protocol
237, the United States  considers that it 
commits China to extend to all foreign enterprises and all forei gn individuals, including sole 
proprietorships of other WTO Members, the same ri ght to import all goods into China as is accorded 
to all enterprises in China.  Thus, the United St ates submits, any measure that disadvantages foreign 
enterprises and foreign individuals relative to enterp rises in China with respec t to the right to import 
the relevant products is incons istent with paragraph 5.2. 
7.283  China  submits that paragraph 5.2 is directly rela ted to paragraph 5.1 and is a complement to 
China's main commitment to liberalize the right to trade.  China therefore argues that paragraph 5.2 
                                                                                                                                                                     
paragraph 5.1, non-state-trading enterprises would s till be permitted to import goods listed in Annex 2A for 
production purposes.  We note that neither party has referred to paragraph 213.    
237 To recall, paragraph 5.2 reads: 
"Except as otherwise provided for in this Protocol, 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." WT/DS363/R 
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  also applies "without prejudice" to China's right to  regulate trade in a manner consistent with the 
WTO Agreement.  China notes that in paragraph 5. 2, China agreed to accord treatment no less 
favourable to foreign individuals a nd enterprises, "except as otherwise provided for in this Protocol".  
In China's view, this exception includes China's right  to regulate trade in a manner consistent with the 
WTO Agreement . 
7.284  The Panel  notes that pursuant to paragraph 5.2 "all foreign individuals and enterprises, 
including those not invested or registered in Ch ina" must be accorded treatment no less favourable 
than that accorded to enterprises in  China with respect to the right to trade, which, as paragraph 5.1 
confirms, includes the right to import.  
7.285  We begin our analysis with the phrase "all fore ign individuals".  In response to the Panel's 
question whether the phrase "all foreign individuals" in paragraph 5.2 covers non-Chinese individuals 
in China, non-Chinese individuals outside China, or both, the United States replied that the phrase 
includes both.  China replied that the phrase refers  to individuals whose na tionality is not Chinese.
238  
The parties also indicated their view that the phr ase would cover both individuals who are commercial 
traders and individuals importing goods for their own use.239  Thus, both parties consider that the 
phrase "all foreign individuals" covers all individuals  whose nationality is not Chinese.  We certainly 
agree that the phrase covers non-Chinese individuals in  China, notably individuals living or residing 
in China.  Regarding non-Chinese individuals outside  China, we note that the phrase in question does 
not specify any limitations in this regard.  Notabl y, it does not qualify the phrase with the words "in 
China".  Furthermore, paragraph 84(b) of the Worki ng Party Report, which is part of the context of 
paragraph 5.2240, confirms that the term "foreign individua ls" includes sole proprietorships "of other 
WTO members".  We therefore agree that the phrase "all foreign individuals" can also cover non-
Chinese individuals outside China.   
7.286  The next element we need to address is the phrase "all foreign … enterprises, including those 
not invested or registered in China".  It is clear to us from the phrase "including those not invested or 
registered in China" that paragraph 5.2 applies to enterprises registered in a country other than 
China.241  It is less clear whether the term "foreign enterprise" as it appears in paragraph 5.2 applies 
to:  (i) foreign-registered enterprises which wish to  engage in importing into China or exporting from 
China, but have no commercial presence in China;  (ii) foreign-registered enterprises which maintain 
a commercial presence in China (other than in the form of an enterpri se registered in China, e.g., a 
Chinese branch) and which wish to engage in im porting or exporting thr ough the entity present in 
China; or (iii) both.  The parties in their submissions  to the Panel have not addressed this issue.  Since 
the United States' claims concern, inter alia , "foreign enterprises"242, it is appropriate, however, to 
examine the issue.   
7.287  We begin this task by considering the first interpretative issue, that is, whether foreign-
registered enterprises without a commercial pres ence in China are "foreign enterprises" for the 
purposes of paragraph 5.2.  The first point to be made  is that the phrase "all foreign enterprises" is not 
qualified with the words "in China".  Thus, the text  of paragraph 5.2 does not suggest that the phrase 
"all foreign enterprises" is intended to exclude  foreign enterprises which do not maintain a 
commercial presence in China.  Although it is likely  that, typically, goods would be imported into 
China, or exported from China, by entities establis hed in China, we perceive no basis for assuming 
                                                      
238 Parties' responses to question No. 50(e)(i). 
239 Parties' responses to question No. 50(e)(ii). 
240 Paragraph 84(b) sets out co mmitments incorporat ed into the Accession Protocol through 
paragraph 1.2 of the Accession Protocol. 
241 China refers to enterprises in corporated outsid e the Chinese territory in  accordance with foreign 
laws (China's responses to question Nos. 50(d) and 23(b)). 
242 United States' response to question No. 151.  WT/DS363/R 
 Page 183 
 
 
  that there would be, or could be, no foreign-regist ered enterprises without a commercial presence in 
China that would wish to engage in importing an d exporting.  While it may be necessary to satisfy 
certain customs- or fiscal-related requirements to engage in importing and ex porting, this would not 
be the same as establishing an enterprise in China.  We also have not been made aware of any legal or 
technical reasons that would suggest that only en terprises registered in China could reasonably be 
permitted to import or export goods.243  Based on these considerations and the information on the 
record, we are of the view that the term "for eign enterprises" in paragr aph 5.2 covers foreign-
registered enterprises without a comme rcial presence in China.      
7.288  The other interpretative issue is whether the phrase "all foreign enterprises" covers foreign-
registered enterprises with a commercial presence in Ch ina (other than in the form of an enterprise 
registered in China) and engaging in importing or  exporting through the entity present in China.  We 
have asked the parties whether the phrase "all forei gn enterprises" in paragra ph 5.2 covers "foreign 
incorporated enterprises operating in China".  The United States gave no direct reply.  It merely stated 
that the meaning of "operating" in the Pa nel's question was not entirely clear to it.244  China likewise 
did not give a specific reply, saying that the phrase "all foreign enterprises" covers enterprises 
incorporated outside the Chinese territo ry in accordance with foreign laws.245  It appears to us that, in 
principle, foreign incorporated enterprises could ope rate in China by setting up one or more Chinese 
branches.  In other words, we think that a branch in China could be the type  of entity present in China 
through which a foreign-registered enterprise could engage in importing or exporting.   
7.289  It appears that, generally speaking, foreign -registered enterprises can set up branches in 
China.  China's Schedule of GATS Commitments st ipulates in the "horizontal commitments" section 
that "[t]he establishment of branches by foreign enterprises is unbound, unless otherwise indicated in 
specific sub-sectors, as the laws and regulations on branches of foreign enterprises are under formulation".
246  Article 196 of China's 2005 Company Law provides that "[t]he branch of a foreign 
company established within the territory of China does not have the status of a juridical person"247 and 
that "[t]he foreign company shall bear civil lia bilities for the business operation of its branches 
undertaken within the territory of China".  In addition, Article 193 of the 2005 Company Law 
provides that foreign enterprises wishing to establis h a branch in China need to apply with the 
competent Chinese authority for approval.  It also ap pears that Chinese branches of foreign-registered 
enterprises would need to be registered as such in the same way as bran ches of Chinese enterprises.248 
7.290  As we see it, if a Chinese branch of a forei gn-registered enterprise were to engage in 
importing or exporting, its imports or exports wo uld be attributable, for the purposes of China's 
trading rights commitments, to the foreign parent, that  is to say, to the relevant foreign enterprise not 
registered in China, and not an "e nterprise in China".  Or to put it another way, we consider that if 
China were to restrict the right of a Chinese branch  of a foreign-registered enterprise to import or 
export goods from within China, it would, in terms of the provisions of paragraph 5.2, restrict the 
right to trade of a "foreign enterprise", specifically one  that is "not invested or registered in China". 
We recall in this respect that in accordance with  Article 14 of the 2005 Company Law branches in 
China do not have the status of "enterprise legal persons" and that it appears that branches must be 
registered as branches, not as enterprises.  
                                                      
243 We note in this connection that the evidence on  the record does not in clude China's laws and 
regulations on foreign trade.   
244 United States' response to question No. 50(d). 
245 China's response to question No. 50(d).  
246 For the relevant horizontal commitments, see infra , para. 7.952. 
247 The 1993 Company Law, which was provided by China, referred to the status of "enterprise legal 
persons". 
248  Article 193 of the 2005 Comp any Law appears to indicate that  Chinese branches of foreign 
companies must be registered as such in China.  Article 48 of the Company Registration Regulation provides 
that Chinese companies wishing to es tablish branches in China must apply for registration of the latter.  WT/DS363/R 
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  7.291  In light of the foregoing, we are of the vi ew that the term "foreign enterprises" in 
paragraph 5.2 covers foreign-registered enterprises with a commercial presence in China (other than 
in the form of an enterprise registered in Chin a) and wishing to engage in importing or exporting 
through the entity (e.g., a branch) present in China. 
7.292  In sum, we consider that the phrase "all forei gn …enterprises, including those not invested or 
registered in China" applies both to foreign-regist ered enterprises which wish to engage in importing 
or exporting, but have no commercial presence in  China, and foreign-registered enterprises 
maintaining a commercial presence in China and wishing to engage in importing or exporting through 
the entity present in China.   
7.293  There is a further interpretative issue aris ing from the phrase "all foreign …enterprises, 
including those not invested or registered in China"  which we need to resolve.  The issue is whether 
that phrase covers only foreign enterprises not register ed in China.  In response to a question from the 
Panel, China argues that this is the case.  In othe r words, China contends that the phrase in question 
does not cover foreign-invested enterprises registered in China.
249  The United States, in contrast, 
argues that foreign-invested enterpri ses registered in China are covered.250  Neither party has offered 
specific reasons in support of its contention.   
7.294  The phrase in question refers to "all" foreign enterprises, which would appear to include 
foreign-invested enterprises in China.  Also, fore ign-invested enterprises in China might conceivably 
be treated less favourably than "enterprises in Ch ina", such as wholly Chin ese-invested enterprises or 
Chinese wholly state-owned enterprises.  We furt her note that the phrase in question uses the term 
"including", and not terms like "comprising" or "c onsisting of".  Unlike the latter terms, the term 
"including" in ordinary usage indicates that what follo ws is not an exhaustive, but a partial, list of all 
covered items.251  Thus construed, the phrase in question would indicate that the relevant foreign 
enterprises "include", but are not limited to, enterp rises not invested or registered in China.  We 
recognize that the verb "include" could in certa in exceptional cases be intended to provide an 
exhaustive listing of relevant items.252  In the particular case of paragraph 5.2, however, such an 
interpretation seems implausible, in that the phrase in  question lists only a single item.  Indeed, if a 
limitation to foreign enterprises not in China had been  intended, it would have been more natural for 
the drafters to express such an intention by referri ng directly to "all foreign … enterprises not invested 
or registered in China".  
7.295  The interpretation suggested by China woul d be problematic for another reason.  If 
paragraph 5.2 did not apply to fo reign-invested enterprises in Chin a, it would seem logical to infer 
that it would not apply to foreign individuals in Chin a either.  If it is assumed for the sake of argument 
that foreign individuals in China are not covered by  paragraph 5.2, this would have as a consequence 
that they would not have the right to trade under paragraph 5, since paragraph 5.1 only applies to enterprises in China.  It seems to us to be incongr uous, however, to assume that foreign individuals in 
China were not intended to have the right to trade when foreign individuals outside China would have 
that right in accordance with paragraph 5.2.  We  also recall our view that the phrase "all foreign 
individuals" in paragraph 5.2 covers foreign individuals in China.    
                                                     
 
249 China's response to question No. 50(d). 
250 United States' response to question No. 50(d). 
251 American Heritage Dictionary , 4th ed. (Houghton Mifflin 2000), available at 
http://www.bartleby.com/61/ . 
252 For instance, if one says that the price to be pa id should "include" applicable taxes, this would 
ordinarily be understood to mean that all, and not just some, of the applicable taxes should be added to the seller's pre-tax price.  See also American Heritage Dictionary , 4th ed. (Houghton Mifflin 2000), available at 
http://www.bartleby.com/61/
.  WT/DS363/R 
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  7.296  We also find relevant paragraph 84(b) of the Working Party Report.  As previously noted, 
paragraph 84(b) is part of the cont ext of paragraph 5.2.  Similarly to  paragraph 5.2, the first sentence 
of paragraph 84(b) commits China to grant the right to trade to "foreign enterprises and individuals, including sole proprietorships of other WTO memb ers" in a non-discriminatory and non-discretionary 
way.  The final sentence of paragraph 84(b) comm its China not to apply "requirements relating to 
minimum capital and prior experience".  In our view, if the references in paragraph 84(b) to "foreign 
enterprises" are interpreted as including foreign-invest ed enterprises in China,  it makes sense that the 
final sentence would commit China not to apply "requirements relating to minimum capital".  
Conversely, if the references in question were inte rpreted as covering only foreign enterprises not in 
China, it is not apparent to us why the final sente nce commits China not to apply such requirements.  
Minimum capital requirements would be imposed by Ch ina on enterprises regist ered in China, not on 
enterprises which are not registered in China.
253   
7.297  To recall, according to China, the references  in paragraph 84(b) to "foreign enterprises" 
should be interpreted as covering only foreign enterp rises not registered in China.  China considers 
that, for the purposes of its trading rights commitmen ts, foreign-invested enterprises are "enterprises 
in China", and not "foreign enterprises".254  We accept that under our interpretation, paragraph 84(a), 
which sets out a commitment applicable to "all enterprises in China and foreign enterprises and 
individuals", could cover foreign-invested enterprises either as "enterprises in China" or as "foreign 
enterprises".255  In our view, this does not adversely affect the rights of either China or other 
Members.256  Besides, both terms – "enterprises in China" and "foreign enterprises" – cover also 
enterprises other than foreign-inv ested enterprises.  In other words, under our interpretation, both 
terms still have independent meani ng.  Moreover, as we have expl ained in the preceding paragraph, 
we think that such an interpretation is more easily  reconcilable with the text of the final sentence of 
paragraph 84(b). 
7.298  We consider that paragraph 84(b)  is relevant to the interpreta tion of paragraph 5.2 because of 
its close substantive similarity to paragraph 5.2:  the former provides that fo reign enterprises are to be 
granted trading rights in a non-discriminatory way,  the latter that foreign enterprises are to be 
accorded treatment no less favourable  than that accorded to enterpri ses in China with respect to the 
right to trade.  In this regard, we see no reason to  disagree with the statement by the United States that 
paragraph 5.2 is intended "to address aspects of China's trading rights regime that discriminated  
against foreign-invested enterprises (as well as foreign individuals)".257  
7.299  Accordingly, the text of paragraph 5.2, consid ered together with paragraph 84(b), which is 
part of its context, leads us to the view that foreign-invested enterprises in China qualify as "foreign 
enterprises" within the meaning of paragraph 5.2.258   
                                                      
253 This would appear to be confirmed, e.g., by paragraph 83(b) of the Working Party Report, which 
refers to minimum capital requirements for wholly Chinese-invested enterprises. 
254 China's response to question No. 197(a). 
255 We recall that paragraph 84(a) provides in relevant part: 
"The representative of China reconfirmed that China would eliminate its system of 
examination and approval of trading rights with in three years after acce ssion.  At that time, 
China would permit all enterprises in China and foreign enterprises and individuals, including sole proprietorships of other WTO Members, to export and import all goods (except for the 
share of products listed in Annex 2A to the Draft Protocol reserved for importation and 
exportation by state trading enterprises) thro ughout the customs territory of China."   
256 The United States in response to question No . 197(a) appears to express the same view. 
257 United States' response to question No. 50(d) (emphasis added).  As discussed above, paragraph 5.2 
is also intended to address discrimination against foreign enterprises not registered in China.   
258 Consistent with what we have said about paragr aphs 84(b) and (a), we see no contradiction between 
our view that foreign-invested enterprises in Chin a are "foreign enterprises"  within the meaning of WT/DS363/R 
Page 186  
 
  7.300  Finally, we need to address whether the obliga tion set out in paragra ph 5.2 would prejudice 
China's ability to regulate trade in a WTO-consistent  manner.  The first point to be made in this 
respect is that China's obligation to provide no less favourable treatment to foreign enterprises and 
individuals applies "[e]xcept as otherwise provided fo r" in the Accession Protocol.  We agree with the 
United States that the Accession Protocol could be cons idered to contain a relevant provision in the 
first sentence of paragraph 5.1, where an excep tion is set out for goods listed in Annex 2A.
259  We 
consider that it can be inferred fro m the existence of this provision that, with respect to goods listed in 
Annex 2A, China has no obligation to treat foreign enterprises and individuals no less favourably than 
Chinese state-trading enterprises which have the righ t to import or export th e goods listed in Annex 
2A.    
7.301  In contrast, we think the "without prejudice" cl ause of paragraph 5.1, which refers to China's 
"right to regulate trade" in a WTO-consistent manne r, is not a clause that "provides otherwise" within 
the meaning of paragraph 5.2.  As we have e xplained earlier, the "without prejudice" clause in 
paragraph 5.1 does not provide for an exception in the same way as Annex 2A.  The obligation 
contained in paragraph 5.1, first sentence, conti nues to apply even in cas es where China regulates 
trade in a WTO-consistent manner.260 Thus, the "without prejudice" clause does not, in our view, 
constitute a provision from which it can be inferred that  the obligation set out in paragraph 5.2 is not 
applicable in cases where China regulat es trade in a WTO-consistent manner. 
7.302  Nevertheless, and notwithstanding the fact th at paragraph 5.2 does not itself contain a 
"without prejudice" clause, the "without prejudice" clau se of paragraph 5.1 is still relevant context for 
the interpretation of paragraph 5.2.  Paragraph 5.1 refers to "China's right to regulate trade in a manner 
consistent with the WTO Agreement".  We note that this "right" is not qualified with respect to its 
applicability.  In other words, there is no indication in paragraph 5.1 that the "right to regulate trade" 
is meant to exist in relation to ente rprises in China that wish to import or export, but not in relation to 
foreign enterprises or individuals that wish to import or export.   
7.303  We also recall our view that the "right to regul ate trade" implies a consequent right to regulate 
importers or exporters of the rele vant good(s) in a WTO-consistent manner.  As we see it, just like 
there could be legitimate reasons to impose incide ntal limitations on the trading rights solely of 
enterprises in China, so also there could be leg itimate reasons to impose such limitations only in 
respect of foreign enterprises not registered  in China and/or foreign individuals.   
7.304  We further recall the final sentence of paragra ph 84(b), which states in relevant part that 
foreign enterprises and individuals with trading rights must comply with all WTO-consistent 
requirements related to importing and exporting.  As prev iously explained, we interpret this part of the 
final sentence to imply that China could impose inci dental limitations on the trading rights of foreign 
enterprises and individuals.  Considering the close s ubstantive similarity between the first sentence of 
paragraph 84(b) and para graph 5.2, it would seem incongruous  if China could not likewise impose 
such limitations on the trading rights of fore ign enterprises and individuals in cases where an 
inconsistency is claime d with paragraph 5.2. 
                                                                                                                                                                     
paragraph 5.2 and also "enterprises in China" for the purposes of paragraph 5.1.  In fact, we consider that even 
for the purposes of paragraph 5.2, foreign-invested enterprises in China would, in principle, qualify as 
"enterprises in China".  In our view, it is not unreason able to interpret paragraph 5.2 as requiring that China 
accord, e.g., to foreign individuals, or foreign enterpri ses not invested or registered  in China, treatment no less 
favourable with respect to the right to trade than th e treatment accorded to foreign-invested enterprises 
registered in China, which are "enterprises in China". 
259 United States' responses to question Nos. 50(f) and 161. 
260 As also explained earlier, the right to regulat e trade would, however, ta ke precedence over the 
obligation.  WT/DS363/R 
 Page 187 
 
 
  7.305  For all these reasons, we consider that the provisions of paragra ph 5.2 should be read 
harmoniously with those of paragr aph 5.1 and paragraph 84(b), and we  therefore conclude that the 
obligation stipulated in paragraph 5.2 should be u nderstood as being without prejudice to China's right 
to regulate trade in a WTO-consistent manner.  Thus, although the obligation in paragraph 5.2 would 
be applicable in cases where China regulates trade, Ch ina's right to regulate trade, if exercised in a 
WTO-consistent manner, would take precedence over the obligat ion in paragraph 5.2.   
7.306  We have addressed the object and purpose of the Accession Protocol in the context of our 
analysis of the "without prejudice" clause of paragraph 5.1.  Mutatis mutandis , the observations we 
have offered in that context also lead us to cons ider that our understanding of paragraph 5.2 is not at 
odds with the object and purpose of the Accession Protocol.  
(iii) Paragraph 83(d) of the Working Party Report 
7.307  Regarding paragraph 83(d)261, the United States  considers that it confirms the obligation 
contained in paragraph 5.1 of the Accession Protocol – i.e., that Ch ina committed to provide trading 
rights to all enterprises in China by 11 December 2004.  The United States notes, in addition, that 
China also specifically committed in paragraph 83(d)  not to impose requirements with respect to the 
form and scope of operation of foreign-invested  enterprises engaging in importation and exportation 
in China. 
7.308  China  considers that paragraph 83 of the Wo rking Party Report also applies "without 
prejudice" to China's right to regulate trade.  According to China, paragraph 83 – which is incorporated into China's Accession Protocol by its paragraph 1.2 – is a complement to, and a 
repetition of, China's main commitment to libera lize the right to trade.  China argues that 
paragraph 83 should be read in conj unction with paragraph 5.1.  China submits that this leads to the 
view that paragraph 83 is subject to the reserva tion expressed in the "without prejudice" clause.  In 
China's view, any other reading would deprive the "without prejudice" clause of useful effect.   
7.309  The Panel  has already addressed certain aspects of this paragraph in the context of its analysis 
of paragraph 5.1.   
7.310  Additionally, we note that, unlike paragraph 5.1,  paragraph 83(d) does not explicitly state that 
the obligation to grant the right to trade to all ente rprises in China is without prejudice to China's right 
to regulate trade in a WTO-consistent manner.  We  do not consider that one can logically infer from 
this that the commitment set out in paragraph 83( d) is intended to deprive China of the right to 
regulate trade.  We think the purpose of paragraph 83(d) is to "confirm" the obligation to grant the 
right to trade to enterprises in  China.  If that is the case, it was not essential to provide specific 
clarification whether this obligation detrimentally aff ects China's right to regulate trade.  Furthermore, 
we recall that paragraph 5.1 is part of the context of  paragraph 83(d).  In view of the close substantive 
similarity between the first sentence of paragraph 5.1 and paragraph 83(d), we believe the provisions 
of paragraph 83(d) should be interpre ted so as to be consistent with those of paragraph 5.1.  For these 
reasons, we conclude that the obligation stipulated  in paragraph 83(d) shoul d be understood as being 
without prejudice to China's right to regulate trade in a WTO-consistent manner.   We do not think that 
                                                     
 
261 To recall, paragraph 83(d) provides: 
"The representative of China also confirmed that within three years after accession, all 
enterprises in China would be granted the right to trade.  Foreign-invested enterprises would 
not be required to establish in a particular form  or as a separate entity to engage in importing 
and exporting nor would new business licence encompassing distribution be required to 
engage in importing and exporting." WT/DS363/R 
Page 188  
 
  understanding paragraph 83(d) in th is way is at odds with the object and purpose of the Accession 
Protocol.
262  
(iv) Paragraph 84(a) of the Working Party Report 
7.311  Regarding paragraph 84(a) of  the Working Party Report263, the United States  considers that it 
confirms China's obligations set forth in paragra ph 5.1 of the Accession Protocol, in that it provides 
that China's trading rights obligations apply to a ll enterprises in China, as of 11 December 2004, with 
regard to all products not lis ted in Annex 2A.  The United States further considers that 
paragraph 84(a) confirms and ela borates on paragraph 5.2 of the Accession Protocol, inasmuch as it 
provides that China must permit all foreign enterp rises and all foreign individuals, including sole 
proprietorships, to import goods, including the rele vant products, into China.  The United States 
argues that, as a result, measures that only perm it selected Chinese entities to engage in the 
importation of the relevant products , thereby depriving foreign enterprises and individuals of the right 
to import the relevant products, are inconsistent with paragraph 84(a).  In the United States' view, this 
inconsistency arises whether or not the foreign enterp rises or foreign individuals are inside or outside 
of China. 
7.312  China  considers that paragraph 84 of the Wo rking Party Report also applies "without 
prejudice" to China's right to regulate trade.  According to China, paragraph 84 – which is incorporated into China's Accession Protocol by its paragraph 1.2 – is a complement to, and a 
repetition of, China's main commitment to libera lize the right to trade.  China argues that 
paragraph 84 should be read in conj unction with paragraph 5.1.  China submits that this leads to the 
view that paragraph 84 is subject to the reserva tion expressed in the "without prejudice" clause.  In 
China's view, any other reading would deprive the "without prejudice" clause of useful effect.   
7.313  The Panel  considers that paragraph 84(a) commits China, on expiry of the three-year 
transition period:  (i) to permit all enterprises in  China to export and import all goods and (ii) to 
permit all foreign enterprises and individuals to do th e same.  We note that under this interpretation, 
paragraph 84(a) in one respect would differ from paragraph 5.2, in that it would establish an 
obligation to permit, as from the end of the transiti on period, all foreign enterprises and individuals to 
import and export all goods, regardless of whet her enterprises in China may import and export all 
goods.  In contrast, under paragraph 5.2 the treatme nt to be accorded to foreign individuals and 
enterprises depends on the treatment accorded to enterpri ses in China with respect to  the right to trade.  
As the text of paragraph 84(a) is unqualified, however, we see no reas on to interpret paragraph 84(a) 
differently.
264  
                                                      
262 We recall that paragraph 1.2 of the Accession Protocol incorporates paragraph 83(d) into the 
Accession Protocol.  We also recall th at in the context of our analysis of the "without prejudice" clause of 
paragraph 5.1 we have considered the issue of the consistency of our understanding of that clause with the 
object and purpose of the Accession Prot ocol.  The same considerations apply, mutatis mutandis , to our 
understanding of paragraph 83(d).   
263 It is useful to recall once more that paragraph 84(a) provides in relevant part: 
"The representative of China reconfirmed that China would eliminate its system of examination and approval of trading rights with in three years after acce ssion.  At that time, 
China would permit all enterprises in China and foreign enterprises and individuals, including 
sole proprietorships of other WTO Members, to export and import all goods (except for the share of products listed in Annex 2A to the Draft Protocol reserved for importation and 
exportation by state trading enterprises) thro ughout the customs territory of China."   
264 We note that paragraph 84(a) does not say, e.g., "all enterprises in China and, consequently, all 
foreign enterprises and individuals".  We also observe that neither party appears to argue for a different 
interpretation (parties' responses to question No. 198(a)).  WT/DS363/R 
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  7.314  Furthermore, with regard to the reference in  paragraph 84(a) to "foreign enterprises", we 
consider that like the same term in paragraph 5.2, it covers foreign enterprises not registered in China.  
As we have explained above in our  analysis of paragraph 5.2, we consider that this category of 
enterprises includes both foreign-registered enterp rises without a commercial presence in China and 
foreign-registered enterprises with a commercial presence and wishing to engage in importing or 
exporting through the entity present in China.  
7.315  Additionally, we note that, unlike paragraph 5.1,  paragraph 84(a) does not explicitly state that 
the obligation to grant the right to trade to all enterprises in China, and all foreign enterprises and 
individuals, is without prejudice to China's right to regulate trade in a WTO-consistent manner.  We do not consider that it can be logically inferred from this that the commitment set out in 
paragraph 84(a) is intended to deprive China of the right to regulate trade.  In our view, the purpose of 
paragraph 84(a) is to "reconfirm" the obligation to gr ant the right to trade, and so we think it is not 
altogether surprising that no clarification is provi ded whether this obligation detrimentally affects 
China's right to regulate trade.  Furthermore, we re call that paragraph 5.1 and paragraph 84(b) are part 
of the context of paragraph 84(a).  In view of the close substantive similarity between the first 
sentence of paragraph 5.1 and the first sentence of paragraph 84(a), and in vi ew of the final sentence 
of paragraph 84(b), which we have analysed above , we believe the provisions of paragraph 84(a) 
should be read harmoniously with those of paragr aph 5.1 and paragraph 84(b).  For these reasons, we 
conclude that the obligation stipulated in paragr aph 84(a), first sentence, should be understood as 
being without prejudice to China's right to regulate trade in a WTO-consistent manner.  We do not think that this understanding of paragraph 84(a) is inconsistent with the object and purpose of the 
Accession Protocol.
265  
(v) Paragraph 84(b) of the Working Party Report 
7.316  Regarding paragraph 84(b) of  the Working Party Report266, the United States  submits that it 
confirms and elaborates on paragraph 5.2 of the A ccession Protocol.  According to the United States, 
paragraph 84(b) explains that not only are trading rights to be granted to foreign individuals and 
enterprises, but that these rights shall be granted in  a "non-discriminatory and non-discretionary" way.  
The United States contends that, as a result, measures that make the right to import the relevant products available only to selected Chinese enterprises, or that subject the availability of the right to 
import the relevant products to the Chinese Gove rnment's discretion, are inconsistent with 
paragraph 84(b).   
7.317  China  considers that paragraph 84 of the Wo rking Party Report also applies "without 
prejudice" to China's right to regulate trade.  According to China, paragraph 84 – which is 
incorporated into China's Accession Protocol by its paragraph 1.2 – is a complement to, and a 
repetition of, China's main commitment to libera lize the right to trade.  China argues that 
                                                     
 
265 We recall that paragraph 1.2 of the Accession Protocol incorporates paragraph 84(a) into the 
Accession Protocol.  We also recall that we have prev iously considered the issue of the consistency of our 
understanding of the "without prejudi ce" clause of paragraph 5.1 with th e object and purpose of the Accession 
Protocol.  The same considerations apply, mutatis mutandis , to our understanding of paragraph 84(a). 
266 It is well to recall once again that paragraph 84(b) provides: 
"With respect to the grant of trading rights to foreign enterprises and individuals, including sole proprietorships of other WTO members, th e representative of Chin a confirmed that such 
rights would be granted in a non-discriminatory and non-discretionary way.  He further 
confirmed that any requirements for obtaining trading rights would be for customs and fiscal purposes only and would not constitute a barrier to trade.  The representative of China 
emphasized that foreign enterprises and individuals  with trading rights had to comply with all 
WTO-consistent requirements related to importing and exporting, such as those concerning import licensing, TBT and SPS, but confirmed that  requirements relating to minimum capital 
and prior experience would not apply." WT/DS363/R 
Page 190  
 
  paragraph 84 should be read in conj unction with paragraph 5.1.  China submits that this leads to the 
view that paragraph 84 is subject to the reserva tion expressed in the "without prejudice" clause.  In 
China's view, any other reading would deprive the "without prejudice" clause of useful effect.   
7.318  The Panel  has already indicated, in the context of its analysis of paragraph 5.2, its view that 
the phrase "foreign enterprises" as used in paragraph 84(b) covers also foreign-invested enterprises in 
China.  The Panel also recalls in this connection its view that the phrase "foreign enterprises" as used 
in paragraph 84(a) covers foreign enterprises not regi stered in China, and that this includes foreign-
registered enterprises without a commercial presence in China and foreign-registered enterprises with 
a commercial presence and wishing to engage in im porting or exporting through the entity present in 
China.  We consider that the phrase "foreign ente rprises" in paragraph 84(b) has the same meaning 
and scope as in paragraph 84(a). 
7.319  Moreover, we have addressed the final sentence of paragraph 84(b) in the context of our 
analysis of paragraph 5.1.  To recall, the fina l sentence refers to "WTO -consistent requirements 
related to importing and exporting, such as those co ncerning import licensing, TBT and SPS".  As we 
have indicated in that context, we consider  that China's right to impose "WTO-consistent 
requirements related to importing and exporting, su ch as those concerning import licensing, TBT and 
SPS" contains, by implication, a right to impose in cidental WTO-consistent requirements relating to 
importing and exporting.  We see no reason to think that  this interpretation of paragraph 84(b) is at 
variance with the object and purpose of the Accession Protocol.
267   
7.320  Regarding the commitment undertaken in paragr aph 84(b) to grant trading rights to foreign 
enterprises and individuals in a "non-discriminatory" way, we agree with the United States that this 
commitment would be breached, for example, in th e event of relevant discrimination between foreign 
enterprises and individuals, on the one hand, and Chinese-owned enterprises in China, on the other 
hand.  This view is consistent w ith paragraph 5.2.  It requires China to treat foreign individuals and 
enterprises no less favourably with respect to the ri ght to trade than "enterprises in China", a phrase 
which covers Chinese-owned enterprises.  The fact th at paragraph 84(b) might then catch situations 
that are also caught by paragraph 5.2 does not rule  out our interpretation, as paragraph 83(d), for 
instance, also catches situations that are caught by paragraph 5.1. 
7.321  In response to a question from the Panel, China expressed the view that paragraph 84(b) does 
not apply to cases involving discrimination between foreign enterprises and individuals, on the one 
hand, and enterprises in China, on  the other hand.  Instead, China maintains, paragraph 84(b) only 
covers discrimination between "different" foreign enterprises and individuals, i.e., between, say, US 
enterprises and Australian enterprises.268  China considers that its view is supported by the 
introductory phrase of paragraph 84(b), i.e., the phrase "[w]ith respect to the grant of trading rights to foreign enterprises and individuals".     
7.322  As we see it, the phrase referred to by China serves to identify the class of importers in 
respect of whom China undertook a commitment in paragraph 84(b).
269  Thus, we think that 
                                                      
267 We recall that paragraph 1.2 of the Accession Protocol incorporates paragraph 84(b) into the 
Accession Protocol.  We also recall that we have prev iously considered the issue of the consistency of our 
understanding of the "without prejudi ce" clause of paragraph 5.1 with th e object and purpose of the Accession 
Protocol.  The same considerations apply, mutatis mutandis , to our understanding of paragraph 84(b). 
268 China's response to question No. 52(a). 
269 Indeed, paragraph 84(b) states that  "[w]ith respect to the grant of trading rights to foreign enterprises 
and individuals … the representative of China confirmed that …".  Thus, China's representative in 
paragraph 84(b) provides a confirmation that concerns fore ign enterprises and individuals.  We also note that the 
introductory phrase of paragraph 84(b) parallels the introductory phrase of paragraph 83(b), which provides that "[w]ith respect to wholly Chinese-invested enterprise s, the representative of Ch ina stated that…".  Thus, 
paragraph 83(b) sets out a commitment that concerns  wholly Chinese-invested enterprises.      WT/DS363/R 
 Page 191 
 
 
  paragraph 84(b) commits China to grant foreign en terprises and individuals trading rights in a non-
discriminatory way.  We also note that, by its term s, the phrase in question does not refer to the grant 
of trading rights to "different" foreign enterprises and individuals.         
7.323  In our view, it can be inferred from paragraph 5.2 that one way in which China could grant 
foreign enterprises and individuals trading rights in a discriminatory way is by treating them less 
favourably than enterprises in China with respect to the right to trade.   Therefore, we see no basis to 
exclude from the scope of paragraph 84(b) discrimin ation between foreign enterprises and individuals, 
on the one hand, and enterprises in China, on the othe r hand.  We also observe that, for the purposes 
of this dispute, it is not necessary to determine wh ether other situations of discrimination, such as 
discrimination between foreign enterprises of diffe rent Members, would, likewise, be caught by 
paragraph 84(b).      
7.324  Regarding the commitment to grant trading rights  to foreign enterprises and individuals in a 
"non-discretionary" way, we note that the adjective "discretionary" is defined as "involving an exercise of judgment and choice, not an implementation of a hard-and-fast rule".
270  Based on this 
definition, we think this commitment means that any Chinese authority charge d with granting trading 
rights cannot have the freedom to choose, based essen tially on its own preference, whether or not such 
rights are granted.271  In this regard, we consider that im position of requirements, or conditions, for 
obtaining trading rights would not necessarily cons titute a breach of this particular commitment.  
Many requirements, or conditions, cannot be consid ered to confer, on the authority charged with 
applying them, the freedom to choose, based on its own preference, whether or not the condition is 
satisfied such that the right to trade can be granted.   An example of this would be a requirement that 
importers have a tax number in China.  As we see it,  this particular requirement would not leave it to 
the pleasure of the competent authority to decide whether or not an entity is approved as an import 
entity.  Rather, the requirement involves implementa tion of a "hard-and-fast" rule: when the applicant 
has a tax number, it must be granted the right to trade, whether or not it pleases the competent authority.  
(b) Consistency of the challenged Chinese measures wi th the cited paragraphs of the Accession 
Protocol  
7.325  The Panel  now turns to assess the consistency of  the challenged Chinese measures with 
paragraphs 5.1 and 5.2 of the Acc ession Protocol and with paragraph 1.2 of the Accession Protocol, to 
the extent that paragraph 1.2 incorporates paragrap hs 83(d) and 84(a) and (b) of the Working Party 
Report.  
7.326  The United States  asserts that through a variety of m easures, China greatly constrains the 
right to import into China reading materials (i .e., books, newspapers, periodicals and electronic 
publications), AVHE products (e.g., videocassettes,  VCDs and DVDs), sound recordings, and films 
for theatrical release (hereafter the "relevant product s").  First, the United States contends that the 
measures in question prohibit foreign-invested enterp rises in China, privately invested enterprises in 
China, foreign enterprises and foreign individu als from engaging in the importation of reading 
materials, AVHE products, sound recordings and films for theatrical release into China.   
7.327  Secondly, the United States contends that with  regard to reading materials, AVHE products 
and sound recordings, the relevant measures provide  that only Chinese wholly state-owned enterprises 
can import those products.  Thirdly, the United States contends that with regard  to films for theatrical 
                                                     
 
270 Black's Law Dictionary , 7th ed., B.A. Garner (ed.) (West Group 1999), p. 479. 
271 We note that authorities must always exercise di scretion in accordance with the law.  However, the 
fact that they normally do not have completely unfette red freedom to choose between several courses of action 
does not mean that they do not have discretion with respect to the substantive decision to be taken. WT/DS363/R 
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  release, the relevant measures "designate" only a single Chinese wholly state-owned enterprise to 
engage in their importation.   
7.328  Based on these contentions, the United States cl aims that enterprises in  China (other than 
certain Chinese wholly state-owned enterprises), foreign enterprises and fo reign individuals are 
denied the right to import reading materials,  AVHE products, sound reco rdings and films for 
theatrical release.  The United States submits that th e relevant measures are, therefore, inconsistent 
with China's obligations containe d in paragraphs 5.1 and 5.2 of the Accession Protocol as well as 
paragraph 1.2 of the Accession Prot ocol, to the extent that paragra ph 1.2 incorporates paragraphs 83 
and 84 of the Working Party  Report.  
7.329  The specific measures which the United States claims  to be inconsistent with paragraphs 5.1, 
5.2 and 1.2 of the Accession Protocol are the following:  the Catalogue ; the Foreign Investment 
Regulation ; the Several Opinions ; the Publications Regulation ; the Importation Procedure ; the 
Electronic  Publications Regulation ; the 2001 Audiovisual Products Regulation ; the Audiovisual 
Products Importation Rule ; the Audiovisual (Sub-) Distribution Rule ; the Film Regulation ; the Film 
Enterprise Rule ; and the Film Distribution and Exhibition Rule .
272   
7.330  China  argues that the measures regulating who may engage in the activity of importing 
motion pictures for theatrical release273 as well as audiovisual products used for publication274 do not 
fall under the rules applicable to trade in goods.  China submits that the United States wrongly 
assumes that motion pictures for theatrical release a nd audiovisual products u sed for publication are 
goods and that paragraphs 5.1, 5.2 and 1.2 of th e Accession Protocol are applicable to Chinese 
measures governing the importation of such products.  China considers that the relevant measures fall 
exclusively under the GATS.  Consequently, in Chin a's view, the US claims concerning trading rights 
for motion pictures for theatrical release as well as au diovisual products used for publication lack any 
legal basis and should be rejected. 
7.331  In respect of the other products at issue (i.e ., reading materials and finished audiovisual 
products, including finished sound recordings), China submits that the United States is overlooking 
the fact that China has a right to regulate trade wh ich limits, under certain circumstances, the right to 
trade.  China argues that what the United States is targeting is in f act the result of a selection process 
which limits the number of importation entities, but which is justified in order to implement an 
effective and efficient content review.  According to  China, its regime for the importation of cultural 
goods is designed to guarantee an effective and effici ent application of the content review that China 
has chosen to implement.  China considers that  its measures governing the importation of the other 
products (reading materials and finished audiovisu al products, including finished sound recordings) 
are justified under Article XX of the GATT 1994 and paragraph 5.1 of the Accession Protocol.  China 
therefore contends that the relevant measures ch allenged by the United States do not breach China's 
obligations under paragraphs  5.1, 5.2 and 1.2 of the Accession Protocol.    
7.332  The Panel  notes that in response to a question from th e Panel, the United States indicated that 
it is challenging the measures at issue both separately and together.275  As a result, the Panel will 
address the various measures challenged by the United States one by one.  References below to 
                                                      
272 The full names of the relevant Chinese rules, proc edures and regulations are summarized in the table 
entitled "Short Title of Measures" and included at the beginn ing of this Report.  Furthermore, the specific claims 
put forward by the United States in respect of the challenged measures are identified and addressed below, 
starting at para. 7.333. 
273 China uses the phrase "motion pi ctures for theatrical release" in stead of the phrase "films for 
theatrical release".   
274 China uses the phrase "audiovisu al products used for publication" instead of the US phrase 
"unfinished AVHE products".  China consid ers the latter reference to be incorrect. 
275 United States' response to question No. 1.    WT/DS363/R 
 Page 193 
 
 
  paragraphs 5.1 or 5.2 are to the corresponding para graphs of the Accession Protocol.  References to 
paragraphs 83(d), 84(a) or 84(b) are to the corres ponding paragraphs of the Working Party Report.  
For the sake of brevity, in the Panel's analyses belo w, we omit separate references to paragraph 1.2 of 
the Accession Protocol.  As explained above, any in consistency with paragra phs 83(d), 84(a) or 84(b) 
leads to a consequential inconsistency with pa ragraph 1.2.  A summary of the Panel's main 
conclusions is provided at the end of this subsection.  The summa ry makes reference to paragraph 1.2, 
as appropriate.276 
(i) Catalogue 
7.333  The United States  alleges that the Catalogue  forbids foreign-inv ested enterprises from 
engaging in the importation of any of the relevant products into China.  The United States notes that 
under the heading " Catalogue  of Prohibited Foreign Investment Industries", Article X.2 provides, 
inter alia , that foreign investment is prohibited in the business of importing of books, newspapers and 
periodicals into China.  The United States notes that  immediately thereafter, Article X.3 states that 
foreign investment in the business of importing audi ovisual products and electronic publications is 
likewise not allowed.  The United States considers th at China's audiovisual regulatory regime covers 
sound recordings.  In the United States' view, the prohibition on foreign investment in the business of 
importation of audiovisual products  contained in this provision, therefore, extends to sound 
recordings.  
7.334  The United States points out that films for theatri cal release are not explicitly singled out as a 
separate category.  However, in the United Stat es' view, they are included within the term 
"audiovisual products" as that term is used in the Catalogue .  According to the United States, this 
reading of the Catalogue  finds support from a comparison of Article VI.3 under the heading 
"Catalogue  of Industries with Restricted Foreign I nvestment" with Article X.3 under the heading 
"Catalogue  of Prohibited Foreign Investment Industries" .  The United States notes that Article VI.3 
provides, in relevant part, that foreign investment is restricted in enterprises engaging in the "[s]ub-
distribution of audiovisual products (excluding moti on pictures)".  In contrast, the United States 
points out, Article X.3 provides that foreign investme nt is prohibited in enterprises engaging in the 
importation of "audiovisual products", without any ex clusion for motion pictures.  The United States 
submits that the exclusion of motion pictures in Article VI.3, but not in Article X.3, indicates that the term "audiovisual products" as used in the Catalogue  includes motion pictures.  Accordingly, the 
United States maintains, unlike in Article VI.3 where motion pictures are explicitly excluded in the 
distribution context, the Article X.3 prohibition  on foreign investment in the importation of 
audiovisual products includes motion pictures.  In the United States' view, the Catalogue , therefore, 
prohibits foreign investment in the import ation of all of the relevant products.
277  
7.335  The United States claims that the Catalogue  is inconsistent with China's trading rights 
commitments in two ways.  First, the Catalogue  deprives foreign-invested enterprises in China, as 
well as foreign enterprises and individuals, of the right to import the relevant products and thereby 
limits the trading rights of these entities, which China's trading rights commitments do not permit.  
                                                      
276 It should also be noted that the three-year transition period applicable to relevant provisions invoked 
by the United States has ended, and so we make no further mention of the fact that certain obligations or 
commitments were not fully app licable from the effective date  of China's accession.     
277 The United States references two additional provis ions in this connection: (i) Article 4 of the 
Imported Cultural Products Rule  (stating that "[t]he business of importing cultural products such as books, 
newspapers, periodicals, electronic publications, audiovisual products, motion pictures, TV dramas, cartoons, and radio/TV programs shall be carried out by state-owned cultural units designated or licensed  by the Ministry 
of Culture, SARFT, and the General Administration of Pr ess and Publication".) (emphasis added by the United 
States) (Exhibit US-10); and (ii) Article 9 of the Decisions on Non-Public-Owned Capital  (providing that "non-
public capital ... may not engage in the import business of cultural products such as books, newspapers, 
periodicals, films, TV programs, and finished audiovisual products, etc.") (Exhibit US-11). WT/DS363/R 
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  Secondly, the United States argues that the Catalogue  also restricts trading rights in a discriminatory 
manner, as it insulates certain wholly Chinese-ow ned enterprises from any competition from foreign 
sources.  The United States submits that this is likewise inconsistent with China's trading rights 
commitments.  
7.336  In response to a question from th e Panel, the United States indicat ed that the inconsistencies 
claimed in relation to this measure arise as a result of Articles X.2 and X.3 of the Catalogue  of 
Prohibited Foreign Investment Industries, and under paragraphs 5.1 and 5.2 of the Accession Protocol 
and paragraphs 83(d) and 84(a)-(b) of the Working Party Report.  The United States further indicated 
that, in its view, the parties whose trading rights are being restricted under this measure are foreign enterprises, including foreign-invested ente rprises in China, and foreign individuals.
278  
7.337  China  argues that none of the challenged measure s is inconsistent with China's obligations 
under paragraphs 5.1, 5.2 or 1.2 of the Accession Pr otocol.  China submits in this respect that the 
United States fails to take account of China's right to regulate trade in a manner consistent with the 
WTO Agreement, including Article XX of the GATT 1994, and that the measures governing the 
importation of reading materials and finished  audiovisual products, including finished sound 
recordings, are justified under Article XX(a) of the GATT 1994.  
7.338  In relation to the Catalogue , China further contends that motion pictures for theatrical release 
are excluded from the term "audiovisual products" in Article X.3.  China notes in this respect that 
according to Article 2 of the 2001 Audiovisual Products Regulation  "audiovisual products include 
recorded contents such as audi o tapes, video tapes, gramophone records, compact discs and laser 
discs, etc.".  In China's view, it is, therefore, obvious that China does not include motion pictures for 
theatrical release in the audiovisual products category. 
7.339  Regarding coverage of films for theatrical release, the United States  reponds that Article 2 of 
the  2001 Audiovisual Pro ducts Regulation  does not attempt to provide an exhaustive list.  The United 
States notes in this regard that Article 2 uses th e term "etc.", denoting that it is only providing 
illustrative examples. 
7.340  The Panel  first addresses the issue whether the reference in Article X.3 of the Catalogue  of 
Prohibited Foreign Investment Industries to "audi ovisual products" covers physical sound recordings 
and films for theatrical release.279  We note that, as a general matter, the term "audiovisual products" 
can be understood to refer to products using s ound or sight, or both, to present information.280  
Therefore, we think that, in principle, both sou nd recordings and films for theatrical release could be 
viewed as "audiovisual products".  We understand that China does not dispute that physical sound 
recordings are covered by Article X.3.  In fact, China itself refers the Panel to Article 2 of the 2001 
Audiovisual Products Regulation , which includes audio tapes, gramophone records and compact discs 
among the products covered by the Regulation.  Since we have no reason to disagree, we consider that 
physical sound recordings are covered.   
7.341  Regarding films for theatrical release consisting of a carrying medium carrying film content, 
we note that according to Article X.6 of the Catalogue  "[m]otion picture producing studios, 
distribution companies, and theater chains" are also  prohibited foreign investment industries.  No 
reference is made in Article X.6 to "motion pictur e import companies".  We are not convinced that the 
reference to "motion picture distribution companie s" covers import operatio ns as part of motion 
                                                      
278 United States' response to question No. 1. 
279 We recall that we are concerned only with phy sical products, and so we do not address whether 
Articles X.2 and X.3 of the Catalogue  also covers non-physical products. 
280 The term "audiovisual" is defined as "pertaining to both hearing and vision" ( Oxford English 
Dictionary  Online  available at http://dictionary.oed.com/entrance.dtl).  WT/DS363/R 
 Page 195 
 
 
  picture distribution operations.  China has confirmed that not all film distribution companies in China 
are authorized to import films.281  Thus, the reference to "motion picture distribution companies" does 
not necessarily imply motion picture import companies and has independent meaning.  Furthermore, 
we note that the Several Opinions  in its Article 4 refers to "motion picture import and distribution 
companies".  It thus draws a distinction between importation and distribution.  In contrast, as noted, 
the Catalogue , which post-dates the Several Opinions282, merely refers, in Article X.6, to "motion 
picture distribution companies".  This reference raises the question whethe r import operations were 
deliberately excluded, or whether they were not in cluded in Article X.6 because they were already 
included in Article X.3.  Considering that it is  uncontested that import operations involving video 
tapes – i.e., films on tapes – are covered by  Article X.3, and that Article 4 of the Several Opinions  
prohibits foreign-invested "motion picture import … companies", it seems to us that the latter 
hypothesis is more plausible.  However, we do not fi nd Article X.6 to be conclusive, in the sense that 
it neither confirms nor contradicts the view that films for theatrical release are "audiovisual products" 
for the purposes of Article X.3.  
7.342  A further contextual element we find relevant is Article VI.3 of the Catalogue  of Industries 
with Restricted Foreign Investment.  As noted by the United States, Article VI.3 refers, in relevant 
part, to "[s]ub-distribution of audiovi sual products (excluding motion pictures)".283  The fact that it 
was considered appropriate to clarify that the te rm "audiovisual products" in Article VI.3 should not 
be understood to include motion pictures, when no such clarification was deemed appropriate in 
Article X.3, where the exact same term appears,  strongly suggests that the term "audiovisual 
products" in the Catalogue  can be properly understood as covering also motion pictures, which term 
in our view can cover films for theatrical release.  Considering that Article VI.3 is as much a part of 
the Catalogue  as Article X.3, we think that we are entitle d to assume that the omission in Article X.3 
of the clarification "excluding motion pictures" was deliberate and has meaning.  
7.343  China argues that no such inference may be dr awn in view of the above-mentioned Article 2 
of the 2001  Audiovisual Products Regulation , which includes no reference to films for theatrical 
release.  It seems to us that, absent indications to the contrary, it can be reasonably assumed that the 
Catalogue  uses a term like "audiovisual products" to have  the same meaning throughout.  In contrast, 
we do not think that the same is necessarily true  for identical terms appearing in separate legal 
instruments.  China has not ar gued, for example, that the Catalogue  implements the 2001 Audiovisual 
Products Regulation , or that it would not be legally possible for the Catalogue  to reflect a broader 
concept of "audiovisual  products" than the 2001 Audiovisual Products Regulation .  Therefore, we see 
no reason to exclude the possibility that the 2001 Audiovisual Products Regulation  is intended to 
regulate only a subset of all audiovisual products, and that this subset does not include films for 
theatrical release.  It is pertinent to note in this r espect that there are several specific legal instruments 
governing films for theatrical release, such as the Film Regulation , the Film Distribution and 
Exhibition Rule  and the Film Enterprise Rule .  In the light of these elements, we are not persuaded 
that it would be appropriate to infer from Article 2 of the 2001 Audiovisual Products Regulation  that 
the term "audiovisual products" in Article X.3 of the Catalogue  does not include films for theatrical 
release.      
7.344  Finally, we note that it is undisputed that there currently is only one entity importing films for 
theatrical release into China, the China Film Import and Export Corporation.  It is likewise 
uncontested that this corporation is not foreign-invest ed, but wholly state-owned.  This is consistent 
with the United States' view that "audiovisual produ cts" in Article X.3, which is about prohibited 
foreign investment industries, includes films for theatrical release into China. 
                                                      
281 China's response to question No. 190. 
282 The Catalogue  is from 2007, the Several Opinions  is from 2005. 
283 United States' response to question No. 17.   We also note that Article 1 of the Several Opinions  
similarly refers to "sub-distribution of audiovisual  products, with the exception of motion pictures". WT/DS363/R 
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  7.345  Considering the above elements together – i.e., the ordinary meaning of the term "audiovisual 
products", Articles VI.3 and X.6 of the Catalogue , Article 4 of the Several Opinions , Article 2 of the 
2001 Audiovisual Products Regulation  and the existence of a single state-owned importer of films for 
theatrical release – we are not conv inced by China's argument that th e term "audiovisual products" in 
Article X.3 of the Catalogue  does not cover films for theatrical release.    
7.346  We next turn to consider the United States ' assertion that Articles X.2 and X.3 of the 
Catalogue  forbid, or ban, foreign-invested enterprises from engaging in the importation of the 
relevant products into China.
284  The United States has provided no specific analysis in support of this 
assertion..  We note that Articles X.2 and X.3 are part of a "Catalogue of Prohibited Foreign Investment Industries".  Article X.2 read s: "Publication, master distribution [ Zong Fa Xing ], and 
import operations of books, newspapers and periodicals".  Article X.3 reads: "Publication, production, 
import operations of audiovisual products and electronic publications".  Thus, Articles X.2 and X.3 
are items in a catalogue, i.e., in a list.  As such, they are unlike the other provisions which we are 
called on to analyse in this case.
285  
7.347  It appears to us that the legal si gnificance of the items listed in the Catalogue  is established by 
a separate legal instrument, the Foreign Investment Regulation .  Article 2 of the Foreign Investment 
Regulation  makes clear that the Regulation  applies to investment projects in China which establish 
foreign-invested enterprises and other forms of foreign-invested projects.  Article 3 of the Foreign 
Investment Regulation  provides that the Catalogue  is one "basis for the examination and approval of 
foreign-invested projects and FIE [foreign-invested en terprise] applicable policies".  Article 4 of the 
Foreign Investment Regulation  indicates that the Catalogue  lists "encouraged, restricted and 
prohibited categories of foreign-invested projects" and that projects not included in any of those 
categories fall into the permitted category of foreign- invested projects.  Read together, Articles 3 and 
4 thus appear to imply that foreign-invested pr ojects need to be examin ed on the basis of the 
Catalogue , and that if a foreign-invested project falls within the prohibited category, it may not be 
approved.  A project concerning import operations  of books, newspapers, periodicals, audiovisual 
products or electronic publications (Articles X.2 and X.3) would fall within the prohibited category. 
7.348  Thus, one practical legal effect of Articles Articles X.2 and X,3, read together with Articles 3 
and 4 of the Foreign Investment Regulation , is that no foreign-invested  enterprise in China could 
lawfully import books, newspapers, periodicals, audiovisual products (including sound recordings and 
films for theatrical release) or electronic publications.   
7.349  Consistent with the foregoing c onsiderations, we are not pers uaded, however, by the United 
States' assertion that Articles X.2 and X.3 produce, by themselves, the legal effect of forbidding, or 
banning, foreign-invested enterprises from engaging in the importation of the relevant products into 
China.  Equally, it is clear that Articles 3 and 4 of the Foreign Investment Regulation  do not, by 
themselves, have that effect.  As a result, we  will examine below whether (i) Article X.2, in 
conjunction with Articles 3 and 4, and/or (ii) Article  X.3, in conjunction with Articles 3 and 4, cause 
one or more of the inconsistencies alleged by the United States.       
Paragraphs 5.1, 83(d) and 84(a)  
7.350  We now turn to examine the US claims under pa ragraphs 5.1, 83(d) and 84(a).  According to 
the United States, the measures at issue deprive foreign-invested en terprises in China, as well as 
                                                      
284 United States' first written submission, paras. 25 and 253. 
285 See, e.g., Article 21 of the Audiovisual (Sub-) Distribution Rule , which states that "[a] Chinese-
foreign contractual joint venture for sub-distribution of audiovisual products may not engage in the import of audiovisual products".  For the most part, the items listed in Article X of the Catalogue  consist of nouns only 
(e.g., Article X.1, which reads: "News agencies").  WT/DS363/R 
 Page 197 
 
 
  foreign enterprises and individuals, of the right to  import the relevant products, contrary to the 
aforementioned provisions.   
7.351  We begin our examination with the claim in re spect of foreign-invested enterprises.  We 
recall our view that the phrase "all enterprises in Ch ina" in paragraph 5.1 of the Accession Protocol 
includes foreign-invested enterprises in  China.  As explained above, we consider that the legal effect 
of:  (i) Article X.2, in conjunctio n with Articles 3 and 4, and (ii) Article X.3, in conjunction with 
Articles 3 and 4, is to prevent foreign-invested  enterprises in China from lawfully importing the 
relevant products.  As a result, foreign-invested enterprises in Chin a do not have the right to import 
those products.  This is contrary to paragraph 5.1, first sentence.286  We thus conclude that 
(i) Article X.2, in conjunction with Articles 3 and 4 (with respect to books, newspapers and 
periodicals), and (ii) Article X.3, in conjunction with Articles 3 and 4 (with respect to physical 
audiovisual products, sound recordings, electronic publications and films for theatrical release), are 
inconsistent with paragraph 5.1.   
7.352  Paragraph 83(d), first sentence, commits China to grant the right to trade to "all enterprises in 
China".  Similarly, paragraph 84(a), second senten ce, commits China to permit "all enterprises in 
China" to import all goods.  The phrases "all enterp rises in China" in paragraphs 83(d) and 84(a) 
include foreign-invested enterprises in China.  As  a consequence, for the reasons mentioned in the 
previous paragraph, we conclude that:  (i) Article X.2, in conjunction with Articles 3 and 4, and (ii) 
Article X.3, in conjunction with Articles 3 and 4, also give rise to a breach of paragraph 83(d), first 
sentence, and paragraph 84(a), second sentence.    
7.353  So far as concerns the US claims in respect of foreign individuals and foreign enterprises not 
invested or registered in China, the United St ates has not adequately explained why and how the 
measures could be said to affect such individua ls and enterprises and give rise to the alleged 
inconsistencies.287  T h e  Catalogue  is entitled " Catalogue  of Industries for Guiding Foreign 
Investment ", and Article X is part of a category entitled " Catalogue  of Prohibited Foreign Investment 
Industries ".  Indeed, Article X refers to agencies, comp anies, industries, stations and channels as 
possible recipients of foreign investment, but not to individuals.  Thus, we think that the Catalogue  
concerns industries, not individuals, and that it concerns industries in China which receive foreign 
investment, not industries abroad.  To recall, Article 2 of the Foreign Investment Regulation  provides 
that the Regulation  applies to "investment projects in Ch ina" which establish foreign-invested 
enterprises, i.e., enterprises regist ered in China. This, too, indica tes that the projects at issue are 
projects in China that China would be called on to approve, and that the enterprises to be established 
are enterprises registered in China.  There is no suggestion that individuals in China, or Chinese 
branches of foreign enterprises not registered in Ch ina, are contemplated as possible recipients of 
foreign investment.   
7.354  In the light of this, we are not persuaded that:  (i) Article X.2, in conjunction with Articles 3 
and 4, or (ii) Article X.3, in conjunction with Arti cles 3 and 4, deprive foreign individuals or foreign 
enterprises not invested or registered in China of  the right to import the products concerned.  We 
therefore conclude that the United States has not es tablished its claims under paragraphs 5.1, 83(d) 
and 84(a) in respect of these individuals and enterprises.   
                                                      
286 We recall that the United States challenges all of th e relevant products as goods, i.e., as tangible, 
physical items (United States' response to question No. 22).   
287 In response to question No. 6, the United States merely suggests that foreign enterprises and 
individuals might be affected as investors in the listed industries, e.g., by translating relevant Chinese titles as 
meaning " Catalogue  of Industries for Guiding the Investment of Foreign Investors " and " Catalogue  of the 
Industries in which Investment of Foreign Investors is Prohibited ". WT/DS363/R 
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  Paragraphs 5.2 and 84(b)
 
7.355  The United States further claims that the Catalogue  restricts trading rights in a discriminatory 
manner, by "insulat[ing] certain wholly Chinese-owned enterprises from any competition from foreign sources".  We begin with the US claims in r espect of foreign-invested enterprises.  It is useful 
to recall in this regard our view that paragraphs  5.2 and 84(b) cover foreign-invested enterprises in 
China as "foreign enterprises".   
7.356  We note that the issue under paragraphs 5.2 a nd 84(b) is not whether the treatment accorded 
to foreign-invested enterprises in China "ins ulates" wholly Chinese-owned enterprises (i.e., 
enterprises in China) from competition.  The issue is  whether foreign-invested enterprises in China are 
treated less favourably than, or in a discriminatory way compared to, wholly Chinese-owned 
enterprises with respect to the right to trade.   
7.357  The US claim is based on the practical legal effect of the Foreign Investment Regulation  and 
the Catalogue , which is to prevent foreign-invested en terprises in China from lawfully importing the 
relevant products.  We have alr eady determined that as a consequen ce of this legal effect China has 
acted inconsistently with its obligations under, inter alia , paragraph 5.1 in respect of foreign-invested 
enterprises in China.  As a consequence, we s ee no need to offer additional findings regarding 
whether, as a result of the same legal effect, China has also acted inconsistently with its obligations 
under paragraphs 5.2 and 84(b) in respect of the same enterprises.  Accordingly,  we exercise judicial 
economy in relation to the US claim under paragraphs 5.2 and 84(b). 
7.358  Turning now to the US claims in respect of foreign individuals and foreign enterprises not 
invested or registered in China, these claims also  appear to be based on the legal effect of the Foreign 
Investment Regulation  and the Catalogue .  However, for reasons we ha ve explained above, we do not 
agree with the United States that these measures depr ive foreign individuals or foreign enterprises not 
invested or registered in China of the right to im port the products concerned.  We therefore conclude 
that the United States has not established its claims  under paragraphs 5.2 and 84(b) in respect of 
foreign enterprises and individuals.  
(ii) Foreign Investment Regulation 
7.359  The United States  notes that Article 4 of the Foreign Investment Regulation  requires 
"encouraged, restricted and prohibited" fore ign-invested projects to be listed in the Catalogue .  The 
United States also notes that Article 3 of the Foreign Investment Regulation  further defines the 
function of the Catalogue , stating that it is "the basis for th e examination and approval of foreign-
invested projects and FIE [foreign-invest ed enterprise] applicable policies". 
7.360  In response to a question from th e Panel, the United States indicat ed that the inconsistencies 
claimed in relation to this measu re arise as a result of Articles 3 and 4 of the measure, and under 
paragraphs 5.1 and 5.2 of the Accession Protocol and paragraphs 83(d) and 84(a)-(b) of the Working 
Party Report.  The United States further indicated that , in its view, the parties whose trading rights are 
being restricted under this measure are foreign en terprises, including foreign-invested enterprises in 
China, and foreign individuals.288  
7.361  China  argues that none of the challenged measure s is inconsistent with China's obligations 
under paragraphs 5.1, 5.2 or 1.2 of the Accession Pr otocol.  China submits in this respect that the 
United States fails to take account of China's right to regulate trade in a manner consistent with the 
WTO Agreement, including Article XX of the GATT 1994, and that the measures governing the 
                                                      
288 United States' response to question No. 1.  WT/DS363/R 
 Page 199 
 
 
  importation of reading materials and finished  audiovisual products, including finished sound 
recordings, are justified under Article XX(a) of the GATT 1994.  
7.362  The Panel  recalls its view that Articles 3 and 4 of the Foreign Investment Regulation  do not, 
by themselves, produce the legal effect of precl uding foreign-invested enterprise in China from 
lawfully importing books, newspapers, periodicals, audiovisual products (including sound recordings 
and films for theatrical release) or electronic publicati ons.  The Panel has, therefore, examined, in the 
previous subsection, whether the Catalogue  considered in conjunction with the Foreign Investment 
Regulation  cause any of the alleged inconsistencies.  The results of this examination are also set out 
above.  We therefore see no need for further analys is of the US claims under Articles 3 and 4 of the 
Foreign Investment Regulation .   
(iii) Several Opinions 
7.363  The United States  argues that the Several Opinions  forbids foreign-invested enterprises, 
whether or not they are in China, from engaging in the importation of any of the relevant products.  
The United States notes in this respect that  the first sentence of Article 4 of the Several Opinions  
states in relevant part that "[f]oreign investor s are prohibited from setting up and operating ... motion 
picture import ... companies".  This provision, th e United States argues, covers imported films for 
theatrical release.  The United States further notes th at the second sentence of Article 4 provides, in 
relevant part, that "[f]oreign investors are prohibited from engaging in the ... import of books, 
newspapers and periodicals, and ... im port of audiovisual products and electronic publications".  In the 
United States' view, this provision prohibits fo reign-invested enterprises from engaging in the 
importation of reading materials, AVHE  products, and sound recordings.   
7.364  The United States claims that the Several Opinions  is inconsistent with China's trading rights 
commitments in two ways.  First, in the United States' view, the Several Opinions  deprives foreign-
invested enterprises in Ch ina, as well as foreign enterprises and individuals, of the right to import the 
relevant products and thereby limits the trading ri ghts of these entities, which China's trading rights 
commitments do not permit.  Secondly , the United States argues that the Several Opinions  also 
restricts trading rights in a discriminatory manner,  as they insulate certain wholly Chinese-owned 
enterprises from any competition from foreign sour ces.  The United States submits that this is 
likewise inconsistent with China's trading rights commitments.  
7.365  In response to a question from th e Panel, the United States indicat ed that the inconsistencies 
claimed in relation to this measure arise as a result of Article 4 of the measure, and under 
paragraphs 5.1 and 5.2 of the Accession Protocol and paragraphs 83(d) and 84(a)-(b) of the Working 
Party Report.  The United States further indicated that , in its view, the parties whose trading rights are 
being restricted under this measure are foreign en terprises, including foreign-invested enterprises in 
China, and foreign individuals.289  
7.366  As already noted in the discussion in Section VII.B.5(a) above, China  argues that the Several 
Opinions , including Article 4, should not be examined by the Panel because, in its view, it merely 
provides internal guidance for the formulation and improvement of implementation procedures by the 
authorities competent in the cultural sectors concerne d, i.e., the MOC, the SARFT and the GAPP.   
7.367  The Panel  recalls, first of all, its decision at paragraph 7.198 above that, notwithstanding 
China's arguments to the contrary, the Several Opinions  is a "measure" within the meaning of 
Article 3.3 of the DSU, and is properly before the Pa nel.  Therefore, it needs to be examined by the 
Panel for its  consistency with  China's trading rights commitments under the Accession Protocol.  
                                                      
289 United States' response to question No. 1. WT/DS363/R 
Page 200  
 
  Accordingly, we proceed to examine whethe r the provision at issue – Article 4 of the Several 
Opinions  – is inconsistent with the Accession Pr otocol, as alleged by the United States.  
7.368  We note at the outset that in response to a question from the Panel, China indicated 
disagreement with how the United States translated Article 4.
290  Specifically, China disagrees with 
the US translation of the Chinese term " Wai Shang Tou Zi ".  China submits that the term should be 
translated as "foreign investment (or foreign-invested enterprises)", and not as "foreign investors", as 
the United States suggests.  The expert advice receiv ed by the Panel from its independent translator 
indicates that, in the specific context of Article 4, the term " Wai Shang Tou Zi " should be translated as 
"foreign investors", as suggested by the United States.   
7.369  We note that the Panel's independent translator  has indicated that the relevant Chinese term 
on its own could in other contexts be translated as  "foreign investment".  However, in the specific 
context of Article 4, a nd given the specific workings of Chinese grammar, the independent translator 
does not consider "foreign investment" an appropr iate translation.  China comments that account 
should be taken of the context of the measure s, and in particular the fact that the Several Opinions  
guides the investment by foreign investors into th e cultural sector.  More specifically, China submits 
that the Several Opinions  regulates where foreign investors can or cannot invest their capital in the 
cultural sector and does not cover the issue whether fo reign investors can directly engage in a cultural 
business.  We note, however, that the independent translator's suggested translation takes account of 
the context within which the relevant Chinese term appears.  Also, we do not see how the translation 
suggested by China avoids the issue referred to by China.291  The Panel will, therefore, follow the 
advice of its independent translator and will proc eed on the basis that the correct translation is 
"foreign investors" rather than "foreign investment". 
7.370  Article 4, first sentence, provides in relevant part that foreign investors "are prohibited from 
setting up and operating … motion picture import … companies".  Article 4, second sentence, 
provides in relevant part that foreign investors "are prohibited from engaging in the … import of 
books, newspapers and periodical s … and import of audiovisual products and electronic 
publications".  We note that there is a slight difference in wording between the first and second 
sentence.  We consider, however, that the two sen tences should be read harmoniously.  Thus, we do 
not consider that the second sentence is intende d to address situations where foreign investors 
themselves import the relevant products into China,  i.e., where foreign investors act as importers.292  
Rather, we consider that the second sentence is inte nded to make clear that foreign investors may not 
set up and operate foreign-invested enterprises in  China that would import the relevant products.293  
The context of Article 4 lends support to our unde rstanding of the second sentence.  The full title of 
the Several Opinions  is "Several Opinions  on the Introduction of Foreign Capital into the Cultural 
Sector".  This suggests that the Several Opinions  is concerned with foreign investors as providers of 
foreign capital, not as importers of products.  Furtherm ore, Article 5 refers to "entry into the relevant 
industry" and "applications for setting up wholly  foreign owned enterprises and Chinese-foreign 
equity and contractual joint ventures".  Finally, Artic le 6 refers to the "investing parties" who apply to 
set up a foreign-invested enterprise in China.       
                                                      
290 China's response to question No. 176. 
291 Specifically, it is not clear, under China's translatio n, how "foreign investment" could be said to "set 
up and operate" motion picture import companies. 
292 The United States notes that investors act through investment (United States' response to question 
No. 5).  Thus, it would appear that investors would be engaging in the import of relevant products through investment. 
293 China appears to confirm this understanding in its comments on the independent translator's 
suggested translation of Article 4.  Specifically, China states that in the Several Opinions , "it is foreign-invested 
enterprises rather than foreign inve stors themselves that are prohibite d from operating in certain cultural 
businesses in China".  WT/DS363/R 
 Page 201 
 
 
  7.371  We recall that the US claims are concerned only with physical products.  We note in this 
regard that Article 4, second sentence, refers  to the import of books, newspapers, periodicals, 
electronic publications and audiovisual products.  It is clear to us from these references that they cover 
physical products.  In relation to the reference to "motion picture import companies" in the first 
sentence of Article 4, it appears to us that the te rm can be understood to cover companies that would 
import films for theatrical release consisting of a medium carrying film content.  But even if it were 
considered that the term is intended to refer only to  companies importing film content, Article 4, first 
sentence, would, in our view, still be subject to China's trading rights commitments.294  While 
Article 4, first sentence, would not, on this vi ew, directly regulate who may (or rather may not) 
engage in the import of the relevant good (hard-c opy cinematographic film), it would nonetheless 
necessarily affect the import of the relevant good if  and when a foreign-invested company in China 
would wish to engage in the business of importing fi lm contents on physical carriers (cinematographic 
film), which we understand rema ins a common commercial practice.295   
7.372  In response to a question from the Panel, Chin a stated that Article 4 is not directly 
applicable.296  China also stated that in accordance with Article 13 of the Several Opinions , the 
requirements in the Several Opinions  must be implemented by the government agencies to which they 
are addressed through promulgation of specific departmental rules.297  Thus, as we understand it, 
Article 4 directs relevant agencies to ensure, th rough promulgation of appropriate rules, that no 
foreign-invested enterprise in China can lawfu lly import books, newspapers , periodicals, films for 
theatrical release, other audiovisual products (including  sound recordings), or electronic publications.   
Paragraphs 5.1, 83(d) and 84(a)  
7.373  The United States claims that Article 4 deprives foreign-invested enterp rises in China, as well 
as foreign enterprises and individuals, of the right to import the relevant products and thereby limits 
the trading rights of these entities, contrary to pa ragraphs 5.1, 83(d) and 84(a).  We begin our 
examination with the claims in respect  of foreign-invested enterprises.   
7.374  In relation to paragraph 5.1, we recall our view that the phrase "all enterprises in China" 
includes foreign-invested enterprises in China.  As explained above, Article 4 is addressed to Chinese 
government agencies and directs them to prohib it foreign-invested enterprises in China from 
importing the relevant products.  As a result, by vi rtue of Article 4, foreign-invested enterprises in 
China must not have the right to import those goods.  This requirement is cont rary to paragraph 5.1, 
first sentence.  We thus conclude that Article 4 is  inconsistent with paragr aph 5.1 insofar as it affects 
foreign-invested enterprises.  For the same reason, we conclude that Article 4 is inconsistent with 
paragraph 83(d), first sentence, and paragraph 84(a), second sentence.   Paragraphs 83(d) and 84(a) 
also cover foreign-invested enterpri ses in China as "foreign enterprises".   
7.375  So far as concerns the US claims in respect of foreign individuals and foreign enterprises not 
invested or registered in China,  the United States has not adequate ly explained why and how Article 4 
could be said to affect such individuals a nd enterprises and to give rise to the alleged 
                                                      
294 We note that China has offered no substantive response to the US trading rights claims concerning 
the Several Opinions .  China has, however, made an argument based on a reference to "motion pictures" in the 
context of, inter alia , the US trading rights claims concerning the Film Regulation .    
295 We address the issue of the applicability of China's trading rights commitments to a measure 
concerning "motion picture import" more fully below, as part of a discussion of a related argument which China has advanced in connection with the US claims concerning the Film Regulation .  See  infra , paras. 7.528 et seq . 
296 China's response to question No. 37(b). 
297 China's response to question No. 37(a).  Article  13 provides that the MOC, the SARFT and the 
GAPP "shall, based upon these Opinions, draw up and im prove concrete implementation measures for their own 
departments". WT/DS363/R 
Page 202  
 
  inconsistencies.
298  As we have indicated, we do not consider that the second sentence of Article 4 is 
about imports by foreign investors themselves.  We have also noted that the Several Opinions  is about 
foreign investment in China.  More specifically, it is about investment of foreign capital in wholly 
foreign-owned enterprises, Chinese-foreign equity jo int ventures or Chinese-foreign contractual joint 
ventures.  There is no indication that individuals in China, or Chinese branches of foreign enterprises 
not registered in China, are contemplated as possible recipients of foreign investment.  In the light of 
this, we are unable to accept that Article 4 depriv es foreign individuals or foreign enterprises not 
invested or registered in China of the right to im port the relevant products.  We therefore conclude 
that the United States has not established its claims unde r paragraphs 5.1, 83(d) and 84(a) in respect of 
such individuals and enterprises. 
Paragraphs 5.2 and 84(b)  
7.376  The United States also claims that Article 4 rest ricts trading rights in a discriminatory manner, 
by insulating certain wholly Chinese-owned ente rprises from any competition from foreign sources. 
7.377  In examining this claim, we again begin with the US claim in respect of foreign-invested 
enterprises.  We recall that, in our view, paragraphs  5.2 and 84(b) cover foreign-invested enterprises 
in China as "foreign enterprises".  We further note th at the issue under paragraphs 5.2 and 84(b) is not 
whether the treatment accorded to foreign-invested  enterprises in China "insulates" wholly Chinese-
owned enterprises (i.e., enterprises in China) from comp etition.  The issue is whether foreign-invested 
enterprises in China are treated less favourably than, or in a discrim inatory way compared to, wholly 
Chinese-owned enterprises with resp ect to the right to trade.   
7.378  The US claim is based on the legal effect of Artic le 4, which is to direct government agencies 
to prohibit foreign-invested ente rprises in China from importing th e relevant products.  We have 
already determined that as a resu lt of this China has acted inconsistently with its obligations under, 
inter alia , paragraph 5.1 in respect of foreign-invested enterprises in China.  As a consequence, we 
see no need to offer additional findings regarding whet her, as a result of the same legal effect, China 
has also acted inconsistently with its obligations un der paragraphs 5.2 and 84(b) in respect of the same 
enterprises.  Accordingly, we exercise judicial ec onomy in relation to the claim under paragraphs 5.2 
and 84(b). 
7.379  Regarding the US claims in respect of foreign individuals and foreign enterprises not invested 
or registered in China, we note that these US claims  also appear to be based on the legal effect of 
Article 4.  However, for reasons we have expl ained above, we are unable to accept that Article 4 
deprives foreign individuals or foreign enterprises not invested or registered in China of the right to 
import the products concerned.  We  therefore conclude that the Un ited States has not established its 
claims under paragraphs 5.2 and 84(b) in respect of foreign enterprises and foreign individuals. 
(iv) Publications Regulation 
7.380  The United States  submits that the Publications Regulation  covers all of the relevant 
products except films for theatrical release and that  it is the principal Chinese legal instrument 
governing explicitly, inter alia , the importation of reading materials, AVHE products and sound 
recordings in China.  The United States points out in this respect that according to Article 2 this 
measure applies to "publishing activities", which include  the importation into China of "publications".  
As the United States points out, Article 2 defines the term "[p]ublications" broadly to encompass 
newspapers, periodicals, books, electronic publicatio ns, and AVHE products, and sound recordings.   
                                                      
298 In response to question Nos. 5 and 10, the United States merely explains the basis for its view that 
"foreign investors" include foreign individuals and enterprises.  WT/DS363/R 
 Page 203 
 
 
  7.381  The United States further points out that according to Article 41 no individual or entity may 
import any reading materials, AVHE products, or so und recordings without approval.  Moreover, the 
United States notes that Article 42 sets forth the requi red conditions that applicants must satisfy in 
order to import reading materials, AVHE products, and sound recordings into China.  The United 
States points out that among the seven conditions e numerated, Article 42 mandates that applicants 
seeking approval to import reading materials, AVH E products, and sound recordings "shall" be 
wholly state-owned enterprises.  Accordi ngly, the United States submits that the Publications 
Regulation  permits only wholly state-owned enterprises to be approved to import reading materials, 
AVHE products, and sound recordings into China.    
7.382  Furthermore, the United States indicates that Article 42 circumscribes which wholly state-
owned enterprises may import publications, providi ng that "[a]pproval to establish a publication 
import entity shall not only be in compliance with  the conditions listed in the preceding paragraphs, 
but also conform to the State plan  for the total number, structure, and distribution of publication 
import entities".    
7.383  In addition, the United States notes that Article 43 establishes application procedures for 
Chinese wholly state-owned enterprises seeking to import reading materials, AVHE products, and 
sound recordings into China.  The United States poi nts out that applications for permits to import 
these products are to be submitted to the GAPP for ex amination and approval.  If the application is 
approved and the permit granted, the Chinese whol ly state-owned enterprise must then secure a 
business licence in order to engage in importing. 
7.384  Separately, the United States points out that w ith regard to newspapers and periodicals, 
Article 41 of the Publications Regulation  creates special additional conditions.  The United States 
notes in this respect that only Chinese wholly st ate-owned enterprises "designated" by the GAPP may 
import these products, and no entity or individual may import them without such a designation.  Thus, the United States maintains, pursuant to the authority granted by the Publications Regulation , the 
GAPP selects, at its own discretion, the Chinese whol ly state-owned enterprises that can engage in the 
importation of newspape rs and periodicals. 
7.385  The United States claims that the Publications Regulation  is inconsistent with China's trading 
rights commitments in the following ways.  First,  the United States recalls that Article 42 of the 
Publications Regulation  mandates that only wholly state-owned enterprises satisfying specified 
criteria, including the "State plan for the total numbe r, structure, and distribution" of these enterprises, 
may import reading materials, AVHE products, and s ound recordings into China.  According to the 
United States, this gives rise to three inconsistencie s with China's trading rights commitments: (i) by 
depriving foreign-invested enterp rises in China, as well as foreign enterprises and foreign individuals, 
of the right to import reading materials, AVHE products and sound recordi ngs, Article 42 limits the 
trading rights of these types of importers, which China's trading rights commitments do not permit; 
(ii) Article 42 restricts trading rights in a discriminatory manner, as it insulates certain wholly 
Chinese-owned enterprises from any competition from fo reign sources; and (iii) Article 42 is also 
inconsistent with China's trading rights commi tments because it injects qualifying criteria and 
government discretion into a process that China committed to be "non-discretionary".     
7.386  Secondly, the United States argues that pursuan t to Article 41 the importation of certain 
reading materials, i.e., newspapers and periodicals,  is further restricted to wholly state-owned 
enterprises specially designated by the Chinese Gove rnment.  The United States submits that this 
designation process injects further qualifying criteria and government discretion into a process that 
China committed to be "non-discretionary" and is ther efore inconsistent with China's trading rights 
commitments. WT/DS363/R 
Page 204  
 
  7.387  In response to a question from th e Panel, the United States indicat ed that the inconsistencies 
claimed in relation to this measure arise as a result of Articles 41-43 of the measure, and under paragraphs 5.1 and 5.2 of the Accession Protocol and paragraphs 83(d) and 84(a)-(b) of the Working 
Party Report.  The United States further indicated that , in its view, the parties whose trading rights are 
being restricted under this measure are foreign en terprises, including foreign-invested enterprises in 
China, foreign individuals and Chinese pr ivately invested enterprises in China.
299  
7.388  China  argues that none of the challenged measure s is inconsistent with China's obligations 
under paragraphs 5.1, 5.2 or 1.2 of the Accession Pr otocol.  China submits in this respect that the 
United States fails to take account of China's right to regulate trade in a manner consistent with the 
WTO Agreement, including Article XX of the GATT 1994, and that the measures governing the 
importation of reading materials and finished  audiovisual products, including finished sound 
recordings, are justified under Article XX(a) of the GATT 1994. 
7.389  In relation to the Publications Regulation , China argues, in addition, that it does not apply to 
the importation of audiovisual products, including s ound recordings.  China notes that Article 67 of 
the Publications Regulation  provides that "[i]n the event that provisions on the publication, 
reproduction, importation and Fa Xing of audiovisual products are otherwise specified in 
administrative regulations, the provisions in such administrative regulations shall apply".  China 
contends that since the 2001 Audiovisual Products Regulation  governs the mentioned activities with 
regard to audiovisual products, the Publications Regulation  does not apply to the importation of 
audiovisual products.    
7.390  The Panel  first addresses whether the Publications Regulation  applies to audiovisual 
products, including sound recordings.  Article 2 of the Publications Regulation  indicates that 
audiovisual products are among the "publications" which fall within the scope of the Regulation.300  
As pointed out by China, however, Article 67 st ipulates that where an administrative regulation 
"specifies otherwise" in respect of the import of au diovisual products, the provisions of that regulation 
are to be applied.  It is clear to us from Article 2 that the Publications Regulation  is applicable to the 
import of audiovisual products.  Indeed, the Publications Regulation  regulates "publications" 
generally.  Article 67 in our view merely makes cl ear that it is nonetheless possible to maintain or 
introduce special and different rules governing, inter alia , the import of audiovisual products.  
Therefore, we do not agree that the Publications Regulation  is not applicable to the import of 
audiovisual products.  We do agree, however, that the Publications Regulation  may not set forth the 
rule(s) that would ultimately be applied by China to the import of audiovisual products.  China argues 
in this respect that the 2001 Audiovisual Products Regulation  contains relevant special rules.  
Accordingly, for each of the provisions of the Publications Regulation  which the United States is 
challenging, we will consider whether the 2001 Audiovisual Products Regulation  "specifies 
otherwise" within the meaning of Article 67.    
Article 43  
7.391  Turning now to the specific claims by the Un ited States, we note that in response to a 
question from the Panel, the United States ha s identified Articles 41, 42 and 43 of the Publications 
Regulation  as the provisions directly giving rise to an  inconsistency with the Accession Protocol.301  
However, it is not clear to us that the United Stat es intended to put forward a claim in respect of 
Article 43.  Indeed, the US submissions to the Panel do not state any claim in respect of Article 43.  Even assuming that the United States intended to put forward a claim, the United States in any event 
                                                     
 
299 United States' response to question No. 1. 
300 China confirmed that the term "audiovisual prod ucts" in Article 2 includes audiovisual proudcts 
intended for publication (China's response to question No. 31(a)). 
301 United States' response to question No. 1.  WT/DS363/R 
 Page 205 
 
 
  has not met its burden of establishing any inconsiste ncy with China's trading rights commitments in 
respect of Article 43, as it has not provided an y explanation as to why and how Article 43 is 
inconsistent with the trading rights commitments under China's Accession Protocol.  We also note 
that the United States has not explained how Article  43 could give rise to an inconsistency when 
considered together with other challenged measures.   
Article 42  
7.392  We consider, next, the US claims in respect of Article 42.  We begin this task by noting the 
provisions of Article 41.  Article 41 states that no "e ntity or individual" may engage in the business of 
importing publications without approval.  Article 41 also states, however, that the business of importing publications must be operated by a pproved "publication import entities".  The term 
"publication import entities" suggests that entities, but not individuals, may be approved.  Article 42 
appears to support this understanding.  It pr ovides that publication import entities may only be 
approved if they satisfy the conditions listed in Ar ticle 42 and also conform to the State plan for the 
total number, structure and distribution of publication import entities.  Looking at the conditions listed, we note that they refer to the need to be a "wholly state-owned enterprise" or to have a suitable 
organization and specialized personnel.  These elem ents do not appear to fit the situation of 
individuals as opposed to entities.  Thus, it is our understanding that only entities can be approved as 
"publication import entities".  
7.393  We further note that Articles 41 and 42 do not explicitly state whether "publication import 
entities" need to be registered in China.  We r ecognize that the term "publication import entity" is 
unqualified.  In our view, this does not necessarily mean, however, that the term could cover also 
foreign enterprises not registered in China.  In considering this issu e, we note at the outset that we 
have not been given, or made aware of, any other trade-related Chinese laws or regulations that could 
indicate whether an "import entity" needs to be registered in China.
302  We realize that Article 42 
requires that only Chinese "wholly state-owned en terprises" may be approved as publication import 
entities, and that such enterprises are registered in  China.  But this condition does not seem to be 
inherent to the concept of "publication import entity ".  Indeed, China could repeal this particular 
condition and still use the concept of "publication impor t entity".  On the other hand, Article 43 of the 
Publications Regulation  states that after obtaining a licence to import publications, an entity needs to 
obtain, in addition, a business licence from China' s administrative department for industry and 
commerce.  It seems unlikely that entities not register ed in China could obtain such a business licence.  
In view of these elements, and the lack of US argum ents and evidence on this issue, we consider that 
the United States has not demonstrated that the term "publication import entities" as it appears in 
Articles 41 and 42 could cove r foreign enterprises not registered in  China.  We accept, however, that 
this term could cover enterprises registered in China.  
7.394  As to whether the term "publication import en tities" could cover Chinese branches of foreign-
registered enterprises303, it is sufficient to note that the United States has not asserted that Article 42, 
or Article 41, affects such branches in China and th at this results in an inconsistency with China's 
trading rights commitments.  In fact, the United States has never even mentioned the possibility of 
foreign-registered enterprises setting up Chinese branch es.  Accordingly, we do not examine this issue 
further.304 
                                                      
302 The last paragraph of Article 43 of the Publications Regulation  indicates that publication import 
entities must also comply with China's "laws an d administrative regulations on foreign trade". 
303 We recall that China requires registration of branches. 
304 Also, it is in any event not clear to us from the information on the record whether Chinese laws or 
regulations on branches of foreign enterprises allow foreign-registered enterprises to set up Chinese branches in 
the sector at issue. WT/DS363/R 
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  7.395  In sum, we note that "entities" in China do no t automatically have the right to import the 
relevant products.  Instead, they must obtain that right, by applying for approval as a publication import entity.  Article 42 sets out the criteria for obtaining the right to import. 
Paragraphs 5.1, 83(d) and 84(a) 
7.396  We do not understand the United States to cha llenge the approval requirement as such.  
Rather, the United States' claim is based on the eff ect of the approval criteria.  Indeed, the United 
States claims that the condition that publication import entities must be Chinese wholly state-owned 
enterprises as well as the other applicable cond itions contained in Article 42 deprive "foreign 
importers and privately-held enterprises in China"  of the right to import the relevant products, 
contrary to paragraphs 5.1, 83(d) and 84(a).
305  The other applicable conditions are that the applicant 
must: (i) have a name and articles of association, ( ii) have a well-defined scope  of business, (iii) have 
adequate funding, (iv) have a fixed business site , (v) meet conditions set out in laws or other 
regulations, and (vi) have a suitable organization a nd qualified personnel.  In addition, approval may 
only be granted in case of conformity with the State plan for the number, structure and distribution of 
publication import entities.  In response to a question from the Panel, China has stated that the State 
plan concerns the number, geographical and produc t coverage of publication import entities.  China 
also pointed out that the State plan is not available in written form.306   
7.397  We commence our analysis with the condition that a publication import entity must be a 
wholly state-owned enterprise.  Since only whol ly state-owned enterprises can be approved as 
publication import entities, and since pursuant to Article 41 only approved p ublication import entities 
can engage in the business of importing publications, "enterprises in China" other than wholly state-
owned enterprises (i.e., foreign-invested enterpri ses in China and privately owned enterprises in 
China) cannot obtain the right to import the relevant products.   
7.398  As "enterprises in China" other than wholly state-owned enterprises cannot obtain the right to 
import the relevant products, it follows that there cannot  be any such enterprises that have the right to 
import these products.  We consider, therefore, that Ch ina has failed to ensure  that "all enterprises in 
China" have the right to import the publications con cerned.  This is contrary to China's obligations 
under paragraphs 5.1, 83(d) and 84(a) (in respect of  enterprises in China ot her than wholly state-
owned enterprises).  
7.399  Regarding foreign enterprises not registered in China, we recall that the United States has not 
established that the term "publication import entitie s" as it appears in Article 42 could cover entities 
not registered in China.  Therefore, it has not been demonstrated that it is because of the condition that 
publication import entities must be wholly state-owned enterprises that foreign enterprises not 
registered in China cannot obtain the right to im port the relevant products.  As pointed out above, 
even if the condition were repealed, foreign ente rprises not registered in China could still not be 
approved if the term "publication import entities" does not cover such entities.  We also recall that the 
United States has not asserted that Article 42 a ffects Chinese branches of foreign enterprises not 
registered in China. 
7.400  Furthermore, regarding foreign individuals, the United States has not demonstrated that it is 
because of the condition that publication import entiti es must be wholly state-owned enterprises that 
foreign individuals cannot obtain the right to import the relevant products.  We note that Article 42 is 
about establishment of publication import "entities" .  The fact that only wholly state-owned 
enterprises can be approved as publication import "en tities" does not imply that foreign "individuals" 
                                                      
305 United States' response to question No. 152. 
306 China's response to question No. 44.  We note that China has not explained its reference to "product 
coverage".  WT/DS363/R 
 Page 207 
 
 
  could not be approved to engage in the business of importing p ublications.  Whether they may be 
approved is in our view determined, not by Article 42, but by Article 41, which states, in effect, that 
only publication import entities may be approved and that "no individual" may e ngage in the business 
of importing publications without approval.307            
7.401  Thus, on the basis of the foregoing considerati ons we conclude that Article 42, by imposing 
the condition that publication import entities need to  be wholly state-owned, results, in combination 
with Article 41, in China acting inconsistently w ith its obligations under paragraphs 5.1, 83(d) and 
84(a) in respect of enterprises in China other than  wholly state-owned ones.  The United States has 
not established that the relevant condition in Ar ticle 42 results in an inconsistency with the 
aforementioned paragraphs in respect of foreign enterprises not registered in China and foreign 
individuals.  Nor has the United States established th at the condition results in an inconsistency in 
respect of such enterprises and individuals when cons idered together with other challenged measures.   
7.402  Regarding whether our conclusion extends also to enterprises wishing to import audiovisual 
products (which, to recall, include sound recordings ), we note that China has indicated that with 
regard to importation entities for finished  audiovisual products there is no approval process.  China 
points out that Article 27 of the 2001 Audiovisual Products Regulation  provides for a designation 
process for entities wishing to import such products.308  China argues that Article 42 is, therefore, not 
applied to these products.309  We note that the United States has referred to the Imported Cultural 
Products Rule  and the Decisions on Non-Public-Owned Capital , both of which post-date the 2001 
Audiovisual Products Regulation .310  The former provides, in Article 4, that the "business of 
importing cultural products such as … audiovisual products … shall be carried out by state-owned 
cultural units designated or  licensed by the [MOC]".311  The latter provides in relevant part that "non-
public capital … may not engage in the import bus iness of cultural products such as … finished 
audiovisual products".312  In fact, China itself stated that only wholly state-owned enterprises are 
permitted to import audiovisual products.313   
7.403  In our view, the two measures identified by the United States do not demonstrate that 
Article 42 is applied to finished audiovisual produc ts.  The state ownership requirement is contained 
in those two measures, but those two measures do not depart from the designation requirement 
established by Article 27.  In other words, in tho se two measures state ownership is not a condition 
applied as part of an approval process like the one established by Article 42 whereby applications may 
be submitted.314  Therefore, we consider that the prov isions on importing of finished audiovisual 
products which China applies are contained, not in Article 42, but, by virtue of Article 67 of the 
Publications Regulation , in Article 27 of the 2001 Audiovisual Products Regulation  and the Imported 
Cultural Products Rule  and the Decisions on Non-Public-Owned Capital .  The effect of these 
provisions is that importers must be designated, a nd that only state-owned entities may be designated.  
This is different, however, from Article 42 which says that only state-owned enterprises may be 
approved.      
                                                      
307 As indicated, we do not think that Article 41 determines whether foreign individuals may import 
publications for their personal consumption or use. 
308 China's response to question No. 25(b).  We disc uss Article 27 further below, in the Sub-section 
dealing with the 2001 Audiovisual Products Regulation . 
309 China's comments on the United States' response to question No. 157.   
310 United States' responses to question Nos. 8 and 157. 
311 Exhibit US-10. 
312 Exhibit US-11. 
313 China's response to question No. 46(a). 
314 We recall that Article 4 of the Imported Cultural Products Rule  refers to state-owned cultural units 
"designated or licensed" by the MOC. WT/DS363/R 
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  7.404  In the light of the foregoing, we conclude that  the state ownership requirement in Article 42 
does not result in China acting inconsistently with  its obligations under paragraphs 5.1, 83(d) and 
84(a) in respect of enterprises in China that wish to import finished audiovisual products.  
7.405  For audiovisual products imported for publication , China likewise argues that the 2001 
Audiovisual Products Regulation  applies, not the Publications Regulation .
315  Article 5 of the 2001 
Audiovisual Products Regulation  provides for a licensing process for importation entities wishing to 
import audiovisual products for publication.  A permit is necessary to engage in importing.316  There 
does not appear to be any process for submitting app lications and obtaining a permit.  Article 5 also 
contains no criteria to be followed by the MOC in  deciding whom to approve as an importer of 
audiovisual products imported for publication.  Indeed, the United States itself claims that the 
approval requirement in Article 5 introduces discretion.317  Also, Article 5 talks about the State 
instituting a system of licensing; it does not indicate that existing approval processes, such as the one 
provided for in Article 42, would apply.  We therefor e consider that Article 5 specifies otherwise than 
Article 42.  The Imported Cultural Products Rule  appears to apply also to audiovisual products 
imported for publication.  However, as we have e xplained above, we do not think this demonstrates 
that Article 42 is applied to such  products, particularly since the Imported Cultural Products Rule  
does not depart from the licensing requirement established by Article 5.   
7.406  Therefore, we consider that the provisions  on the import of audiovisual products for 
publication which China applies are contained, not in Article 42, but in Article 5 of the 2001 
Audiovisual Products Regulation  and the Imported Cultural Products Rule .318  In the light of this, we 
conclude that the state ownership requirement  in Article 42 does not result in China acting 
inconsistently with its obligations  under paragraphs 5.1, 83(d) and 84(a) in respect of enterprises in 
China that wish to import audiovisual products for publication. 
7.407  We now proceed to examine the next US claim in respect of Article 42.  The United States 
claims that the other conditions in Article 42 which must be satisfied in order to obtain approval as a 
publication import entity – i.e., the conditions other than state ownership – also result in depriving 
"foreign importers and privately-held enterprises in China" of the right to import the relevant 
products.  The United States argues that by impos ing these other conditions, Article 42 reserves the 
right to import to a subset of wholly stat e-owned enterprises which satisfy these conditions. 
7.408  We agree that the existence of the other conditions319 implies that enterprises in China that do 
not satisfy these conditions cannot be approved as publication import entities and, hence, cannot 
obtain the right to import the relevant products.  We  recall in this respect that the second sentence of 
paragraph 84(b) of the Working Party Report se ts forth a confirmation by China that "any 
requirements for obtaining trading rights would be for customs and fiscal purposes only and would not constitute a barrier to trade".  We are mindful of the fact that the US claims are not based on paragraph 84(b), but paragr aphs 5.1, 83(d) and 84(a).  However,  we see no convincing reason to find 
that China may impose requirements for obtaining tr ading rights of the described type on foreign 
enterprises and foreign individuals (as confirmed by paragraph 84(b)), but not on enterprises in 
China.
320  Accordingly, we consider that China ma y impose on enterprises in China, and on foreign 
enterprises and foreign individuals, requirements fo r obtaining trading rights that serve customs and 
                                                      
315 China's response to question No. 31(c) and Ch ina's comments on the United States' response to 
question No. 157. 
316 We discuss Article 5 further below, in the Sub-Section dealing with the 2001 Audiovisual Products 
Regulation.  
317 United States' first written submission, para. 262. 
318 The Decisions on Non-Public-Owned Capital  refer only to finished audiovisual products. 
319 For the other conditions, see  supra , para. 7.396. 
320 We recall our view that the term "foreign enterprises" in paragraph 84(b) includes foreign-invested 
enterprises.  WT/DS363/R 
 Page 209 
 
 
  fiscal purposes, provided such requirements do not constitu te a barrier to trade.  We also note in this 
connection that the United States in response to a question from the Panel on paragraph 84(b) has 
referred to what it terms "norma l background business regulation".321  We observe in this respect that 
in this case we have no need to take a position on  whether, under the rubric of "normal business 
regulation", China could impose, on enterprises in China, other requirements for obtaining trading 
rights.  As we indicate below, even if China could do so, we would not reach any different conclusion 
in respect of the US claims at issue.    
7.409  We note that the United States has not provid ed any elaboration as to why each of the 
conditions at issue is impermissible.  In relation to  five of these conditions:  (i) name and articles of 
association, (ii) well-defined scope of business, (iii)  adequate funding, (iv) fixed business site and (v) 
conditions set out in laws or ot her regulations – the United States has not advanced arguments or 
evidence sufficient to raise a presu mption that they are maintained for purposes other than fiscal or 
customs purposes, or for purposes other than "norma l business regulation".  We note that in response 
to a question from the Panel, the United States h as merely suggested, without explanation, that 
conditions like scope of business and bus iness site "seem difficult to justify".322  In the light of this, 
we conclude that the United States has not met its bu rden of establishing that, contrary to paragraphs 
5.1, 83(d) or 84(a), these five conditions result in an impermissible denial of the right of enterprises in China to import the relevant publications.  Also, we  note that the United States has not established 
that the five conditions result in an inconsistenc y when considered together with other challenged 
measures. 
7.410  In relation to the remaining two approval cond itions – (i) suitable organization and qualified 
personnel and (ii) conformity with the State plan for the number, structure and distribution of 
publication import entities – we think it is readily appa rent that they are not maintained for fiscal or 
customs purposes, or as "normal business regulation".  We also note that this has been confirmed by 
China.  China stated that these conditions are im posed to ensure a proper selection of those entities 
that participate in the review of the content of imported publications.  China argues that an effective 
and efficient content review makes it necessary to  approve only entities that have an appropriate 
organization, competent personnel and that en sure an appropriate geographical coverage.
323  C h i n a  
further argues that for content review to be effi cient and smooth, it is necessary that only a limited 
number of entities be approved.324    
7.411  Accordingly, since enterprises in China (including enterprises other than state-owned ones 
such as foreign-invested enterprises) that do not sa tisfy these two conditions cannot obtain the right to 
import the relevant products, it follows that there cannot  be any such enterprises that have the right to 
import these products.  We thus consider that by  maintaining these conditions, China has failed to 
ensure that "all enterprises in Ch ina" have the right to import the publications concerned.  This is 
contrary to China's obligations under paragraphs 5.1, 83(d) and 84(a) (in respect of enterprises in 
China other than wholly state-owned enterprises).   We therefore conclude that Article 42, by 
imposing the conditions that publication import en tities need to have a suitable organization and 
qualified personnel, and that approva l may only be granted subject to conformity with the State plan 
for the number, structure and distribution of such en tities, results, in combination with Article 41, in 
China acting inconsistently with its obligations under the aforemen tioned paragraphs in respect of 
enterprises in China.   
7.412  Regarding whether our conclusion with respect to  enterprises in China extends also to such 
enterprises wishing to import audiovisual products, we recall China's argument that in accordance 
                                                      
321 United States' response to question No. 198(b). 
322 United States' response to question No. 52(b). 
323 China's first written submission, para. 156. 
324 Ibid., paras. 215-216. WT/DS363/R 
Page 210  
 
  with Article 67 of the Publications Regulation  it would apply the 2001 Audiovisual Products 
Regulation , not the Publications Regulation , to such enterprises.
325  The relevant provisions of the 
2001 Audiovisual Products Regulation  – Article 5 (licensing system) and Article 27 (designation 
system) – do not indicate that interested enterpri ses could submit applica tions and obtain approval 
under Article 42 subject to satisfaction of th e relevant conditions.  Article 4 of the Imported Cultural 
Products Rule  refers to the State plan for the number, stru cture and distribution of import entities.  In 
our view, this does not demonstrate, however, that Article 42 is applied to audiovisual products, since 
the Imported Cultural Products Rule  does not depart from the licensing and designation systems 
established by Articles 5 and 27. 
7.413  Therefore, we consider that Articles 5 and 27 specify otherwise than Article 42 in respect of 
who may engage in importing of a udiovisual products, and that, by vi rtue of Article 67, China would 
therefore apply these provisions, not Article 42, to enterprises wishing to import audiovisual products.  In the light of this, we conclude that the relevant  two conditions contained in Article 42 do not result 
in China acting inconsistently with its obligations under paragraphs 5.1, 83(d) and 84(a) in respect of 
enterprises in China wishing to import audiovisual products. 
7.414  We note that the US claims with respect to the conditions other than state ownership also 
concern foreign enterprises not registered in Chin a and foreign individuals.  Regarding foreign 
individuals, we note that the United States has not demonstrated that it is because of these conditions 
set out in Article 42 that foreign individuals cannot  obtain the right to import the relevant products.  
We recall in this regard our cons iderations above concerning the state ownership condition where we 
addressed the same issue.
326  We think they are relevant and app licable to the other conditions as well.  
We therefore conclude that the United States has not established that the relevant conditions in 
Article 42 result in an inconsiste ncy with paragraphs 5.1, 83(d) and 84(a) in respect of foreign 
individuals.  Also, we note that the United States ha s not established that the conditions result in an 
inconsistency when considered togeth er with other challenged measures.  
7.415  Regarding foreign enterprises not registered in China, we recall that the United States has not 
established that the term "publication import entitie s" as it appears in Article 42 could cover entities 
not registered in China.  Therefore, it has not been  demonstrated that it is because of the conditions in 
question that foreign enterprises not registered in China cannot obtain the right to import the relevant products.  Even if the conditions were repealed, fore ign enterprises not regist ered in China could still 
not be approved if the term "publication import entities" does not cover such entities.  We also recall that the United States has not asserted that Article 42 affects Chinese branches of foreign enterprises 
not registered in China.  We therefore conclude  that the United States has not established that the 
relevant conditions in Article 42 result in an incons istency with paragraphs 5.1, 83(d) and 84(a) in 
respect of foreign enterprises not registered in Chin a.  Also, we note that the United States has not 
established that the conditions result in an incons istency when considered together with other 
challenged measures.   
Paragraphs 5.2 and 84(b) 
7.416  The United States makes further claims in respect of Article 42, based on paragraphs 5.2 and 
84(b).  According to the United States, Articl e 42 discriminates against foreign enterprises and 
individuals by according them less favourable treatme nt relative to wholly state-owned enterprises 
with regard to the right to import the relevant pub lications.  The United States submits that foreign 
                                                     
 
325 China's response to question No. 31(c) and Ch ina's comments on the United States' response to 
question No. 157. 
326 See supra , para.  7.400.  WT/DS363/R 
 Page 211 
 
 
  enterprises and individuals are discriminated agai nst because they are not wholly state-owned 
enterprises.327   
7.417  We first recall our view that the phrase "forei gn enterprises" in paragraphs 5.2 and 84(b) 
covers foreign enterprises not registered in China an d also foreign-invested en terprises in China.  In 
this regard, we refer to our earlier finding that Ar ticle 42, by imposing the condition that publication 
import entities need to be wholly state-owned, results , in combination with Article 41, in China acting 
inconsistently with its obligations  under paragraphs 5.1, 83(d) and 84(a) in respect of enterprises in 
China other than wholly state-owned ones, including foreign-invested enterprises.  We therefore see 
no need to offer additional findings regarding whethe r, as a result of Article 42, China has also acted 
inconsistently with its obligations under paragraphs 5.2 and 84(b) in r espect of the same enterprises.  
We thus exercise judicial economy. 
7.418  So far as concerns foreign individuals, we reca ll that pursuant to Article 42 only wholly state-
owned enterprises can be approved as publication im port entities, and that pursuant to Article 41 
approved publication import entities can engage in th e business of importing publications.  Thus, we 
agree that as a result of Article 42 wholly state-owned enterprises can obtain the right to import 
publications.  However, as previously pointed out, the United States in our view has not demonstrated 
that it is because of the state ownership condition in Article 42 that foreign individuals cannot obtain 
the right to import the relevant products.  Whether they may be approved as importers is in our view 
determined, not by Article 42, but by Article 41.  Indeed, even if China were to repeal the state 
ownership condition in Article 42, wholly state-owned enterprises coul d still obtain the right to import 
publications while foreign individuals would still be unable to obtain that right.  We therefore 
conclude that the United States has not established that the state ownership condition in Article 42 
results in China acting inconsistently with its oblig ations under paragraphs 5.2 and 84(b) in respect of 
foreign individuals.  Also, we note that the United States has not established that the condition results 
in an inconsistency when considered to gether with other challenged measures.  
7.419  Regarding foreign enterprises not registered in  China, we recall our view that the United 
States has not demonstrated that it is because of th e state ownership condition that foreign enterprises 
not registered in China cannot obtain the right to im port the relevant products .  As pointed out above, 
even if the condition were repealed, foreign ente rprises not registered in China could still not be 
approved if the term "publication import entities" does not cover such entities, while wholly state-
owned enterprises could continue to  be approved.  We also recall that the United States has not 
asserted that Article 42 affects Chinese branches of fo reign enterprises not registered in China.  We 
therefore conclude that the United States has not established that the state ownership condition in 
Article 42 results in China acting in consistently with its obligations under paragraphs 5.2 and 84(b) in 
respect of foreign enterprises not registered in Chin a.  Also, we note that the United States has not 
established that the condition results in an incons istency when considered together with other 
challenged measures.  
7.420  The United States claims, in addition, that foreign enterprises are subject to further 
discrimination.  In support of this claim, the Unite d States refers to a reply from China to a Panel 
question.  In that reply, China states, in part, that the "criteria [set out in Article 42] cannot be met by enterprises other than wholly state-owned enterprises".
328  The United States infers from this that 
China has made a "determination" that foreign en terprises can never fulfil the criteria contained in 
Article 42.329  The United States considers this to be inc onsistent with paragra phs 5.2 and 84(b).   
                                                      
327 United States' response to question No. 152. 
328 China's response to question No. 46(b). 
329 United States' response to question No. 152. WT/DS363/R 
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  7.421  In view of China's reply, it appears to us that  this claim of the United States concerns the 
conditions set out in Article 42, other th an the condition concerning state ownership.
330  The United 
States appears to assert that, unlike wholly state- owned enterprises, foreign enterprises could never 
satisfy these conditions and that they therefore coul d not be approved as publication import entities.  
As a consequence, unlike wholly state-owned enterp rises, they could not obtain the right to import the 
relevant products.  
7.422  We recall at the outset that the measure at issue is the Publications Regulation , and 
specifically Article 42 thereof, and not an alleged se parate "determination" by China.  We see nothing 
in the text or nature of the conditions at issue wh ich would indicate that foreign-invested enterprises 
registered in China could never satisfy these conditions.331     Moreover, regarding foreign enterprises 
not registered in China, we note that it is not clear that China's reply was intended to address such 
enterprises.  The United States, for its part, has not  offered any explanation as to why the relevant 
conditions could not be satisfied by such enterprises.   Finally, we recall that the United States has not 
established that Article 42 contemplates foreign enterprises not registered in China as possible 
"publication import entities".  Thus, the United States has also not demonstrated that it is because 
such enterprises are unable to satisfy the relevant c onditions that they cannot obtain the right to import 
the products in question.  In addition, we recall th at the United States has not asserted that Article 42 
affects Chinese branches of foreign en terprises not registered in China. 
7.423  We further note that if China in its reply intended to assert that it would be costly for 
enterprises other than wholly state-owned ones to m eet the conditions at issue, particularly the one 
relating to the need for a suitable organization and competent personnel, and that this would dissuade 
enterprises that are not wholly state-owned from seeking approval as publication import entities, we 
note that China has provided no support for such an assertion.332  In the absence of indications to the 
contrary, we are not persuaded that the cost of meeting the relevant conditions would effectively 
allow only wholly state-owned enterprises to meet these conditions.    
7.424  In the light of the foregoing, we conclude that the United States has not established that the 
relevant conditions contained in Artic le 42 "can never [be] fulfil[led]"  by foreign enterprises and that 
they, therefore, result in China discriminating agai nst foreign enterprises contrary to its obligations 
under paragraphs 5.2 and 84(b).  Moreover, we note that the United States has not established that an 
inconsistency would arise if Artic le 42 is considered together w ith other challenged measures.   
Paragraph 84(b) 
7.425  There is one more US claim concerning Article  42 which we need to address.  The United 
States claims that Article 42 is inconsistent with paragraph 84(b) because it grants trading rights in a 
discretionary way.  The United States argues that app licants must satisfy the "State plan for the total 
number, structure and distribution of publication import entities".  According to the United States, 
China has complete discretion in formulating this  plan and in determining whether particular 
applicants satisfy this plan.333  The United States submits that the discretionary nature of Article 42 is 
                                                      
330 We recall that we have at any rate already offered findings under paragraphs 5.1, 83(d) and 84(a) in 
relation to the condition concerning state ownership. 
331 China's response to question No. 46(b) in our view does not make a statement regarding how the 
conditions are to be interpreted as a matter of Chinese law.   
332 China's response to question No. 46(b) should be read together with its reply to question No. 46(a).  
There, China states that the cost incurred by enterprises in the course of  content review is substantial.  In reply 
to question No. 185, China has, however, provided no estimate of the cost involved, stating instead that the 
relevant costs consist of human resource costs and the cost of equipment, facilities and premises used for 
content review. 
333 United States' response to question No. 152.  WT/DS363/R 
 Page 213 
 
 
  illustrated by China's statement, made in response to  a question from the Panel, that State plans are 
not available in written form.     
7.426  We note at the outset China's reply to a questi on from the Panel to the effect that foreign 
individuals and foreign enterprises are not subject to the State plan because publication import entities 
must be wholly state-owned enterprises.334  We are not convinced by this argument.  The condition 
that publication import entities be state-owned is a se parate and independent co ndition, and there is no 
apparent connection with the requirement that app lications must be in conformity with the State 
plan.335  Accordingly, we must, and do, review the State plan requirement separately.   
7.427  We also recall that Article 42 deals with the establishment of "publication import entities" and 
that the State plan concerns the number, structure a nd distribution of such entities.  As a result, we do 
not see how the State plan requirement in Article 42 demonstrates that China does not grant foreign 
"individuals" the right to import in a non-discretionary  way.  Regarding foreign enterprises, we recall 
our view that the phrase "foreign enterprises" in  paragraph 84(b) covers  both foreign-invested 
enterprises in China and foreign enterprises not register ed in China.  We further recall our view that 
the term "publication import entities" as it appear s in Article 42 can cover foreign-invested 
enterprises, but that it has not been demonstrated  that it can also cover foreign enterprises not 
registered in China.  Thus, even if as a result of the State plan requirement China enjoyed discretion in 
the granting of trading rights to publication impor t entities, the United States has not established that 
the publication import entities subject to the State pl an requirement could include foreign enterprises 
not registered in China.  We recall, finally, th at the United States has not asserted that Article 42 
affects Chinese branches of foreig n enterprises not registered in China.  On the other hand, with 
regard to foreign-invested enterprises, we need to  examine whether the State plan requirement means 
that China does not grant such enterprises the right to import in a non-discretionary way.  
7.428  In undertaking this task, we note that, pursuant to Article 42, applications for the 
establishment of publication import entities may be approved only if they conform to the State plan for the total number, structure and distribution of publication import entities.  Thus, Article 42 
specifies all additional criteria which are to be, and may be, taken into account.   Under Article 42, the 
GAPP
336 does not have the discretion to apply other criteria.   
7.429  We agree that Article 42 allows China to elabor ate a plan for the total number, structure and 
distribution of publication import entities.  We ar e not persuaded, however, that the GAPP would 
enjoy discretion in determining whether particular applicants satisfy that plan.337  For instance, the 
State plan might envisage that there should, in total, be no more than, say, 60 approved publication 
import entities, and that each approved entity must be able to ensure coverage of a specified number 
of customs areas.338  In our view, a determination of whether a particular application is consistent with 
a State plan of the aforementioned kind would not re quire the exercise of discretion.  In the absence of 
evidence demonstrating otherwise, we see no basis for assuming that under the relevant State plan the 
GAPP would have discretion in granting trading rights  to foreign-invested en terprises in China.   
7.430  China has told the Panel that the State plan is  not available in written form.  As we understand 
it, however, if China wishes to apply criteria like the total number, structure and distribution of 
publication import entities, it can only do so pursuant to  a State plan.  Moreover, the fact that the State 
                                                      
334 China's response to question No. 174. 
335 See also Article 51 of the 1997 Electronic Publications Regulation . 
336 Pursuant to Article 43, the GAPP is charged with examining and approving applications. 
337 In reply to question No. 7, the United States asserts that the GAPP would have discretion in 
applying the State plan.  However, no evidence or ar gument is provided in support of this assertion. 
338 China's first written submission, paras. 214-216. WT/DS363/R 
Page 214  
 
  plan may not need to be made available in written form does not demonstrate that none exists, or that 
the plan changes with every application.   
7.431  Based on the foregoing considerations, we are not convinced that, as a result of the 
requirement in Article 42 concerning conformity with the State plan, China does not approve applications in a non-discretionary way, and that it therefore does not grant foreign-invested 
enterprises in China the right to import in a non-discretionary way.
339   
7.432  In sum, in the light of the above, we conclude  that the United States has not established that 
Article 42 results in China acting inconsistently with its commitment in paragraph 84(b) to grant 
foreign-invested enterprises in China, foreign en terprises and foreign individuals trading rights in a 
non-discretionary way.  We also note that the Un ited States has not established that the relevant 
requirement in Article 42 results in an inconsistenc y when considered together with other challenged 
measures.       
Article 41  
7.433  Having disposed of the US claims in respect of  Article 42, we turn, finally, to address the US 
claim in respect of Article 41.  The United States argues that pursuant to Article 41 the importation of 
newspapers and periodicals is further restricted  to wholly state-owned enterprises specially 
"designated" by the Chinese Government.  The Unit ed States considers that this designation process 
injects further qualifying criteria a nd government discretion into a process that China committed to be 
"non-discretionary" and claims that it is theref ore inconsistent with China's trading rights 
commitments.  According to the United States, there are no independent criteria governing how the 
GAPP designates importers of newspapers and pe riodicals, and so the GAPP is authorized to 
designate based on its own discreti on the entities of its own choosing.340  The United States points out 
that interested entities are not ev en afforded the opportunity to submit applications for approval.341 
7.434  Article 41 provides in relevant part that "no en tity or individual shall engage in the business 
of importing newspapers or  periodicals without being designated".  It also provides that the business 
of importing publications is to be operated by publication import entiti es.  Thus, it would appear that 
China can designate only publication import entities.   China has confirmed that the GAPP can only 
designate as importers of newspapers or peri odicals, publication import entities that have been 
approved by the GAPP under Article 42.342  China has further confirmed that the GAPP designates 
publication import entities at its own initiativ e and that there is no application process.343   
7.435  We note that the United States does not explicitly identify the legal basis for its claim.  The 
United States has, however, referred to China' s commitment to grant trading rights in a "non-
discretionary" way.  We therefore proceed on the assumption that the United States' claim is based 
upon paragraph 84(b). 
7.436  In examining this claim, we observe that designation under Article 41 is not automatic.  
Rather, it is up to the GAPP to initiate the designa tion process.  Moreover, pursuant to Article 41, the 
GAPP may only designate as importers of newspape rs or periodicals publication import entities that 
are GAPP-approved.  Furthermore, in response to a question from the Panel, China has indicated that 
                                                      
339 We recall, though, that we have found earlier that the requirement gives rise to an inconsistency 
with paragraphs paragraphs 5.1, 83(d) and 84(a). 
340 United States' response to question No. 7. 
341 United States' response to question No. 9. 
342 China's responses to question Nos. 25(b) and 26. 
343 China's response to question No. 25(a).  WT/DS363/R 
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  the designation requirement in Article 41 "resu lt[s] in [a] limited number of importers".344  W h i l e  
keeping the number of designated importers limited, the GAPP is free to decide whom it wishes to designate from among the GAPP-approved publicati on import entities.  Accordingly, under 
Article 41, China needs to exercise discretion in order to grant the right to import newspapers or 
periodicals.  We therefore conclude that, as a result of Article 41, China in respect of newspapers or 
periodicals does not grant trading rights to publi cation import entities in a non-discretionary way.   
7.437  In view of the fact that the discretion relates to the designation of publication import entities, 
we conclude that Article 41 does not result in an in consistency with paragraph 84(b) with respect to 
the grant of trading rights to foreign individuals.  Furthermore, we recall our view that the term 
"publication import entities" as it appears in Article 41 can cover enterprises registered in China, but 
that the United States has not established that it can al so cover enterprises not registered in China.  We 
also recall that the United States has not asserted that  Article 41 affects Chinese branches of foreign 
enterprises not registered in China.  We therefore conclude that, as a result of Article 41, China in 
respect of newspapers and periodicals does not grant trading rights to foreign- invested enterprises in 
China in a non-discretionary way an d that, for that reason, China is acting inconsistently with its 
obligation under paragraph 84(b).  We also find, however, that the United States has not established 
that as a result of Article 41 China does not grant trading rights to fo reign enterprises not registered in 
China in a non-discretionary way.  We thus conclude that the United States has not established an inconsistency with paragraph 84(b) in respect of such enterprises. 
7.438  Regarding the US argument that the designation requirement "injects qualifying criteria" into 
the process of granting trading rights, we observe th at we do not see how it does.  The United States 
has itself stated in response to a question from th e Panel that the designation of import entities is 
discretionary and that there are no independent criteria governing how the competent agency – the GAPP in this case – designates importers.
345  
(v) Importation Procedure 
7.439  The United States  contends that the Importation Procedure  implements Article 43 of the 
Publications Regulation .346  In the United States' view, it confirms, and to some extent elaborates 
upon, the licensing requirements for the importation of reading materials, AVHE products, and sound 
recordings  into China.  The United States notes in this regard that the Importation Procedure  begins 
with the heading "Licensing Requirements".  Th e United States further notes that pursuant to 
paragraph 2 under this heading of the Importation Procedure , as in the Publications Regulation , the 
second condition for an enterprise to import these products is that it is a wholly state-owned 
enterprise.  Likewise, the United States points ou t, in accordance with paragraph 8 under the same 
heading of the Importation Procedure  licenses are limited based on the "State plan regarding the total 
number, structure and deployment of publication import business units".347  Accordingly, the United 
States submits, the Importation Procedure  reconfirms the prohibition on any foreign-invested 
                                                      
344 China's response to question No. 172.  In its reply, China suggests that the purpose of its various 
designation requirements is not to limit the number of importers, but to select entities allowed to import cultural goods.  At the same time, as indicat ed, China specifically noted that "the designation system would result in a 
limited number of importers". 
345 United States' response to question No. 9. 
346 The United States submits that since the Importation Procedure  was established pursuant to 
Article 43 of the Publications Regulation , the full scope of the definition of "publication" – including reading 
materials, AVHE products, and sound recordings – contained in the Publications Regulation  is thereby 
incorporated into the Importation Procedure . 
347 According to the United States, the finite supply of licenses for the importation of reading materials, 
AVHE products, and sound recordings, is underscored by the heading "Quantity Restrictions", which immediately follows the "Licensing  Requirements" heading in the Importation Procedure , and which contains 
the entry – "Yes". WT/DS363/R 
Page 216  
 
  enterprise or foreign individual, or any priv ately-owned Chinese enterprise, engaging in the 
importation of reading materials, AVHE  products, and sound recordings.   
7.440  The United States claims that since the Importation Procedure  not only states that only 
wholly state-owned enterprises are allowed to impor t reading materials, AVHE products, and sound 
recordings into China, but also re inforces that such enterprises are s ubject to the same State "number, 
structure and deployment" requirements set forth in Article 42 of the Publications Regulation , it 
restricts trading rights and is, therefore, inc onsistent with China's trading rights commitments. 
7.441  In response to a question from th e Panel, the United States indicat ed that the inconsistencies 
claimed in relation to this measure arise as a result of paragraphs 2 and 8 of  the measure, and under 
paragraphs 5.1 and 5.2 of the Accession Protocol and paragraphs 83(d) and 84(a)-(b) of the Working 
Party Report.  The United States further indicated that , in its view, the parties whose trading rights are 
being restricted under this measure are foreign en terprises, including foreign-invested enterprises in 
China, foreign individuals and Chinese pr ivately invested enterprises in China.
348   
7.442  China  argues that the Panel should not examine the Importation Procedure , because the 
document submitted by the United States is a webpage  from the GAPP's website which is intended to 
provide guidance for applicants.  China is of the view that it would not be necessary for the Panel to 
make a ruling on the Importation Procedure  because it cannot serve as the legal basis for any 
administrative acts.   
7.443  The United States  responds that the Importation Procedure  is specifically identified in its 
panel request and is therefore within the Panel's te rms of reference.  Additionally, the United States 
argues that the Importation Procedure  is legally binding on the GAPP and sets out the requirements 
and examination and approval procedures for appli cants seeking to import reading materials into 
China.  
7.444  The Panel  recalls its decision at paragraph 7.215 above that, notwithstanding the United 
States' arguments to the contrary, the Importation Procedure  does not in and of itself set forth rules or 
norms of general and prospective application and as such does not qualify as a "measure" within the 
meaning of Article 3.3 of the DSU.  Therefore,  the Panel cannot, and does not, make a ruling on the 
US claims in respect of the Importation Procedure . 
(vi) 1997 Electronic Publications Regulation 
7.445  The United States  notes that Article 2 of the 1997 Electronic Publications Regulation  defines 
"electronic publications" as follows: 
"Electronic publications as stated in these Regulations is a form of popular 
propagation medium which refer to the savi ng of edited photo, text, audio and video 
information in the form of digital codes on magnetic, optical and electronic media.  
They can be accessed for reading and usage through computers or equipment with similar functions so that they can express ideas, disseminate knowledge and accumulate culture, and they can be repr oduced and distributed.  The media forms 
include soft floppy disk (FD), read-onl y CD (CD-ROM), interactive CD (CD-I), 
                                                     
 
348 United States' response to question No. 1.  WT/DS363/R 
 Page 217 
 
 
  photo-CD, DVD-ROM, IC cards and other forms as recognized by the General 
Administration of Press and Publication."349 
7.446  The United States further notes that Article 8 of the 1997 Electronic Publications Regulation  
imposes a licensing system on the importation of electronic publications, providing that no entity or individual may import electronic publications into China without a permit.   
7.447  Furthermore, the United States notes that according to Article 50 the GAPP must consult with 
the relevant authorities to determine the total nu mber, structure and deployment of enterprises 
importing electronic publications.  Article 51 further conditions approval to engage in the importation 
of electronic publications on whether the applicant enterprise satisfies the government's plans for total 
number, structure and deployment.   
7.448  In the United States' view, the 1997 Electronic Publications Regulation  thus implements the 
restrictive approval and licensing requirements contained in the Publications Regulation  and the 
Importation Procedure .  In so doing, the United States mainta ins, it reconfirms the prohibition on any 
foreign-invested enterprise or foreign individual, or any privately owned Chinese enterprise, engaging 
in the importation of electronic publications.  
7.449  The United States claims that the 1997 Electronic Publications Regulation  is inconsistent 
with China's trading rights commitments by imposing limits on which enterprises may import electronic publications into China.  The United States recalls that Articles 50 and 51 limit which 
enterprises may engage in the importation of electronic publications according to Chinese 
Government plans for the "total number, structure a nd deployment" of such enterprises.  In addition, 
the United States submits that Articles 52-55 of the 1997 Electronic Publications Regulation  further 
require approval by multiple layers of Chinese Gove rnment decision-makers before an enterprise may 
import electronic publications.  The United States considers that by conditioning trading rights on 
Chinese Government plans for structuring th ese activities and on successfully obtaining Chinese 
Government approvals, the 1997 Electronic Publications Regulation  is inconsistent with China's 
trading rights commitments.  According to the United States, it injects qualifying criteria and 
government discretion into a process that China comm itted to be "non-discretionary".  In response to 
a question from the Panel, the United States further cl aimed that Article 8 is also inconsistent with 
China's trading rights commitments, by not allo wing all enterprises in China and all foreign 
enterprises and individuals to import electronic publi cations and by granting trading rights in a 
discriminatory and discretionary way.
350 
7.450  Also, in response to a question from the Pa nel, the United States indicated that the 
inconsistencies claimed in relation to this measu re arise as a result of Articles 8 and 50-55 of the 
measure, and under paragraphs 5.1 and 5.2 of the Accession Protocol and paragraphs 83(d) and 84(a)-
(b) of the Working Party Report.  The United States further indicated that, in its view, the parties 
whose trading rights are being restricted under this  measure are foreign enterprises, including foreign-
invested enterprises in China, fo reign individuals and Chinese pr ivately invested enterprises in 
China.351   
7.451  China  argues that none of the challenged measure s is inconsistent with China's obligations 
under paragraphs 5.1, 5.2 or 1.2 of the Accession Pr otocol.  China submits in this respect that the 
United States fails to take account of China's right to regulate trade in a manner consistent with the 
                                                      
349 The United States adds that despite the broad scope of this definition, it understands that electronic 
publications include only books, periodicals, newspape rs, and audio books saved as digital codes on the media 
forms set out above, but do not include AVHE products and sound recordings. 
350 United States' response to question No. 153. 
351 United States' response to question No. 1. WT/DS363/R 
Page 218  
 
  WTO Agreement, including Article XX of the GATT 1994, and that the measures governing the 
importation of reading materials and finished  audiovisual products, including finished sound 
recordings, are justified under Article XX(a) of the GATT 1994. 
7.452  The Panel  recalls that China responded to the Panel's questions with respect to the content of 
the 1997 Electronic Publications Regulation  by saying that it has been repealed and replaced by the 
2008 Electronic  Publications Regulation .  China contends that the 1997 Electronic Publications 
Regulation  has ceased to have any legal effect.
352  According to China, the 1997 Electronic 
Publications Regulation  was replaced in April 2008, when the 2008 Electronic  Publications 
Regulation  came into force.353  This was well after 27 November 2007, the date of establishment of 
the Panel.  In this respect, th e Appellate Body explained, in EC – Bananas III  (Ecuador Second 
Recourse to Article 21.5) , that:  
"[O]nce a panel has been established and th e terms of reference for the panel have 
been set, the panel has the competence to ma ke findings with respect to the measures 
covered by its terms of refere nce.  We thus consider it to be within the discretion of 
the panel to decide how it takes into account subsequent modifications or a repeal of 
the measure at issue."354 
7.453  We note that the United States has indicated that, notwithstanding China's contention that the 
measure has been repealed, it requests a findi ng from the Panel on the consistency of the 1997 
Electronic Publications Regulation  with China's trading rights commitments under the Accession 
Protocol.355  Moreover, China has never conceded that the 1997 Electronic Publications Regulation  is 
WTO-inconsistent.  Being administrative regula tions promulgated by the GAPP, the relevant 
provisions could also be easily re-imposed.  In the light of these elements, we think that despite 
China's position that the 1997 Electronic Publications Regulation  no longer has legal effect, a ruling 
by us on the US claims could assist in  securing a positive solution to the dispute.356  We thus find it 
appropriate in this case to address the merits of the US claims that the 1997 Electronic Publications 
Regulation  is inconsistent with China's trading rights commitments under the Accession Protocol.357   
7.454  Before examining the US claims, we note that the parties appear to agree that "electronic 
publications" within the meaning of the 1997 Electronic Publications Regulation  include books, 
periodicals, newspapers and audio books saved as dig ital codes on the media forms set out in Article 2 
of the Regulation, but do not include audiovisual products.358  We see no reason to disagree. 
7.455  Turning to the specific claims by the United States, we recall  that the United States has 
identified Articles 8 and 50-55 of the 1997 Electronic Publications Regulation  as the provisions 
giving rise to an inconsistency with China's tradi ng rights commitments.  Before addressing the merits 
of these claims, however, we note that in comments on a US reply to a question from the Panel, China 
argues that the provisions identified by the Un ited States have been superseded by the Publications 
                                                      
352 China's response to question No. 24(a) and China's response to question No. 90 (with respect to the 
applicability of the 1997 Electronic Publications Regulation  in the context of the US claim under the GATS). 
353 This is supported by Article 63 of the 2008 Electronic Publications Regulation  which provides that 
the 1997 Electronic Publications Regulation  is to be repealed upon entry of the force of the former regulation. 
354 Appellate Body Report on EC – Bananas III  (Article 21.5 – Ecuador II ), para. 270. 
355 United States' first oral statement, paras. 44-46. 
356 Article 3.7 of the DSU. 
357 We note that while a panel may make findings with respect to a repealed measure, it would not be 
appropriate to make recommendations pursuant to Article  19 of the DSU with respect to a WTO-inconsistent 
repealed measure that has ceased to have legal effect.  See Appellate Body Reports on US – Certain EC 
Products, para. 81; US – Upland Cotton , para. 272; and EC – Bananas III (Ecuador Second Recourse to 
Article 21.5), para. 271. 
358 United States' first written submission, footnote 29; China's response to question No. 24(c).  WT/DS363/R 
 Page 219 
 
 
  Regulation .359  China notes that Article 2 of the Publications Regulation  makes clear that that 
Regulation covers also electronic publications. 
7.456  We agree that the Publications Regulation  covers electronic publications.  But the mere fact 
that the Publications Regulation  covers electronic publications, and that the Publications Regulation  
postdates the 1997 Electronic Publications Regulation , does not demonstrate that the relevant 
provisions of the 1997 Electronic Publications Regulation  were not applicable on the date of 
establishment of the Panel, or would not have b een applied by China.  For instance, it seems 
reasonably possible that the Publications Regulation  and the 1997 Electronic Publications Regulation  
were concurrently applicable to electronic publi cations.  In support of its contention that the 
Publications Regulation  superseded the 1997 Electronic Publications Regulation , China has offered 
no analysis of the legal relationship between the tw o regulations at issue.  Nor has it referred, for 
instance, to any separate ru les or jurisprudence which would support its contention.360  In these 
circumstances, we are unable to accept China's asserti on that the provisions cited by the United States 
had been superseded by the Publications Regulation .   
Article 8    
7.457  Article 8 provides that no entit y or individual may engage in  business operations concerning 
electronic publications without approval.  Article 8 also stipulates that the import of electronic 
publications is a business operation c oncerning electronic publications.   
7.458  We note that the United States first identified Article 8 as a provision giving rise to an 
inconsistency with China's trading rights commitme nts in response to a question which the Panel put 
forward after the first substantive meeting with the parties.361  In its response, the United States did 
not, however, explain why and how Article 8 in its view gives rise to an inconsistency.  After the 
second substantive meeting with the parties, the Pa nel inquired about the US claim under Article 8 in 
a further question to the United States.362  The purpose of that question was to help the Panel 
understand what the US claim concerning Article 8 was and to determine on that basis whether the 
United States had made a prima facie case in its written submissions or oral statements.   
7.459  In its response to the additional question from th e Panel, the United States explained that its 
claims in respect of Article 8 are that China do es not allow all enterprises in China and all foreign 
enterprises and individuals to import electronic publica tions and that China grants trading rights in a 
discriminatory and discretionary way.363  Thus, based on that second response, we understand the 
United States to raise claims under paragraphs 5.1,  83(d) and 84(a) as well as under paragraphs 5.2 
and 84(b).   
7.460  In the relevant response, the United States refe rs back to its first written submission.  As 
noted, however, the United States' first written submission does not even specify Article 8 as a provision that is being challenged.  Since the United States has failed to identify any other references 
                                                     
 
359 China's comments on the United States' response to question No. 154. 
360 We note that Article 1 of the 1997 Electronic Publications Regulation  states that that Regulation 
was formulated in accordance with the Publications Regulation  in force at the time.  Similarly, Article 1 of the 
2008 Electronic Publications Regulation  states that that Regulation was formulated in accordance with the 
Publications Regulation  in force.  To us, this does not indicate that the Publications Regulation  in force has 
superseded the 1997 Electronic Publications Regulation .         
361 United States' response to question No. 1.  Article  8 is mentioned at para. 45 of the United States' 
first written submission in a section entitled "Factual Backgrou nd".  Article 8 is not mentioned, however, in the 
section of the same written submission – Section IV – wher e the United States alleges that China's measures are 
inconsistent with China's trading rights commitments. 
362 United States' response to question No. 153. 
363 Ibid. WT/DS363/R 
Page 220  
 
  to Article 8 in its second written submission or its or al statements, the US reply confirms that the 
United States explained the nature and basis for th e claimed inconsistency of Article 8 for the first 
time in response to the Panel question after the second meeting. 
7.461  We recall that the United States as the compla ining party bears the burden and responsibility 
of establishing a prima facie case of inconsistency.
364  From the foregoing it is clear that the United 
States has not made a prima facie case in its written subm issions or oral statements to the Panel.  Also, 
as the United States had several opportunities to establis h its claim, there was no need for the Panel to 
afford the United States an additional opportunity to do so.   
7.462  Panels are under a duty of impartiality towards th e parties.  The Appellate Body report on 
Japan – Agricultural Products II  indicates in this respect that this  duty implies, in part, that panels 
must not help the complaining party by making a prima facie case for it.365  Equally, it would be 
improper, in our view, for a panel to help the co mplaining party meet its burden of establishing a 
prima facie case.  In the instant case, we consider that we would, in effect, be helping the United 
States if we were to allow it to try to make a prim a facie case for the first time in response to a Panel 
question put forward after the second meeting.  Wh en the Panel put forward the relevant question 
after the second meeting, the United States did not have any further opportunity to address the Panel 
at its own initiative.  In the light of this, and since the United States has not used the previous 
opportunities given to it to try to make a prima faci e case, it would, in our view, be improper for the 
Panel to give the United States such a further opportunity. 
7.463  As a consequence, we rest our determination as to whether the United States has made a 
prima facie case, not on the US reply to the Panel' s question, but on the US written submissions and 
oral statements to the Panel.  As indicated, howev er, the US reply serves to confirm that the United 
States has explained the nature and basis of its clai ms concerning Article 8 only in its response to the 
Panel's question, and that the United States has not met its burden of making a prima facie case in its written submissions or oral statements.  We th erefore conclude that the United States has not 
established that Article 8 results in China acting incons istently with paragraphs 5.1, 83(d) and 84(a) or 
paragraphs 5.2 and 84(b).  Also, we note that the United States has not established that Article 8 
results in an inconsistency when considered  together with other challenged measures.  
Articles 50-51
 
7.464  We now turn to analyse the US claims in re lation to Articles 50 and 51.  Article 50 provides 
that the GAPP, together with other agencies, must  draw up plans for the total number, structure and 
deployment of electronic publication import entities.  Article 51 stipulates that the GAPP must only 
approve applications for the establishment of an el ectronic publication import entity if it fits in with 
these plans. 
7.465  According to the United States, Articles 50 and 51 are inconsistent with China's trading rights 
commitments because they inject qualifying criteri a and government discretion into a process that 
China committed to be "non-discretionary".  Thus , we understand the United States to raise a claim 
under paragraph 84(b), similar to the one it has raised  in respect of a parallel provision in Article 42 of 
the Publications Regulation .   
                                                      
364 See Appellate Body Report on Canada – Dairy (Article 21.5 – New Zealand and US II) , para. 66. 
365 See Appellate Body Report on Japan – Agricultural Products II , para. 129.  WT/DS363/R 
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  7.466  In response to a question from the Panel, the Unite d States identified a further claim, based, it 
seems, on paragraphs 5.2 and 84(b), alleging "discrimination" against foreign importers and privately-
held importers in China.366 
7.467  At paragraph 259 of its first written submission,  the United States contends, as noted above, 
that the 1997 Electronic Publications Regulation  is inconsistent with China's trading rights 
commitments by imposing limits on which electronic publication import entities may import 
electronic publications into China.  However, the same paragraph identifies only one commitment 
with which China is alleged to be acting inc onsistently – the commitment concerning the "non-
discretionary" grant of trading rights.  We ther efore do not consider that the United States at 
paragraph 259 meant to put forward an additional claim.367   
7.468  Finally, we note that in response to a questi on from the Panel, the United States has asserted 
that the three criteria for which the GAPP is to elaborate plans are inconsistent with the second 
sentence of paragraph 84(b), which makes clear th at any requirements for obtaining trading rights 
must be for customs and fiscal purposes only and must not constitute a barrier to trade.368   
7.469  Before examining these US claims, we note Chin a's argument that the plans for the total 
number, structure and deployment of electronic publication import entities are not applicable to 
foreign enterprises and individuals.369  China's argument is based on the state ownership requirement 
contained in Article 42 of the Publications Regulation .370  Neither Article 50 nor Article 51 sets out 
such a requirement, however.  As a result, we are unable to accept China's argument.      
Paragraph 84(b) 
7.470  We address first the claim concerning the comm itment to grant trading rights in a "non-
discretionary" way.  We note that the plans refe rred to in Articles 50 and 51 exhaustively list the 
criteria which are to be, and may be, taken into accoun t by the GAPP in addition  to those specified in 
Article 51.  Thus, we do not think that the GAPP ha s discretion, under Article 51, to apply additional 
criteria which would determine whether or  not applications are approved.    
7.471  In response to a question from the Panel, the United States contended that the plans for the 
total number, structure and distribution of elect ronic publication import entities are discretionary 
because they are formulated and applied according to the preferences of the GAPP.371  It is correct 
that Article 50 requires the GAPP to elaborate plans for the total number, structure and distribution of 
electronic publication import entities.  We are not  persuaded, however, that the GAPP would enjoy 
discretion in determining whether particular applican ts satisfy these plans.  As we have explained at 
paragraph 7.429 above when discussing the State plan referred to in Article 42 of the Publications 
Regulation , in the absence of evidence to the contrary , we do not think we can simply assume that 
under the relevant plans the GAPP would enjoy discre tion in granting trading rights.  Regarding the 
United States' assertion that the GAPP would have di scretion in applying the plans, we note that no 
evidence or argument has been provided in support of this assertion.    
7.472  We agree that the "total number, structure and deployment of electronic publication import 
entities" can be viewed as three separate "qualifyi ng criteria".  The United States has not convinced 
us, however, that the mere existence of these criteria demonstrates that the GAPP has discretion 
                                                      
366 United States' response to question No. 154(b). 
367 The United States' response to question No. 154(b) appears to confirm that the United States did not 
mean to put forward an additional claim. 
368 United States' response to question No. 162. 
369 China's comments on the United States' response to question No. 154. 
370 China's response to question No. 174. 
371 United States' response to question No. 154(b). WT/DS363/R 
Page 222  
 
  whether or not to approve particular applications.
372  With regard to the fact that the GAPP's plans 
appear not to be available in written form, we refe r to our considerations at paragraph 7.430 above. 
7.473  Moreover, we note that Articles 50 and 51 are concerned with "electronic publication import 
entities".  The term "electronic publication import en tities" indicates to us that these provisions do not 
deal with foreign individuals.373  We further observe that Articles 50 and 51 do not explicitly state 
whether "electronic publication import entities" need to be registered in China.  We recognize that the 
term "electronic publication import entity" is unqualified.  In ou r view, this does not necessarily 
mean, however, that the term could cover also foreig n enterprises not registered in China.  We note in 
this respect that we have not been given any other trade-related Chinese laws or regulations that could 
indicate whether an "import entity" needs to be registered in China.  Also, Article 55 of the 1997 
Electronic Publications Regulation  states that after obtaining a licence to import electronic 
publications, an entity needs to obtain, in add ition, a business licence from the local administrative 
department for industry and commerce.  It seems un likely that entities not registered in China could 
obtain such a business licence.  In view of these elem ents, and the lack of US arguments and evidence 
on this issue, we consider that the United States has not demonstrated that the term "electronic 
publication import entities" as it appears in Article s 50 and 51 could cover foreign enterprises not 
registered in China.  We accept, however, that th e term "electronic publication import entities" could 
cover foreign-invested enterp rises registered in China.  
7.474   As to whether the term "electronic publication import entities" could cover Chinese branches 
of foreign-registered enterprises, it is sufficient to  note that the United States has not asserted that the 
1997 Electronic Publications Regulation  affects branches in China a nd that this results in an 
inconsistency with China's trading rights commitmen ts.  In fact, the United States has never even 
mentioned the possibility of foreign-registered en terprises setting up Chinese branches.  Accordingly, 
we do not examine this issue further.374 
7.475  It follows that even if as a result of the requirement in Articles 50 and 51 concerning 
conformity with the plans China enjoyed discretion in the granting of trading rights to electronic 
publication import entities, the United States has not established that the electronic publication import 
entities subject to the requirement could include forei gn enterprises not registered in China.  Also, as 
indicated, the United States has not asserted that Arti cles 50 and 51 affect Chinese branches of foreign 
enterprises not registered in China. 
7.476  With regard to enterprises registered in Chin a, specifically foreign-invested enterprises, we 
recall our view that the term "electronic publicati on import entities" could cover such enterprises.  We 
are, however, not convinced, based on the above consid erations, that, as a result of the requirement in 
Articles 50 and 51 concerning conformity with the pl ans, China does not approv e applications for the 
establishment of "electronic publication import entiti es" in a non-discretionary way, and that it 
therefore does not grant such entities the right to import in a non-discretionary way.   
7.477  Consequently, we conclude that the United St ates has not established that Articles 50 and 51 
result in China acting inconsistently with its commitm ent in paragraph 84(b) to grant trading rights to 
foreign enterprises and foreign individuals in a non-di scretionary way.  Also, we note that the United 
                                                      
372 The fact that China must  elaborate plans using these criteria, as noted by the United States in its 
reply to question No. 162, in our view does not demonstrate that the GAPP has discretion whether or not to 
approve particular applications based on the elaborated plans. 
373 In contrast, Article 8 refers to individuals, stati ng that no entity or individual may, without a permit, 
engage in electronic publication business operations such as the import of such publications. 
374 Also, it is in any event not clear to us from the information on the record whether Chinese laws or 
regulations on branches of foreign enterprises allow foreign-registered enterprises to set up Chinese branches in 
the sector at issue.   WT/DS363/R 
 Page 223 
 
 
  States has not established that Articles 50 and 51 result in an inconsistency when  considered together 
with other challenged measures. 
Paragraphs 5.2 and 84(b) 
7.478  Regarding the second US claim in respect of Articles 50 and 51, the United States argues that 
the plans for the total number, structure and depl oyment discriminate against foreign importers and 
privately-held importers in China because, allege dly, these importers are "held by the GAPP to be 
categorically incapable" of satisfying this plans.  In  support of this allegation, the United States refers 
to a reply from China to a question from the Panel.375  
7.479  We note that the United States first indicated that  paragraphs 5.2 and 84(b)  were a basis for its 
claim in response to a Panel question put forward after the second meeting.  For the same reasons as 
those we have given above in relation to the US claims concerning Article 8, we rest our 
determination as to whether the United States has made a prima facie case of inconsistency with paragraphs 5.2 and 84(b), not on the US respons e to the Panel's question, but on the US written 
submissions and oral statements to the Panel.  Th e US response serves to confirm, however, that the 
United States has not identified paragraphs 5.2 and 84(b) as the basis of its claim until its response to 
the Panel's question, and that the United States ha s therefore not met its burden of making a prima 
facie case in its written submissions or oral statemen ts.  We therefore conclude that the United States 
has not established that Articles 50 and 51 result in China acting inconsistently  with paragraphs 5.2 
and 84(b).  Also, we note that the United States has not established that Articles 50 and 51 result in an 
inconsistency when considered togeth er with other challenged measures. 
Paragraph 84(b), second sentence 
7.480  Finally, we recall the US assertion that the thr ee criteria for which the GAPP is to elaborate 
plans are inconsistent with the sec ond sentence of paragraph 84(b).   
7.481  We note that the United States first indicated that the second sentence of paragraph 84(b) was 
a basis for its cl aim in response to a Panel question put fo rward after the second meeting.  For the 
same reasons as those we have give n above in relation to the US clai ms concerning Article 8, we rest 
our determination as to whether the United States ha s made a prima facie case of inconsistency with 
the second sentence of paragraph 84(b), not on the US response to the Panel's question, but on the US written submissions and oral statements to the Pane l.  The US response serves to confirm, however, 
that the United States has not identified the second sentence of pa ragraph 84(b) as the basis of its 
claim until its response to the Pane l's question, and that the United States has therefore not met its 
burden of making a prima facie case in its written s ubmissions or oral statements.  We therefore 
conclude that the United States has not establishe d that Articles 50 and 51 result in China acting 
inconsistently with the second sentence of paragra ph 84(b).  Also, we note that the United States has 
not established that Articles 50 and 51 result in an in consistency when consider ed together with other 
challenged measures.  
Articles 52-55
 
7.482  We next consider the US claims in respect of  Articles 52-55.  Article 52 provides that before 
an application is submitted to the GAPP, it is to be submitted to the competent local press and 
publication bureau.  Article 53 deals with the documen ts and proofs to be provided in support of an 
application.  Article 54 provides a time-line fo r decisions by the GAPP and requires the GAPP to 
provide reasons for any rejections.  Finally, Artic le 55 stipulates that after the GAPP has given its 
approval, the entity concerned needs to obtain an  import-export permit from the foreign trade and 
                                                      
375 China's response to question No. 46(b). WT/DS363/R 
Page 224  
 
  economic cooperation administration in accordance with China's Foreign Trade Law and a business 
licence from the local industrial and commercial administration according to law. 
7.483  The United States argues that by conditioning trading rights on successfully obtaining 
multiple Chinese Government approvals, Articles 52-55  are inconsistent with China's trading rights 
commitments.  According to the United States, this  injects government discretion into a process that 
China committed to be "non-discretionary".  In response to a question from the Panel, the United 
States further stated that multiple decision-makers determine whether to approve applications on the 
basis of discretionary plans for the total number, structure and deployment of electronic publication import entities.  The United States considers that  these multiple layers are opaque and facilitate 
China's trading rights violation.  The United States obser ves, however, that it is the arbitrary nature of 
this regime that gives rise to the violation.  Th e United States also submits that China subjects foreign 
importers and privately held importers in China to  a discriminatory and discretionary decision-making 
system that is onerous as well as opaque and that results in the denial of their trading rights.
376   
7.484  We note that the basis on which the United Stat es is challenging Articles 52-55 is less than 
clear.  We understand the United States to raise a claim concerning alleged discretion under 
paragraph 84(b).377  Since the United States refers to a di scriminatory "decision-making system", it 
appears that the United States also raises a claim concerning alleged discrimin ation under paragraphs 
84(b) and 5.2.  
Paragraphs 5.2 and 84(b) 
7.485  Regarding, first, the claim concerning allege d discrimination against foreign importers and 
privately held importers in China, we note that Articles 52-55 appear to apply to all applicants 
wishing to establish an electronic publication import entity, including Chinese wholly state-owned 
enterprises.  Even assuming for the sake of argum ent that the decision-making process was onerous 
and opaque, as the United States alleges, the United States has not established that this would be any 
less true for wholly state-owned enterprises than for privately held enterprises in China.  Furthermore, 
regarding foreign enterprises not registered in Chin a, the United States has not  established that such 
enterprises are subject to the decision-making pro cess which it says is onerous and opaque.  In this 
regard, we recall that Articles 52-55 apply to "el ectronic publication entities", and that the United 
States has not demonstrated that this term could cove r foreign enterprises not registered in China.  We 
also recall that the United States has not asserted that Articles 52-55 affect Chinese branches of foreign enterprises not registered in China.  Si nce Articles 52-55 are concerned, like Articles 50-51, 
with "electronic publication import entities", we also think they do not deal with foreign individuals.  
We therefore conclude that the United States has not established its claim that Articles 52-55 
discriminate against foreign importers or privately he ld enterprises in China and thus give rise to a 
breach of paragraphs 5.2 and 84(b).  Also, we note that the United States has not established that Articles 52-55 result in an inconsistency when cons idered together with other challenged measures. 
Paragraph 84(b) 
7.486  Regarding the US claim concerning alleged discre tion, we note that the United States has not 
explained how Articles 52-55 confer discretion.  It is not  clear to us that they do.  Even if it were the 
case that Article 52 required the consent of the local press and publication bureau
378, the United States 
has not specifically argued, let alone demonstrated, that this local bureau enjoys discretion as to whether to give its consent.  It does not seem plausible to assume that the local bureau faces 
constraints that are less strict than those faced  by the GAPP.  Therefore, the local bureau would 
                                                     
 
376 United States' response to question No. 154(a). 
377 United States' first written submission, para. 259. 
378 China's translation of Article 52 does  not refer to any consent requirement.  WT/DS363/R 
 Page 225 
 
 
  probably need to follow the GAPP's plans for the to tal number, structure and deployment of electronic 
publication import entities.  We recall in this respect that we have rejected the US claim that Articles 
50 and 51 confer impermissible discret ion.  Furthermore, we note that Article 55 refers to permits or 
licences to be obtained in accordance with other la ws that are not being challenged.  The United 
States has not demonstrated that the grant of a permit or licence under these other laws is 
discretionary.  In addition, we recall that Article s 52-55 are concerned with "electronic publication 
import entities", and that they do not deal with fore ign individuals.  We further recall that the United 
States has not demonstrated that the term "elect ronic publication import entities" could cover foreign 
enterprises not registered in China, and that it has not asserted that Articles 52-55 affect Chinese 
branches of foreign enterprises not registered in China.   
7.487   Based on the foregoing considerations, we ar e not convinced that, as a result of Articles 52-
55, China does not approve applications in a non-di scretionary way, and that it therefore does not 
grant the right to import in a non-discretionary wa y.  Consequently, we conclude that the United 
States has not established that Articles 52-55 r esult in China acting inconsistently with its 
commitment in paragraph 84(b) to grant foreign en terprises and foreign individuals trading rights in a 
non-discretionary way.  Also, we note that the United States has not established that Articles 52-55 
result in an inconsistency when considered  together with other challenged measures. 
(vii) Film Regulation  
7.488  The United States  notes that the Film Regulation  governs, inter alia , the importation of films 
for theatrical release into China, including feature films, documentary films, science and educational 
films, animation films, and special topic films.379  The United States also notes that Article 5 of this 
measure provides in relevant part that the State shall implement a licensing system for film 
importation and that: 
"[N]o entity or individual shall, without pe rmission, be engaged in the activities of ... 
import ... of films, or import ... a film for which a permit has not been obtained.  The permits or approval documents granted in accordance with these Regulations shall not 
be leased, lent, sold, or assigned in any other form." 
7.489  The United States further points out that acco rding to Article 30 only enterprises designated 
by SARFT may engage in the business of importing fi lms.  As a result, the United States maintains, 
no enterprise or individual can import films without having been designated.  The United States contends that "designation" means that SARFT exercises its discretion to decide who may import films and that no application a nd approval procedures apply. 
7.490  The United States asserts in this regard that China has designated only a single wholly state-
owned entity – the China Film Import and Export Cor poration, a subsidiary of China Film Group – to 
import films for theatrical release.
380  The United States contends that this monopoly applies to all 
films for theatrical release, regardless of whether a film is imported on a revenue-sharing basis or a flat-fee basis. 
                                                     
 
379 The United States refers to Article 2 of the Film Regulation . 
380 The United States refers to the  China Film Group's homepage, available at 
http://www.chinafilm.com/gzzy/index_image/20070204/2100. html (saying that it provides that China Film 
Group "is the sole importer of foreign theatrical movies in China ..." (Exhibit US-23)) as well as: United Nations 
Educational, Scientific and Cultural Organization, "Trends in Audiovisual Markets: China, Mongolia & South Korea" (June 2007), p. 32 (Exhibit US-12); Screen Dige st and Nielsen NRG, "Cinem a and Home Entertainment 
in China" (January 2007), pp. 41-42 (Exhibit US-24); The Center for American Economic Studies, Chinese 
Academy of Social Sciences, "A Study of the Potential of the Chinese Film Industry" (July 2005), p. 31 (Exhibit US-25) and China eCapital Corporation, "Chinese Media & Entertainment Research: The Chinese Film 
Market", March 18, 2005, pp. 40, 65, 79, and 107 (Exhibit US-26). WT/DS363/R 
Page 226  
 
  7.491  The United States claims that China's meas ures granting China Film Group a monopoly on 
the right to import films for theatrical release are inconsistent with China's trading rights 
commitments.  The United States submits that this  monopoly not only deprives enterprises in China 
(other than China Film Group) as well as foreign enterprises and individuals of the right to import films for theatrical release.  It also discrimin ates against foreign-invested enterprises and foreign 
individuals, in contravention of China's trading rights commitments.  The United States considers that 
Article 30 of the Film Regulation  constitutes the legal basis for this monopoly, providing that only 
enterprises designated by the Chinese Government are permitted to import films for theatrical release.   
7.492  In response to a question from th e Panel, the United States indicat ed that the inconsistencies 
claimed in relation to this measure arise as a resu lt of Articles 5 and 30 of the measure, and under 
paragraphs 5.1 and 5.2 of the Accession Protocol and paragraphs 83(d) and 84(a)-(b) of the Working 
Party Report.  The United States further indicated that , in its view, the parties whose trading rights are 
being restricted under this measure are foreign en terprises, including foreign-invested enterprises in 
China, foreign individuals and Chinese pr ivately invested enterprises in China.
381   
7.493  China  argues that paragraphs 5.1, 5.2 or 1.2 of  the Accession Protocol govern only trade in 
goods.  However, in China's view, the United States  has failed to establish that motion pictures for 
theatrical release, i.e., motion pictures intended to be shown in movie theatres, could be considered as 
goods.  China submits that the relevant Chinese measures, including the Film Regulation , do not 
regulate the importation of goods but regulate services related to the licensing of rights for the exploitation of motion pictures.  Consequently, China considers that paragraphs 5.1, 5.2 and 1.2 of the 
Accession Protocol do not apply and that  the US claim lacks any legal basis. 
7.494  China submits that the commercial exploitatio n of motion pictures for theatrical release 
consists of the organization of public projecti ons in movie theatres involving three main service 
providers: producers, distributors, and movie theatres.  China explains that the distribution of motion pictures is organized on the basis of copyright li censing agreements whereby the producer grants the 
distributor the right to use copies of the motion picture in order to organize its distribution for the 
period of time and in the territories agreed with the producer.  
7.495  China further notes that, traditionally, motion pictures are imprinted on cinematographic 
film.
382  China points out that the negative of the film is developed in a laboratory in order to create 
the master negative and other subordinate prints.  The distributor will receive copies of this master 
negative as well as other related delivery materials (i ncluding soundtracks, and advertising materials) 
in order to organize the distribution of the motion picture on its territory.  China notes that at the end 
of the period of release, all licensed rights will in principle immediately revert to the licensor free of 
any claim and the distributor will either need to : (i) return all delivered materials as well as all 
materials created by the distributor or (ii) destroy all materials.  As far as financial arrangements are concerned, China points out that the box office revenue is usually shared between producers, 
distributors and movie theatres, according to agreed ratios (revenue-sharing).  Distributors and 
producers may also agree on a lump-sum payment (fe e) to the producer for the distribution rights. 
7.496  China observes that a motion picture consists of a sequence of pictures that is projected on to 
a screen in rapid succession and accompanied by a s oundtrack.  As such, China notes, it is intangible 
and cannot be possessed.  China also notes that motion picture distributors do not buy the motion picture as such, but only get the limited right to or ganise its release in movie theatres, and that movie-
                                                     
 
381 United States' response to question No. 1. 
382 China observed, however, that the delivery of motion pictures in physical materials is increasingly 
being replaced by delivery in digital form, i.e., by deliv ery without any physical support.  According to China, 
such use of digital technology in the motion picture business is likely to render the use of physical carriers 
obsolete.  WT/DS363/R 
 Page 227 
 
 
  goers do not buy the motion picture as such, but only the right to attend the projection.  In China's 
view, motion pictures for theatrical release cannot th erefore be considered as "goods", i.e., as items 
that are tangible and capable of being possessed.383  
7.497  China acknowledges that the delivery materials th at carry the motion picture traditionally are 
tangible items, i.e., the film reel.  China argues, however, that the existence of these materials does 
not allow treating motion pictures as goods.  According to China, the exploitation of a motion picture 
for theatrical release does not consist of the trade of the film reel, but in the exploitation of the 
intangible feature that it contains, i.e., an artistic wo rks that is to be projected in movie theatres.  
China submits that the film reel is used for th e sole purpose of providing the service of theatrical 
distribution.  In China's view, it is merely  an accessory to the service that is provided.384  
7.498  China points out in this regard that, as re flected in agreements concerning theatrical 
distribution, the film reels are only "delivery materials", provided for the sole purpose of organizing the distribution of the motion picture, and only in quantities necessary to permit production, distribution and projection of the picture.  Secondly, China notes that they are only copies of the "master negative", and they can only be used in  accordance with the c onditions agreed by the 
copyright owner.  In addition, China states that they are usually provided by the producer free of 
charge or at their cost price, which confirms that  they do not "contain" the commercial value of the 
motion picture.  Finally, China recalls that after the exploitation of the motion picture, they are either 
returned to the producer or destroyed.  Moreove r, China notes that all rights concerning materials 
created from the delivery materials (such as altern ate language tracks, dubbed or sub-titled versions) 
belong to the licensor.  In other words, neither the distributor nor the theatres "possess" the motion 
picture that the delivery materials temporarily carry. 
7.499  China submits that international classificati on instruments, such as the United Nations' 
Central Product Classification (the "CPC"), confirm th at the activities involved in the exploitation of 
motion pictures for theatrical releas e are classified as services, and that the only goods category is the 
film reel, which China contends is described as being used only for the purpose of providing the 
services necessary for the projection of the relevant motion picture.  
7.500  Regarding the measure at issue, China asserts  that the Chinese measures challenged by the 
United States do not treat the importation of motion pictures as the importation of goods, but as a licensing service for the exploitation rights of motion pictures for their theatrical distribution.  China 
submits that under these measures, the "importation" of  motion pictures consists of three main steps.  
First, the importation entity designated by the SARFT organizes the distribution of foreign motion 
pictures in Chinese theatres through a licence granted by the copyright owner.  China notes in this 
regard that Article 33 of the Film Regulation  provides in relevant part th at "a film importation entity 
shall use the film work after obtaining the licence from copyright owner and can only use it within the 
scope of such license".  China points out that in pr actice, the entity enters into a licence agreement 
with the foreign producers or distributors of the sel ected motion pictures.  Secondly, China notes that 
the designated entity ensures the temporary impor tation of the materials containing the motion 
                                                     
 
383 China refers to the Appellate Body report on US – Softwood Lumber IV , para. 59. 
384 China considers relevant in this context the judg ment of the European Court of Justice in the case 
Federación de Distribuidores Cinematográficos v Estado Español and Unión de Productores de Cine y Televisión  where the Court stated:  
"The exploitation of cinematographic films in a theatre or on television, in the context of 
which the producers authorize the distributors to make copies of their films and to organize public performances by means thereof, all in return for remuneration, constitutes a provision 
of services.  Where it is of a trans-frontier nature, since producers and distributors are not 
established in the same Member State, it comes under the provisio ns of the Treaty with regard 
to freedom to provide services."  (Judgment of the European Court of Justice of 4 May 1993, 
Case C-17/92, ECR 1993 I 02239 et seq .) (Exhibit CN-6). WT/DS363/R 
Page 228  
 
  picture, for the purpose of submitting it to the SAR FT for content review.  Thirdly, China explains 
that once the content of the motion picture has be en reviewed and approved, the designated entity 
proceeds with the customs clearance of the delivery materials for the purpose of the distribution of 
motion pictures to Chinese distributors and theatres. 
7.501  China submits that, accordingly, the "importati on" of motion pictures in the meaning of the 
Chinese measures refers to the licensing of rights for the exploitation of foreign motion pictures in 
Chinese movie theatres.  China asserts that the "r ight to import" motion pictures granted to the 
designated importation entity is in no way the right to  import goods, but the right to obtain a copyright 
licence.  According to China, the measures at is sue regulate the licensing service for the exploitation 
rights of motion pictures for their theatrical distri bution.  In China's view, since the challenged 
measures treat the importation of motion pictures as a licensing service, it follows that the challenged 
measures do not fall under paragraphs 5.1, 5.2 and 1.2 of the Accession Protocol.   
7.502  China further argues that its GATS Schedule conf irms the absence of any legal basis for the 
US claim.  China points out in this respect that  it made an additional commitment in Sector 2D 
concerning the "importation of motion pictures for theatrical release".  In China's view, this 
commitment confirms that the concept of "importati on" used by China in the context of the regulation 
of the motion picture business refers to services and that measures affecting the importation of motion pictures do not fall under WTO provisions relating to the importation of goods.  China considers that this additional commitment also reflects the common intention of WTO Members to treat under the GATS the importation into China of motion pictures fo r theatrical release.  China also notes that it 
specified in its Schedule that its commitment with  regard to the importation of motion pictures was 
"without prejudice to compliance with China's regul ations on the administration on films".  China 
submits that in doing so, China expressly reserved its right to regulate services associated with the 
importation of motion pictures for theatrical release.  China considers, therefore, that its measures 
establishing a system of designation for the importation of motion pictures fall under the GATS.  China asserts that any other interpretation woul d undermine China's right to regulate the motion 
picture business under the GATS.  
7.503  The United States  responds that the product which is the s ubject of its claim is tangible, hard-
copy cinematographic film that can be used to project motion pictures in a theater.  The United States submits that China apparently seeks to deny the ta ngibility of films merely by substituting the term 
"motion picture" for "film" and then asserting that a motion picture is intangible.  To the United States, it appears that China seeks to separate th e hard-copy cinematographic film from the content 
that it carries, focus only on the content, and assert that the content is not a good.  However, the 
United States notes that none of its claims depends on the premise that content is a good distinct from a carrier medium.  The United States submits that go ods may be of interest to  consumers for different 
reasons.  In the United States' view, films for theatri cal release happen to be of interest to consumers 
because of their content.  The United States consider s that the fact that the tangible film carries 
content does not transform the film into something other than a good.  The United States points out 
that all of the relevant products subject to the tr ading rights claims consist of a hard-copy carrier 
medium containing content, and that China has not  argued that reading materials (e.g., books, etc.), 
finished AVHE products or finished sound recordings are not goods.  
7.504  The United States rejects China's argument that  films for theatrical release are not goods 
because they are exploited through a series of servi ces, because the commercial value of the motion 
picture lies in the revenue generated by these serv ices, and because the delivery materials containing 
film are mere accessories of such services.  The Unite d States submits that the vast majority of goods 
are commercially exploited through a series of associ ated services and that China's argument would 
transform virtually all goods into services.  The Un ited States provides the example of a stethoscope, 
a good that can be imported and commercially exploite d through the provision of health care services.  
According to the United States, the fact that the st ethoscope is used to provide health care services  WT/DS363/R 
 Page 229 
 
 
  does not mean that the stethoscope is not a good.   The United States also observes that China has 
provided no textual basis in the WTO Agreement in  support of its assertion that a good used to 
provide a service is no longer a good. 
7.505  The United States further argues that China itself treats films as goods.  First, China concedes 
that films must go through customs clearance.  Additionally, China's accession schedule of tariff 
concessions, which only covers goods, includes unde r heading 3706, "[c]inematographic film, 
exposed and developed, whether or not incorporatin g sound track or consisting only of sound track".  
Finally, Article 2 of the Regulations of the Pe ople's Republic of China on Import and Export Duties, 
provides that "[u]nless otherwise provided for by laws and administrative regulations, the Customs shall, in accordance with these Regulations, collect import or export duties on all goods permitted by 
the People's Republic of China to be imported into or exported out of the Customs territory …".  The 
United States notes in this respect that in its subm issions China itself admits that it applies customs 
duties to films. 
7.506  The United States argues, in addition, that Articles III:10 and IV of the GATT 1994, which 
deal with cinematographic films, belie China's argum ent that films for theatrical release are not goods.  
Regarding Article III:10, the United States notes th at it sets forth an exception to the national 
treatment principle for films, which principle only applies to trade in goods.  In the United States' 
view, if a film were not a good, it would not be covered by Article III in the first place, and no 
exception would be necessary.  As for Article IV, the United States argues that although it makes reference to services, it provides the form that inte rnal quantitative regulations for a particular good – 
films – may take, i.e., screen quotas.   
7.507  Regarding international classifications of film s, the United States considers that they  
demonstrate that films for theatrical release ar e goods.  The United States points out that the 
Harmonized Commodity Description and Coding Sy stem (HS), which only covers goods, describes 
products under heading 3706 as follows: "cinematogr aphic film, exposed and developed, whether or 
not incorporating sound track or consisting only of  sound track".  Similarly, the United Nations' CPC 
classifies cinematographic film as a good in Subclass 3895, in addition to classifying the associated 
services in Subclass 96113.    
7.508  In relation to the measure at issue, the United States observes that China is asking the Panel to 
ignore the goods-related aspects of the relevant me asures and conclude that the measures are only 
subject to services rules even where they affect both trade in goods and ser vices.  This, the United 
States maintains, is in contravention of the Appella te Body's guidance, that a measure need not be 
analysed under either the goods or services ru les, but rather may be subject to both.
385  In the United 
States' view, China's measures th emselves refer to the importation of the good separate from and in 
addition to the provision of services us ing the good.  Article 5 of the Film Regulation  is typical.  It 
sets forth the requirements for "film production, impor t, export, distribution, and screening, and the 
public screening of films".  The United States notes that  this language refers to both import of films 
and the distribution and screening of films.  Si nce the relevant measure affects both the good and 
certain associated services involving that good, it is  subject to both goods and services disciplines.  
7.509  The United States notes that China can only point to a single provision – Article 33 – which 
makes reference to the licensing process to support its contention that the relevant measures regulate 
                                                      
385 The United States refers to the Appellate Body reports on Canada – Periodicals (p. 17), where the 
Appellate Body indicated that while a periodical may be comprised of elements that have services attributes, 
i.e., editorial content and advertising content, "they combine to form a physical product – the periodical itself", 
and EC – Bananas III  (para. 221), where the Appellate Body indi cated that with respect to "measures that 
involve a service relating to a particular good or a service supplied in conjunction with a particular good, … the 
same measure could be scrutinized under both [the GATT and GATS] agreements…". WT/DS363/R 
Page 230  
 
  services.  The United States recalls in this regard that films are treated by China as goods during the 
importation process since they are subject to custom s procedures.  While the relevant measures may 
contain provisions affecting services (copyright licensing), the United States considers that it has 
identified other provisions of those measures that regulate trade in goods.
  Thus, the United States 
submits, China's measures on films are subject to  disciplines governing both goods and services.  
7.510  Finally, the United States considers that China' s attempt to use its services commitments with 
respect to motion pictures as a shield for its tradin g rights-inconsistent measures is meritless.  The 
United States does not agree that these services commitments reserved China's right to maintain 
measures that are inconsistent with its trading righ ts commitments – let alone the right to maintain a 
designation system for the importation of motion pictures for theatrical release.  Moreover, in the 
United States' view, the text of China's GATS Sc hedule has no relevance to a determination of 
whether China's measures restricting who may impor t films are inconsistent with China's trading 
rights commitments.   
7.511  China  responds that the United States is attempting to move the target of its claim from "film 
for theatrical release" to "cinematographic film".  China submits that the term "film" has a dual 
meaning as it can refer either to an artistic work or to a material on which this artistic work may be 
recorded.  According to China, in order to dis tinguish the artistic work, on the one hand, and the 
material, on the other hand, two different concepts are used in international classifications, i.e., 
"motion pictures for theatrical release" (referring to the artistic work) and "cinematographic film" 
(referring to the material).  China argues that in line with international classifications, the Chinese 
measures also make a clear distinction between "motion pictures for theatrical release" and 
"cinematographic film".  The term "film" in th e English version of relevant Chinese measures, 
corresponding to the concept of "motion pict ure", is translated from the Chinese term " Dian Ying ".  
By contrast, the term "cinematographic film" is translated from the Chinese term " Dian Ying Jiao 
Pian ", which refers to film (" Jiao Pian ") used to project motion pictures (" Dian Ying ").386  
7.512  China also notes that Article 2 of the Film Regulation  specifies the kinds of films to which it 
applies: "feature films, documentary films, scien ce and educational films, cartoon and puppet films, 
and special subject films".  Thus, China notes, films ar e defined in relation to their content, and not in 
relation to the material used for their exploita tion.  China considers that the Chinese measures 
therefore relate to the importation of motion pictures,  i.e., the content or the artistic work, and not to 
the importation of cinematographic film as such, i.e., the material or physical carrier.387  
7.513  China submits that the new US claim relating to cinematographic film, or hard-copy 
cinematographic film, does not fall within the Panel's te rms of reference, since they relate to film for 
theatrical release.  China therefore requests the Pa nel not to make findings in relation to the new 
claim.  China further requests the Panel to dismiss th e US claim relating to film for theatrical release, 
because, having changed the subject of its claim, the United States no longer pursues the establishment of a prima facie case with regard to that claim.  
7.514  Furthermore, China argues that, in any event, th ere is no doubt that, in the specific context of 
the commercial exploitation of motion pictures for theatrical release, the impact of the Chinese 
                                                     
 
386 China points out in this respect that Article 30 of the Film Regulation  provides that the importer of 
motion pictures (" Dian Ying " in the original Chinese text), not the importer of cinematograph film (" Dian Ying 
Jiao Pian "), requires designation. 
387 China asserts that it has never disputed that cinematographic film is a good, but considers this fact 
irrelevant in the present case.  China also notes that cine matographic film is only one of various types of carriers 
of motion pictures for theatrical release (e.g., laser discs or hard drives).  They may even be transmitted without 
any physical carrier.  In China's view, the most important  feature is that they are intended only for public show 
in theatres. This feature distinguishes them from motion pictures for home entertainment using carriers such as 
DVDs or video tapes.    WT/DS363/R 
 Page 231 
 
 
  measures on the goods involved in this activity do es not justify scrutiny of such measures under WTO 
disciplines on goods.  First, China recalls in this re gard its position, based on Articles 30 and 33 of the 
Film Regulation , that the system of designation of entities which are granted the right to import 
motion pictures for theatrical release relates to trade in  services.  China submits, in other words, that 
its measures regulate the importation of motion pictures for theatrical rel ease as part of the supply of 
services, and not as the importation of goods.  
7.515  Secondly, China argues that the United States improperly focuses on the good – 
cinematographic film – rather than on the measure at  issue.  In China's view, the measure determines 
the applicable WTO rules.  In th is respect, China considers that a measure regulating the supply of a 
service, although it may have an impact on a tangible good, should be examined under the disciplines 
governing trade in services only, if the affected goo d is an accessory to the relevant service.  China 
submits that, in the context of measures affecting the services related to the exploitation of motion 
pictures for theatrical release, cinematographic film should be treated as a me re accessory to these 
services.  According to China, this  accessory nature of cinematographic film is characterized by the 
following aspects: (i) cinematographic film is not an object traded in its own right, i.e., it will not be 
traded outside of the services that the Chinese me asures regulate; (ii) the exploitation of motion 
pictures for theatrical release through a series of ser vices regulated by the relevant Chinese measures 
does not require a transfer of ownership of cinematographic film; (iii) the supply of the 
cinematographic film is part of the provision of the services of exploitation of motion pictures for theatrical release and cannot be considered indepe ndently from these services,  as specified in the 
licensing agreements organizing the theatrical rel ease; and (iv) cinematographic film has no own 
commercial value in the context of the services of exploitation of motion pictures for theatrical 
release, and does not generate revenue other th an the revenue arising from the supply of these 
services.  In China's view, it is therefore not possi ble to consider that th e Chinese measures affect 
cinematographic film independently of the regula tion of the services related to the exploitation of 
motion pictures for theatrical release.  According to China, the right to import cinematographic film in 
the context of these measures exists only as a logical  outcome of the right to import a motion picture 
for theatrical release.  
7.516  China notes that the United States is attempti ng to rebut China's arguments by referring to 
examples which are allegedly similar to the case of ci nematographic films.  However, China observes, 
in presenting these examples, the Un ited States is repeating the same mistake and focuses on the 
product rather than on the measure.  China submits th at if one takes an example of a measure affecting 
a good which is not commercially exploited in itsel f but which is accessory to services, the "products-
based" approach proposed by the United States appears all the more irrelevant.  China notes that if 
such an approach was applied to, e.g., a lottery tic ket imported into a country in order to allow its 
inhabitants to participate in the lottery, this appr oach would lead to the conclusion that measures 
which regulate the approval of entities allowed to orga nize lotteries, i.e., an entertainment service, fall 
under WTO rules on goods when they affect the importa tion of the lottery ticket.  China considers that 
such a conclusion would completely overlook the fact that the ticket has no other purpose than to provide lottery services. 
7.517  Additionally, China argues that contrary to what  the United States alleges, Article IV of the 
GATT 1994 does not support the applicability of the WTO disciplines applicable to goods to the Chinese measures.  China submits that Article IV , because it deals with screen quotas, relates in 
essence to trade in services.  Chin a notes that the GATT Secretariat, when referring to Article IV 
during the Uruguay Round negotiations for audiovisu al services, underlined that "the only subject 
matter relating to trade in services to be directly a ddressed in the original thirty five articles of the 
GATT is that of cinema quotas".
388  China argues that Article IV contains disciplines on measures 
regulating services related to the exploitation of mo tion pictures for theatrical release.  China submits 
                                                      
388 China refers to document MTN.GNS/AUD/W/1, para.2 (Exhibit CN-82). WT/DS363/R 
Page 232  
 
  that the purpose of screen time limitations is to reserve a certain exhibition time for domestic motion 
pictures for theatrical release, and not for domestic cinematographic film per se .  Otherwise, China 
maintains, the screen time of a copy of cinematogr aphic film carrying a foreign movie but printed in 
domestic laboratories would be counted as part of the quota for domestic motion pictures.  
7.518  The United States  counters that China's contention that the United States has shifted the 
focus of its claim is baseless.  The United States maintains that its claims from the beginning have 
related to an integrated product that includes a carrier medium carrying content that can be 
commercially exploited by projection in a theatre.   
7.519  The United States further argues that China's attempt to separate goods containing content 
from the content itself also fails to overcome th e US claims.  The United States points out that 
Article IV of the GATT 1994 refers to the "exhibitio n of cinematograph films" in relation to screen 
quotas.  Thus, even when discussing the commercial e xploitation of the artistic work in a theatre, the 
GATT 1994 uses the term "cinematograph film", not motion pictures.  Regarding the fact that the Harmonized System describes the product as cinema tographic film "for the projection of motion 
pictures", this language demonstrates, in the Un ited States' view, that the Harmonized System 
contemplates a physical product with integrated content that may be commercially exploited in a 
particular way.  According to the United States, this HS description does not take films out of the 
category of goods, but instead confirms that f ilms containing content to be exploited are goods.
389   
7.520  Regarding the use of the term " Dian Ying " in China's measures, the United States notes that  
China has conceded that the carri er medium containing content must go through customs clearance as 
part of the importation process.  The United States c onsiders, therefore, that the motion picture, i.e., 
the content, is part of the integrated product that is treated as an importable good for purposes of 
China's measures. 
7.521  The Panel  will first address what is the subject of the US claim.  The US request for the 
establishment of a panel refers, in relevant part, to "films for theatrical release".390  B y  i t s e l f ,  a s  
China's arguments show, this expression may be some what ambiguous, in that the term "films" could 
mean either the motion picture, i.e., the content proj ected in a theatre, or the film used for projecting 
motion pictures, i.e., exposed and developed cinematographic film.  The US claim is, however, based 
on China's trading rights commitments, which relate  to trade in goods.  The US panel request thus 
suggests that the US claim about  films for theatrical release should be understood as a claim about 
goods that can be traded.  Before the Panel, the Un ited States confirmed this, stating that the subject 
of its claim is hard-copy cinematographic film, in  any tangible form, that can be used to project 
motion pictures in a theatre.391  Or as the United States also put it, the US claim relates to an 
integrated product – a good – that consists of a carr ier medium carrying content that can be used for 
projection in a theatre.   
7.522  In response to a question from the Panel, the Un ited States has further clarified that hard-copy 
cinematographic film comprises positive and negative film.392  The United States pointed out in this 
respect that the good which a film producer/licen sor would send to China pursuant to a film 
distribution agreement is typically either an exposed and developed "internegative" or an 
"interpositive".  The United States explained that  an "internegative" is a copy of the "master 
                                                      
389 The United States also notes that  China's accession schedule of ta riff concessions incorporates the 
HS description of these products under heading 3706. 
390 United States' panel request WT/DS363/5, p. 2. 
391 United States' responses to question Nos. 14, 15 an d 163.  We note China's view  that it is redundant 
to refer to "hard-copy", or "tangible", cinematographic film as, in its view, cinematographic film is always in 
hard copy and refers to a tangible material.  China's comments on the United States' response to Panel question 
No. 163. 
392 United States' response to question No. 13(a).  WT/DS363/R 
 Page 233 
 
 
  negative", which in turn is the first copy of the film produced by the produ cer/licensor.  The "master 
negative" is ordinarily retained by the producer/licensor and not sent to the distributor.  The "internegative" is the visual part of the film without sound track, whereas the "interpositive" is the 
"internegative" with the sound track added.
393   
7.523  In our view, the United States has not changed the subject of its claim, as China asserts.  The 
United States has merely clarified the meaning of  the expression "films for theatrical release", by 
confirming that this expression is intended to describe goods – cinematographic films, whether 
negative or positive – that can be used for projec ting motion pictures in theatres.  Since we do not 
believe that the United States in referring to hard-c opy cinematographic film put forward a new claim, 
we see no justification for not addressing the substance of this claim.  Nor do we agree that in 
referring to hard-copy cinematographic film the Un ited States has abandoned its claim in relation to 
"films for theatrical release".   
7.524  As to whether the US claim c oncerns a good, China is of the view that a motion picture 
projected in a theatre could not be considered a good.394  China does not dispute, however, that 
cinematographic film is a good, observing that cine matographic film is one of several possible carriers 
of motion pictures for theatrical release.395  In considering this issue, we recall, first of all, that the US 
claim concerns hard-copy cinematographic film.  In this regard, we find relevant heading 3706 of the 
Harmonized Commodity Description and Coding System  (HS).  Heading 3706 defines as a separate 
good "cinematographic film, exposed and developed,  whether or not incorporating sound track or 
consisting only of sound track".396  As pointed out by the United States, China's own Schedule of 
Concessions, i.e., its goods schedule, contains a he ading with the same number and which covers 
"[c]inematographic film, exposed and developed, whether or not incorporating sound track or 
consisting only of sound track".397  Furthermore, in response to a question from the Panel, China 
confirmed that it charges customs duties on the importation of exposed and developed cinematographic film.
398  
7.525  We also find instructive the explanatory not e accompanying heading 3706 of the Harmonized 
System.  It provides that "this heading cove rs developed standard or substandard width 
cinematographic film for the projection of motion pictures, negative or positive …".399  This indicates 
that exposed and developed cinematographic films are films "for theatrical release", and that both negative and positive cinematographic films are consid ered as goods.  It further indicates that, despite 
the fact that exposed and developed cinematographi c films are used to provide a service, namely, the 
projection and exhibition of motion pictures in theatr es, they are considered as goods.  Furthermore, 
and as also pointed out by the United States, the explanatory note shows that a physical carrier 
containing content is treated as a good.
400   
                                                      
393 United States' responses to question Nos. 13(a) and (b). 
394 China considers that a motion picture is an inta ngible artistic work (content) and constitutes neither 
a good nor a service (China's response to question No. 177(a)). 
395 China's response to question No. 178; China's comments on the United States' response to question 
No. 164. 
396 Exhibit US-53. 
397 Exhibit JPN-2. 
398 China's response to question No. 132. 
399 Exhibit US-53. 
400 It is pertinent to note in this context that the Appellate Body in Canada – Periodicals considered 
that periodicals are goods comprised of two components: editorial content and advertising content.  According 
to the Appellate Body, "[b]oth components can be viewed as having services attributes, but they combine to form a physical product – the periodical itself".   Appellate Body Report on Canada – Periodicals , DSR 1997:I, 
449 at 463. WT/DS363/R 
Page 234  
 
  7.526  In the light of the above, we consider that "f ilms for theatrical release", as that expression is 
used in the US panel request, i.e. hard-copy cine matographic films in any tangible form (including 
hard-copy "internegatives" and "interpositives"), are goods for the purposes of China's trading rights commitments.    
7.527  In sum, we have determined that we can address the US claim in respect of films for theatrical 
release, and that the expression "films for theatrical release" describes goods.  As we explain in more 
detail below, the fact that "films for theatrical re lease", as that expression is used in the US panel 
request, are goods does not dispose of China's argument that the relevant provisions of the Film 
Regulation  should be assessed under the GATS rather than under the Accession Protocol.  Therefore, 
we now proceed to consider China's argument that its  trading rights commitments are inapplicable to 
the relevant provisions of the Film Regulation .    
Applicability
 
7.528  The United States is asking us to apply China's trading rights commitments to Articles 5 and 
30 of the Film Regulation , which both address who may import films.   Article 5 provides in relevant 
part that "[t]he State shall implement a licensing system with respect to film production, import, 
export, distribution, and screening, and the public screen ing of films.  No entity or individual shall, 
without permission, be engaged in the activities of  production, import, distribution or screening of 
films, or import, export, distribute or screen a fi lm for which a permit has not been obtained".  
Article 30 provides that "[t]he business of importi ng films shall be conducted by film import entities 
designated by the [SARFT]; without being designat ed, no entity or individual shall engage in the 
business of importing films". 
7.529  As we see it, Article 5 in rele vant part regulates who may enga ge in the activity of importing 
films.401  Article 30 in relevant part also regulates the business of importing films by establishing who 
may conduct that business.  Since Articles 5 and 30 regulate who may engage in the business of 
importing "films", these articles evidently affect "films".     
7.530  China submits that the term "film" in the Eng lish version of Articles 5 and 30 is translated 
from the Chinese term " Dian Ying ", and not the Chinese term " Dian Ying Jiao Pian ".  China states 
that " Dian Ying " means "motion picture" and refers to film as an artistic work, whereas " Dian Ying 
Jiao Pian " means "cinematographic film", i.e., the physical film (" Jiao Pian ") used to project motion 
pictures (" Dian Ying ").402  China considers, therefore, that Articles 5 and 30 regulate who may import 
motion pictures, not who may import cinematographic film.  By this, China appears to mean that these provisions regulate who may import content which would be projected in a theatre.
403  China also 
contends that the term "import" in the English version of Articles 5 and 30 is translated from the 
Chinese term " Jinkou ", which China says covers the introductio n into China of anything of foreign 
origin, including content.404 
7.531  The United States counters that " Dian Ying " can be translated as "film" or "motion picture".405  
China responds that this reflects the fact that the te rm "film" is the ordinary English translation of 
                                                      
401 Article 5 also regulates films, in that it stipulates that only films which have been approved may be 
imported.  The United States has not challenged that  aspect of Article 5 under China's trading rights 
commitments, however. 
402 China's second written submission, para. 35;  China's comments on the United States' response to 
question No. 158. 
403 China's response to question No. 177; China's comments on the United States' response to question 
No. 164. 
404 China's response to question No. 177(a). 
405 The United States refers to the New Century Chinese English Dictionary  (Exhibit US-103).  United 
States' response to question No. 158.  WT/DS363/R 
 Page 235 
 
 
  "Dian Ying ", whereas the term "motion picture" is used mainly in American English.  According to 
China, " Dian Ying " refers to film as an artistic work.406  The United States notes that Article 31 of the 
Film Regulation  sets forth the requirement that imported films are subject to "import procedures at 
Customs".  The United States points out that in this context the Chinese text of the measure also uses 
the word " Jinkou " to mean "import".  In the United States' view, this shows that China uses the term 
"Jinkou " to refer to the import of goods subject to customs procedures.407 
7.532  We have requested the independent translator to  advise on the correct translation of the terms 
"Dian Ying " and " Jinkou " as they appear in Articles 5 and 30.  Turning first to the latter term, 
"Jinkou ", the independent translator confirms that "impor t" is the correct translation.  According to the 
independent translator, there is nothing implicit in the term " Jinkou " to indicate whether only goods 
can be covered, or whether the term can also a pply to content.  In light of this, the term " Jinkou " does 
not shed much useful light on the correct translation of the term " Dian Ying " as it could apparently be 
used to refer to the import of content as well as goods. 
7.533  With regard to the other Chinese term, " Dian Ying ", the independent translator's first point is 
to note that the term is satisfactorily rendered in  English as "film".  The independent translator 
recognizes, however, that the term "film" in English has a broad scope, as it could be used to refer to 
the film as intellectual property or the material on which the film is printed.408  The independent 
translator has, therefore, provided additional advi ce in commenting on the suggested translation.  
Thus, the independent translator considers that ther e is considerable merit in China's contention that 
particularly in legal texts, where the language is more formal and distinctions which might appear 
contrived in vernacular usage are more carefully observed, the term " Dian Ying " on its own is 
intended exclusively to refer to the content of a f ilm (i.e., the artistic work) and not to the material 
(i.e., the physical medium) on which the film is printed,  or the film stock.  The independent translator 
further observes that even in vern acular usage it would be hard to imagine a context where the term 
"Dian Ying " alone referred to the material on which the film is printed, the film stock, rather than the 
content.   
7.534  The United States responds that the independent  translator's conclusion that the term " Dian 
Ying" is correctly translated as "film" should be the e nd of the analysis.  In the United States' view, the 
additional comments offered by the independent transl ator do not assist in analysing the US claims in 
this dispute.  The United States argues that it h as not asserted that unexposed, content-free film stock 
is the good at issue.  Rather, the United States asser ts that the good at issue is film for theatrical 
release, i.e., a physical carrier medium that has c ontent embedded on it.  China, in contrast, has argued 
that the "film" being discussed is simply an inta ngible work.  According to the United States, the 
independent translator does not discuss this diffe rence.  Instead, the United States submits, the 
independent translator focuses on the film material itself, with no content involved.  
7.535  In our view, it is not implausible that Artic les 5 and 30 are concerned with who may conduct 
the business of bringing into China content that can be commercially exploited by projection in 
theatres.409  Contrariwise, it seems somewhat less plausible that Articles 5 and 30 are about who may 
import content of the described kind on a physical ca rrier, that is to say, that they are about who may 
                                                      
406 China's comments on the United States' response to question No. 158. 
407 United States' comments on China' s response to question No. 177(a). 
408 The independent translator observe s in this respect that at least in British English there would not 
seem to be any prima facie distinction between "film" and "motion picture". 
409 We note in this context that Article 2 of the Film Regulation  specifies that the films to which the 
Film Regulation  applies include "feature films, documentary films, science and educational films, animation 
films, and special topic films".  This is consistent with the view that the regulatory co ncern is with the type of 
content that is to be produced, imported, distributed and screened, and not with content on a physical carrier.    WT/DS363/R 
Page 236  
 
  import hard-copy cinematographic film.
410  If this were the case, the Film Regulation  might not apply 
to content brought into China without any physical carrier, which China says is a growing trend in the industry.
411   
7.536  At any rate, we do not think that resolving th is issue is critical for the purposes of our 
analysis.  As we have stated above, we consider th at Articles 5 and 30 in relevant part regulate who 
may conduct the business of importing "films".  If the term "films" were understood as meaning 
"hard-copy cinematographic films", Articles 5 and 30 would necessarily affect "hard-copy cinematographic films" and thus goods.  On the ot her hand, if the term "films" were understood as 
meaning "contents that can be commercially exploi ted by projection in theatres", Articles 5 and 30 
would not necessarily affect hard-copy cinematogr aphic films.  However, as the parties have 
explained, typically, "contents that can be commercia lly exploited by projection in theatres" would be 
brought into China under the terms of a li censing/distribution agreement between a film 
producer/licensor and one or more distributors.
412   
7.537  As pointed out above, China contends that, in  practice, the designated film importing entity 
would itself enter into a licensing/distribution ag reement with a foreign film producer/licensor.  
According to China, once the c ontent has been reviewed and approved, the designated importing 
entity proceeds with the customs cl earance of the delivery materials.413  Delivery materials are 
provided by the producer/licensor to allow the distributor to organize the distribution of the film within China.  In cases where the film content is brought into China on exposed and developed 
cinematographic film as a carrier medium, these delivery materials include the hard-copy cinematographic film (the "internegative" or "interpositive").  
7.538  China's explanation makes clear that even if  the term "film" were understood as meaning 
"content that can be commercially exploited by pr ojection in theatres", Articles 5 and 30 would affect 
hard-copy cinematographic film as a good, provided, of course, relevant  content is to be imported on 
hard-copy cinematographic film.
414  This is because only licensed and designated film import entities 
are allowed to be engaged in the business or activity  of importing relevant contents, including in cases 
where the carrier to be used to bring the co ntents into China is exposed and developed 
cinematographic film.415   
7.539  Accordingly, no matter which of the above-menti oned translations of Articles 5 and 30 is 
considered to be the correct one, in cases where wh at is imported is hard-copy cinematographic film, 
Articles 5 and 30 would necessarily affect hard-copy ci nematographic film and, therefore, a good.  As 
is clear from the above, the US claim in resp ect of Articles 5 and 30 relates to hard-copy 
cinematographic films. 
7.540  We do not understand China to contest that Artic les 5 and 30 have, or may have, an effect on 
hard-copy cinematographic films (the "internegativ e" or "interpositive") and, therefore, on goods.  
However, China argues that Articles 5 and 30 are not  subject to the trading rights commitments set 
forth in China's Accession Protocol.  In China' s view, Articles 5 and 30 are subject only to WTO 
disciplines on services, as set forth in the GATS and China's Schedule of Commitments. 
                                                      
410 In response to question No. 180, China stated that the Film Regulation  would apply in the same way 
to motion pictures transmitted without any physical carrier. 
411 China's first written submission, footnote 20 and para. 62. 
412 United States' response to question No. 13(b). 
413 This is provided for in Article 31 of the Film Regulation . 
414 China has confirmed that when cinematograpic film  is used as a physical carrier, importation of a 
good takes place (China's resp onse to ques tion No. 177). 
415 In response to question No. 179, China confirme d that if a foreign motion picture is imported as 
exposed and developed cinematographic film containing such motion picture, the designated film importing 
entity will import such cinematographic film.  WT/DS363/R 
 Page 237 
 
 
  7.541  In discussing this issue, the parties have referred to the Appellate Body report on EC – 
Bananas III , which provides in relevant part:416  
"Given the respective scope of application of the two agreements, they may or may 
not overlap, depending on the nature of the measures at issue.  Certain measures could be found to fall exclusively within the scope of the GATT 1994, when they 
affect trade in goods as goods.  Certain m easures could be found to fall exclusively 
within the scope of the GATS, when they affect the supply of services as services.  There is yet a third category of measures that  could be found to fall within the scope 
of both the GATT 1994 and the GATS.  These  are measures that involve a service 
relating to a particular good or a service s upplied in conjunction with a particular 
good.  In all such cases in this third cate gory, the measure in question could be 
scrutinized under both the GATT 1994 and the GATS.  However, while the same 
measure could be scrutinized under both agre ements, the specific aspects of that 
measure examined under each agreement c ould be different.  Under the GATT 1994, 
the focus in on how the measure affects the goods involved.  Under the GATS, the 
focus is on how the measure affects the suppl y of the service or the service suppliers 
involved.  Whether a certain measure affec ting the supply of a service related to a 
particular good is scrutinized under the GA TT 1994 or the GATS, or both, is a matter 
that can only be determined on a case-by-case basis." 
7.542  It is important to bear in mind that this st atement relates to the applicability of the GATS 
versus the GATT 1994, not the GATS versus the tr ading rights commitments in China's Accession 
Protocol.  As discussed below, China argues that Articles 5 and 30 regulate the service of licensing, 
specifically the licensing of the right to exploit foreign motion pictures by organising their theatrical distribution and exhibition.  It is clear from the above-quoted statement of the Appellate Body that 
Articles 5 and 30 could possibly be scrutinized under th e GATS to the extent they affect the supply of 
a service.  We consider that they could also be scrutinized under China's tr ading rights commitments 
to the extent they affect who may import a good.  In particular, Chinese provisions that restrict who 
may import a good may impermissibly rest rict the right to trade in that good.  Therefore, the mere fact 
that Articles 5 and 30 may regulate a service in our  view would not remove them from the scope of 
application of China's trading rights commitments.   
7.543  As discussed above, if the term "films" in  Articles 5 and 30 were understood as meaning 
"hard-copy cinematographic films", Articles 5 a nd 30 would directly regulate who may engage in 
importing of the goods at issue, i.e., "hard-copy cine matographic films".  They would therefore appear 
to be subject, in principle, to China's trading rights commitments.  On the other hand, if the term "films" were understood as meaning "contents that can be commercially exploited by projection in 
theatres", Articles 5 and 30 would not directly re gulate who may engage in importing of the goods at 
issue, i.e., "hard-copy cinematographic films".  But, as previously explained, in those cases where 
relevant content is to be im ported on hard-copy cinematographi c film, Articles 5 and 30 would 
necessarily affect who may engage in importing of hard-copy cinematographic films, because  
Articles 5 and 30 would then provide that only licen sed and designated importe rs may engage in the 
import of content on cinematographic film.  In the li ght of this, we think that under this translation 
Articles 5 and 30 would also appear to be subject, in principle, to China's trading rights commitments.   
7.544  China nevertheless submits that we should not review Articles 5 and 30 in the light of its 
trading rights commitments.  It argues, in essence,  that Articles 5 and 30 regulate the service of 
licensing – the licensing of the right to exploit foreign motion pictures by organizing their theatrical distribution and exhibition – and that although Ar ticles 5 and 30 may have an impact on hard-copy 
cinematographic film, they should not be scrutinized under China's trading rights commitments.  
                                                     
 
416 Appellate Body Report on EC – Bananas III , para. 221. WT/DS363/R 
Page 238  
 
  China submits that hard-copy cinematographic film  should be treated as a mere "accessory" to the 
aforementioned service, and that Articles 5 and 30 should, therefore, be examined under the 
disciplines governing trade in services only. 
7.545  According to China, Articles 5 and 30 regul ate the service of licensing of rights to the 
exploitation of motion pictures, by regulating who may obtain such a copyright licence.
417  A s  a  
general matter, we would accept that the licensing of  rights can be considered a service that is 
provided by the film producer to the film importing entity.  Also, Article 33 of the Film Regulation  
stipulates that a film importation entity must obtai n permission from the copyright owner to use his 
film work and that it must use the film work within the scope of the licence obtained.  Thus, 
Article 33 appears to contemplate the existence of a licensing agreement between a foreign film 
producer and the film importing entity.   
7.546  Nevertheless, there are elements which cast doubt  on China's position that Articles 5 and 30 
regulate the service of licensing of rights.  It is tr ue that in those cases where a foreign film producer 
wishes to enter into a licensing agreement with a film importing entity, Articles 5 and 30 allow the 
SARFT to control with which film import entities fo reign film producers could enter into such an 
agreement.  But certain films imported into China may no longer be  copyright-protected.418  Pursuant 
to Articles 5 and 30, they could, however, be im ported only by licensed and designated importers.  
Also, the United States has confirmed that in some instances a film producer itself may wish to import 
the film into another market, e.g., the Chinese ma rket, to distribute the film in that market.419  In this 
situation, which China has not addressed, there woul d appear to be no need for a licensing agreement 
between the film producer and the importer, since the film producer would be the importer. 
7.547  At any rate, for the sake of argument, we are prepared to proceed with our analysis on the 
assumption that foreign film producers must ente r into licensing agreements with licensed and 
designated film import entities in all cases.  China submits that in the context of provisions like Articles 5 and 30 which, in China's view, regulate licensing services, any effect these provisions have 
on who may import hard-copy cinematographic film should not be examined under China's trading 
rights commitments.  In support of this position, China has provided a number of arguments which we 
now turn to address.  
7.548  China argues that hard-copy cinematographic film has no own commercial value and does not 
itself generate revenue since it is only used to make film prints to be distributed to theatres.  China 
also argues that the ownership of the hard-copy cine matographic film is not transferred to the film 
importing entity under a licensing agreement, and that  the hard-copy must either be destroyed or 
returned.  We are not persuaded that we should not  apply China's trading ri ghts commitments because 
of these elements.  We note that other types of goods, such as commercial samples, also may not, 
themselves, have a commercial value or generate revenue.  Yet we do not think this would remove 
them from the scope of applicable WTO disciplin es on trade in goods.  Also, the fact that only a 
single hard copy may cross China's border for ever y film imported in our view does not provide a 
convincing rationale for not applying China's tr ading rights commitments.  Other goods, such as 
certain tunnel construction machiner y and equipment, may likewise not cross a particular border very 
often, yet the importing Member would charge customs duties on the importation of such goods in the 
                                                     
 
417 China also stated that the service regulated is the distribution service (China's response to question 
No. 177).  We understand from China's submissions that licensing and distribution are linked, in that the 
licensing agreement confers the right to exploit a film through theatrical release, which includes the right to 
make or use copies of the film and to organise its distribution to theatres.  At any rate, we note that in its final comments to the Panel, China stated th at its measure regulate the importation of films for theatrical release "as a 
copyright licensing for the exploitation of the motion pictures in Chinese theatres" (China's comments on the 
United States' response to question No. 164). 
418 The parties appear to agree that this is a possibility.  Parties' responses to question No. 53(b).   
419 United States' response to question No. 13(b).  WT/DS363/R 
 Page 239 
 
 
  same way as they would in the case of goods that  are imported very frequently and/or in large 
quantities.  Likewise, we do not see why the applicability of WTO goods disciplines should turn on whether the importer of a good has become its owner.   In our view, an importing Member could not 
prohibit the importation of a book that is being loaned to the importer, arguing that the disciplines of the GATT 1994 would not be applicable since the book in question has not been sold and no change 
in ownership has occurred.        
7.549  China further argues that hard-copy cinematographic film is not a good traded in its own 
right, in the sense that it would not be traded in  the absence of a services agreement under which the 
film producer licences the right to exploit the content by organizing its theatrical distribution and exhibition.  China submits that the supply of the ha rd-copy cinematographic film cannot, therefore, be 
considered independently from the services agreement.   In our view, the mere fact that an import 
transaction involving hard-copy cinematographic film is carried out as part, and in fulfilment, of a 
services agreement cannot be sufficient to remove it from the scope of China's trading rights commitments.  Many goods are traded to meet  the demand of services suppliers who use these goods 
to provide a service, and so they would not be trad ed if the relevant service were no longer provided.  
For instance, a hospital may need to import special surgical tools.  Those tools would obviously be 
used by the hospital for the purpose of providing hea lth care services.  Nevertheless, we consider that 
a possible governmental ban on the importation of these surgical tools should be scrutinized under 
WTO disciplines on trade in goods.  It is correct th at, in the case of hard-copy cinematographic film, 
imports occur as a result of a contractual obligati on under a licensing agreement.  This element does 
not change our assessment, however.  In our view, it merely serves to demonstrate the existence of a 
link between the hard-copy cinematographic film and the relevant service.   
7.550  Taken together, the elements identified by China could support the view that hard-copy 
cinematographic film is an "accessory" to the li censing service to be provided by a film producer 
under a licensing agreement.  However, even consid ering the various elements together, we are not 
persuaded that this would justif y non-application of China's trading rights commitments to Articles 5 
and 30 in cases where their application would otherwise be warranted.   
7.551  To begin with, we note that the relevant paragr aphs of the Accession Protocol refer, without 
qualification, to the right to trade in "all goods".
420  No distinction is made  between goods like hard-
copy cinematographic film that are imported as part of licensing agreements and goods that are 
imported "in their own right".        
7.552  Also, we observe that the above-quoted passage from the Appellate Body report on EC – 
Bananas III  addresses, inter alia , whether measures affecting a "service supplied in conjunction with 
a particular good" could be scrutinized under both the GATS and the GATT 1994.  The passage 
contains the statement that it is to be determined  on a case-by-case basis whether such measures are to 
be scrutinized under the GATT 1994, the GATS, or both.  We understand this to mean that it must be 
determined in each case whether such measures fa ll within the scope of the GATT 1994, the GATS, 
or both, by examining whether such measures affect  trade in goods as goods and whether they affect 
the supply of services as services.421  We are not convinced that the Appellate Body meant to suggest 
that such measures could be analysed under only on e of these agreements if they would also fall 
within the scope of application of the other agreement.422  At any rate, the statement in question does 
                                                      
420 E.g., paragraphs 5.1 and 84(a). 
421 We recall that the mere fact that a measure affect s a service supplied in conjunction with a particular 
good does not necessarily imply that the measure falls within the scope of either the GATT 1994, or the GATS, 
or both.  For instance, the Member concerned may not have undertaken a commitment regarding the relevant 
mode of supply of a service, or regarding the particular service.   
422 The United States appears to have the same unde rstanding of the Appellate Body's guidance (United 
States' comments on China's res ponse to question No. 199(a)). WT/DS363/R 
Page 240  
 
  not provide any criteria by reference to which it coul d be established, in a particular case, whether it 
would be appropriate not to appl y an otherwise applicable agreement to measures affecting a service 
supplied in conjunction with a particular good.  As a result, we do not think that the Appellate Body's 
statement provides us with clear guidance on the precise issue before us.  
7.553  China has not identified any other WTO jurisp rudence which would support its position.  
China has, however, referred to a judgment by  the European Court of Justice based on the Treaty 
Establishing the European Community  (hereafter the " EC Treaty ").
423  According to China, the Court 
determined that licensing agreements between film producers in one EC member State and 
distributors in another EC member State come under the provisions of the aforementioned EC Treaty  
with regard to the freedom to provide services.  China points out that the Court disregarded claims 
under the EC Treaty  with regard to the free movement of goods .  China also referred to the opinion of 
the Advocate General in the same case.424  The Advocate General stated in relevant part that: 
"[A]lthough the exploitation in one Member State of a cinematograph film produced 
in another Member State presupposes a trans -frontier movement of goods in the sense 
that at least one copy of the film must be imported … the essential feature of the 
exploitation of a film does not lie in that physical trade in film bands. … The (trans-
frontier) transfer of the material base of a film is only a logical outcome of [the 
producer's making available the rights to distribution together with the right to public exhibition], so that it is not possible to speak of movement of goods within the meaning of the Treaty".    
7.554  In considering China's reference to jurisprudence of the European Court of Justice, we note 
that the Court applied the rules of the EC Treaty , not WTO rules, and that the rules applied by the 
Court are in any event different from tho se we are called on to apply in this case.
425  Therefore, the 
fact that it may be legally appropriate for the C ourt not to apply EC rules on the free movement of 
goods to an import transaction involving hard-copy cinematographic film does not mean that it would 
be legally appropriate for a WTO panel not to a pply China's trading rights commitments to an 
analogous import transaction.   
7.555  We are not convinced that merely because the import transaction involving hard-copy 
cinematographic film may not be the "essential feature" of the exploitation of the relevant film, China's trading rights commitments should not be applied to Articles 5 and 30, even though they 
would otherwise be applicable.  We  cannot make light of the fact that the trading rights commitments 
contained in China's Accession Protocol are lega lly binding and an integral part of the WTO 
Agreement.
426  We recall in this connection that in acco rdance with Article 19.2 of the DSU, in our 
findings, we must not add to Members' obligations or  diminish Members' rights.  We also note that 
China has not identified any serious legal or prac tical consequences which would arise if China's 
trading rights commitments are applied to hard-c opy cinematographic films, but which would not 
arise if these commitments are applied to other goods. 
                                                      
423 Judgment of the European Court of Justice of 4 May 1993, Case C-17/92 ( Federación de 
Distribuidores Cinematográficos v Estado Español and Unión de Productores de Cine y Televisión ), ECR 1993 
[I] 02239 et seq . (Exhibit CN-5). 
424 Opinion of the Advocate General of 18 February 1993, Case C-17/92 ( Federación de Distribuidores 
Cinematográficos v Estado Español and Unión de Productores de Cine y Televisión ) ECR 1993 [I] 02239 
(Exhibit CN-6). 
425 For instance, we note that the Treaty Establishing the European Community  establishes a general 
freedom to provide services.  In contrast, the WTO disciplines on trade in services applicable to China depend, in part, on the level and extent of the commitments taken by China.    
426 Paragraph 2.1 of the Accession Protocol.  WT/DS363/R 
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  7.556  Finally, we must address China's attempt to jus tify its position by reference to its Schedule of 
Commitments.  China has made an additional comm itment in Sector 2D ("Audiovisual Services") of 
its Schedule which states that "[w]ithout prejudi ce to compliance with China's regulations on the 
administration on films, China will allow the importation of motion pictures for theatrical release on a revenue-sharing basis and the number of such imports shall be 20 on an annual basis".  China submits 
that, through this commitment, it expressly reserve d its right to regulate the importation of motion 
pictures for theatrical release as a licensing service and to allow only designated entities to import 
motion pictures.
427  China considers that its right to re gulate the motion picture business under the 
GATS would be undermined if Articles 5 and 30 were not assessed exclusively under the GATS.   
7.557  As we see it, the commitment in question relates to the importation of motion pictures for 
theatrical release for distribution on a revenue-shari ng basis.  Specifically, China has committed to 
allow the importation of up to 20 motion pictures per year for distribution on a revenue-sharing basis.  
Any additional imported motion pictures would need to be distributed on the basis of, e.g., an agreed licence fee (lump-sum payment).   
7.558  The "without prejudice" clause contained in Ch ina's additional commitment in our view does 
not mean that China's trading rights commitments should not be applied to Articles 5 and 30.  While 
China may be able to condition an additional comm itment relating to motion pictures on being able to 
apply its WTO-consistent domestic Film Regulation s, inclusion of such a condition in China's 
Schedule of Commitments does not provide legal cover in cases where any such regulations are 
inconsistent with other WTO disciplines, su ch as China's trading rights commitments.
428  In other 
words, it is our view that by including a reference to its Film Regulation s in its additional 
commitment, China has not reserved a "right" to regulate licensing services in a manner that would 
result in a breach of its trading rights commitments.429  As a result, we consider that China's additional 
commitment in Sector 2D does not support the conclusion that Articles 5 and 30 should not be scrutinized under China's trading rights commitments.   
7.559  In sum, even if we assume that foreign film  producers must, in all cases, enter into licensing 
agreements with licensed and designated film im port entities, we are not persuaded by China's 
position that any effect Articles 5 and 30 have on who may import hard-copy cinematographic film 
should not be examined under China's trading rights commitments.    
7.560  We thus conclude that no matter which of the above-mentioned translations of Articles 5 and 
30 is considered to be the correct one, these pr ovisions are subject to China's trading rights 
commitments, in that they would either directly regulate who may engage in  importing of "hard-copy 
cinematographic films" or necessarily affect who may engage in importing of such goods.      
                                                     
 
427 China's response to question No. 36(a). 
428 Nothing in Article XVIII of the GATS suggests that by undertaking additional commitments 
Members could diminish its other WTO obligations.  We note in this context the statement of the Appellate Body in EC – Poultry  with regard to schedules of concessions to th e effect that the term "concessions" suggests 
that an importing Member "may yield or waive some of its own rights and grant benefits to other Members, but 
that it cannot unilaterally diminish its own obligations" (Appellate Body Report on EC – Poultry , para. 98).  
While this statement does not relate to Schedules of Commitments, we believe that the logic followed by the 
Appellate Body applies equally to "additional commitments" under the GATS.      
429 In its reply to question No. 36(c), China has referred to footnote 6 of China's Schedule of 
Commitments, which relates to Sector 4B.  The footnote reads: "The restrictions on mode 1 shall not undermine 
the rights of WTO Members to the right to trade as stip ulated in Chapter 5 of China's Protocol of accession to 
the WTO".  In our view, the absence in Sector 2D of a similar footnote does not imply that China's additional 
commitment regarding motion pictures ha s been accepted to undermine the ri ghts of other Members to the right 
to trade. WT/DS363/R 
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  Consistency
 
7.561  Having determined that China's trading rights commitments are applicable to Articles 5 and 
30 of the Film Regulation , we now turn to address the merits of the US claims that Articles 5 and 30 
give rise to an inconsistency with China's tr ading rights commitments.            
Article 5 
7.562  So far as concerns Article 5, we first recall th at it establishes a licensing system for the import 
of films.  In response to a question from the Panel,  China confirmed that all importers of films must 
obtain a licence and indicated that importers are granted licences through a designation process.430  
Regarding the US claim in respect of Article 5, we note that the United States has referred to, and 
reproduced, this provision, but not explained why and how it is inconsistent wi th one or more of the 
cited provisions of the Accession Protocol.  In the li ght of this, we consider, and conclude, that the 
United States has not met its burden of establishing th at Article 5 gives rise to an inconsistency with 
the trading rights commitments under China's Ac cession Protocol.  Nor has the United States 
established that Article 5 results in an inconsistenc y when considered together with other challenged 
measures. 
Article 30 
7.563  Regarding Article 30, we recall that it impo ses a designation requirement.  Pursuant to 
Article 30, no entity or individual may engage in the business of importing films without being a film 
importing entity designated as such by the SARFT.   
7.564  The United States claims that Article 30 is inco nsistent with China's obligation to allow all 
enterprises in China and foreign enterprises and indivi duals to import films.  According to the United 
States, the designation requirement is more than a me re administrative formality.  In the United States' 
view, it serves a gate-keeping function to limit the number of enterprises selected by the SARFT.431   
7.565  The United States further claims that the d esignation requirement introduces significant 
discretion into a process that China committed to be "non-discretionary".  The United States submits 
that it empowers the SARFT to assign trading rights to only those importers of its own choosing on no 
basis other than its own discretion.432 
Paragraph 84(b) 
7.566  We begin our analysis with the second US cl aim, which we understand to be based on 
paragraph 84(b).  We recall that in accordance with Article 30 no entity or in dividual has the right to 
import films without being designated.  It also provides that the business of importing films is to be conducted by designated film import entities.  Thus, it would appear that China can designate only 
film import entities, not individuals.   
7.567  We further note that Article 30 does not explic itly state whether film import entities need to 
be registered in China.  We recognize that the term  "film import entity" is unq ualified.  In our view, 
this does not necessarily mean, however, that the term could cover also foreign enterprises not 
registered in China.  We note in this respect th at we have not been given any other trade-related 
Chinese laws or regulations that could indicate whet her an "import entity" needs to be registered in 
China.  We also note Article 16 of the Film Enterprise Rule , which parallels Article 30.  The Film 
                                                     
 
430 China's responses to question Nos. 170 and 171. 
431 United States'  responses to question No. 11(a) and (d). 
432 Ibid.  WT/DS363/R 
 Page 243 
 
 
  Enterprise Rule  contemplates only enterprises in China as importers of films.  In view of these 
elements, and the lack of US arguments and evidence on this issue, we consider that the United States 
has not demonstrated that the term "film import entities" as it appears in Article 30 could cover 
foreign enterprises not registered in China and th at such enterprises could be designated as "film 
import entities".  We accept, however, that enterprises registered in China, including foreign-invested 
enterprises, could be designated as "film import entities".  
7.568  As to whether the term "film import entities" could cover Chinese branches of foreign-
registered enterprises, it is sufficient to note that  the United States has not asserted that Article 30 
affects branches in China and that this results in an inconsistency with China's trading rights 
commitments.  In fact, the United States has ne ver even mentioned the possibility of foreign-
registered enterprises setting up Chinese branches.  Accordingly, we do not examine this issue 
further.433 
7.569  In examining Article 30, we observe, fina lly, that designation under Article 30 is not 
automatic.  Rather, we infer from China's responses to questions from the Panel that it is up to the 
SARFT to initiate the designation process.434  We also note that Article 30 contains no criteria to be 
followed by the SARFT in deciding whom to designa te.  Moreover, China has not contested the US 
contention that SARFT can designate importers "of its  own choosing".  Accordingly, it appears to us 
that under Article 30 China needs to exercise discretion in order to grant the right to import films.  We 
therefore consider that, as a result of Article 30, Ch ina does not grant the right to import films to film 
import entities in a non-discretionary way.435   
7.570  With these observations about Article 30 in mind,  we now turn to the claimed inconsistency 
with paragraph 84(b).  In view of the fact that th e discretion relates to the designation of "film import 
entities", and not individuals, we conclude that Ar ticle 30 does not result in an inconsistency with 
paragraph 84(b) with respect to the grant of tradi ng rights to foreign individuals.  Furthermore, the 
United States has not established that Article 30 resu lts in an inconsistency with paragraph 84(b) in 
respect of foreign individuals when considered  together with other challenged measures.   
7.571  On the other hand, we recall that in our view  "film import entities" within the meaning of 
Article 30 include foreign-invested enterprises in Ch ina.  We therefore conclude that, as a result of 
Article 30, China does not grant trading rights to fo reign-invested enterprises in China which wish to 
import films into China "in a non-discretionary wa y", and that, for that reason, China is acting 
inconsistently with its obliga tion under paragraph 84(b).   
7.572  We also recall that the United States has not asser ted that Article 30 affects Chinese branches 
of foreign enterprises not registered in China, a nd that it has not demonstrated that China could 
designate foreign enterprises not registered in China as "film import entities".  Accordingly, we 
conclude that the United States has not establis hed that Article 30 results in China acting 
                                                      
433 Also, it is in any event not clear to us from the information on the record whether Chinese laws or 
regulations on branches of foreign enterprises allow foreign-registered enterprises to set up Chinese branches in the sector at issue. 
434 China has confirmed that designation can occur exclusively at the Government's own initiative 
(China's response to question No. 25(a)).  China has further indicated that with respect to import entities for films for theatrical release, only a de signation process is provided for (China's response to question No. 25(b)).  
In support of the latter statement, China specifically referenced Article 30 of the Film Regulation .  Finally, 
China has stated that Article 30 sets forth that impor ters of foreign films for theatrical release are to be 
designated by the SARFT (China's response to question No. 170).  
435 If the term "films" in Article 30 were understood as meaning "contents that can be commercially 
exploited by projection in theatres", China would, by imp lication, also have discretion in granting the right to 
import hard-copy cinematographic films, since only designated importers of contents could import hard-copy 
cinematographic films. WT/DS363/R 
Page 244  
 
  inconsistently with its obligation under paragraph 84(b) in respect of foreign enterprises not registered 
in China.  The United States has also not established that Article 30 results in  an inconsistency with 
paragraph 84(b) when consid ered together with other challenged measures.   
Paragraphs 5.1, 83(d) and 84(a) 
7.573  We understand the other US claim in respect of  Article 30 to be based on paragraphs 5.1, 
83(d) and 84(a).  We recall that Article 30 provides that no entity or individual may engage in the 
business of importing films without being designated, and that the business of importing films is to be 
conducted by designated film import entities.  Thus, as previously noted, it would appear that China 
cannot designate individuals.   
7.574  Regarding "entities", they can obtain the right to import films only if the SARFT decides to 
designate them as film import entities.  We have found earlier that the United States has not 
established that foreign enterprises not registered in China could be designated as "film import entities".  If they could not be designated, however, they could not, pursuant to Article 30, engage in 
the business of importing films.  We also recall that the United States has not asserted that Article 30 affects Chinese branches of foreign enterp rises not registered in China.     
7.575  Having regard to enterprises registered in Chin a, which we have said could be designated as 
"film import entities", we note that there is no process whereby entities can submit applications.
436  To 
us, this suggests that the designation requirement is  not applied merely to ensure compliance with 
customs or fiscal requirements, or requirements im posed for "normal business regulation" purposes.  
Also, the fact that entities are designated exclusiv ely at the initiative of the SARFT in our view 
suggests that the designation requirement is not applie d to allow any and all entities to import films.  
We therefore see no reason to disagree with the United States' contention that the designation 
requirement set out in Article 30 serves a gate-keeping function.  In fact, in response to a question from the Panel, China has indicated  that its designation requirements "result in [a] limited number of 
importers".
437  We note in this respect that evidence s ubmitted by the United States shows that China 
has assigned the right to import films for theatrical release to only one entity, namely, the China Film 
Import and Export Corporation, which is a subsid iary of China Film Group and a Chinese wholly 
state-owned enterprise.438   
7.576  In the light of the foregoing, we are of the view that by providing in Article 30 that the 
business of importing films is to be conducted by SA RFT-designated film import entities, and that no 
entity or inidividual may engage in the business of importing without being designated, China has 
failed to ensure that all enterprises in China (i ncluding foreign-invested enterprises) and foreign 
enterprises not registered in China and foreign i ndividuals have the right to import cinematographic 
                                                      
436 China's response to question No. 25(a). 
437 China's response to question No. 172.  In its reply, China suggests that the purpose of its various 
designation requirements is not to limit the number of importers, but to select entities allowed to import cultural 
goods.  At the same time, as indicat ed, China specifically noted that "the designation system would result in a 
limited number of importers". 
438 This evidence includes Article II of the Film Distribution and Exhibition Rule ; Article 12 of the 
Digital Film Rule  (Exhibit US-66), which provides that only the China Film Group may engage in the business 
of importing digital films; and the  China Film Group's homepage (Exhibit US-23).  China has not contested that 
China Film Import and Export Corporation is the only designated importer of films for theatrical release.   
In relation to the fact that there is only one designated film importing entity, the United States argues 
that Article 30 of the Film Regulation  constitutes the legal basis for the China Film Import and Export 
Corporation's "monopoly" on the right to import films.  However, we see nothing in the text of Article 30 that 
would indicate that China is legally barred from designating additional importers.          WT/DS363/R 
 Page 245 
 
 
  films.439  We therefore consider, and conclude, that Ar ticle 30 results in China acting inconsistently 
with its obligations under para graphs 5.1 and 83(d) (in respect  of enterprises in China) and 
paragraph 84(a) (in respect of enterprises in Chin a and foreign enterprises and foreign individuals). 
Paragraph 5.2 
7.577  Finally, we note that in response to a ques tion from the Panel, the United States suggested 
that the Film Regulation  results in an inconsis tency with paragraph 5.2.440  It is not clear, however, 
whether any such claim would concern Article 5 or Article 30 or both, nor why an inconsistency is 
alleged to arise.  Consequently , we conclude that the United States has not established any claim 
under paragraph 5.2.  We also note that th e United States has not established that the Film Regulation  
results in an inconsistency with  paragraph 5.2 when considered together with other challenged 
measures.         
(viii) Film Enterprise Rule 
7.578  The United States  notes that the Film Enterprise Rule  further regulates the importation of 
films for theatrical release into Ch ina.  The United States points out that Article 2 of this measure 
limits its application to domestic enterprises involved in, inter alia , the importation and exportation of 
films.  Article 3 reiterates that the State implements  a licensing system with respect to the importation 
of films.  The United States further notes that consistently with the Film Regulation  and the Film 
Distribution and Exhibition Rule , Article 16 states that the "[t]he business of importing films shall be 
exclusively conducted by film import enterprises that are approved by SARFT".  According to the United States, the Film Distribution and Exhibition Rule  indicates that only one such enterprise has 
been so approved: China Film Import and Export Corporation. 
7.579  As indicated in connection with the Film Regulation , the United States claims that China's 
measures granting China Film Group a monopoly on the right to import films for theatrical release are inconsistent with China's trading rights commitmen ts.  In the United States' view this monopoly not 
only deprives enterprises in China (other than Ch ina Film Group) as well as foreign enterprises and 
individuals of the right to import films for theatri cal release.  It also discriminates against foreign-
invested enterprises and foreign individuals, in c ontravention of China's trading rights commitments.  
As noted above, the United States considers that Article 30 of the Film Regulation  constitutes the 
legal basis for this monopoly.  The United States submits that Article 16 of the Film Enterprise Rule  
confirms this restriction.   
7.580  In response to a question from th e Panel, the United States indicat ed that the inconsistencies 
claimed in relation to this measure arise as a resu lt of Articles 3 and 16 of the measure, and under 
paragraphs 5.1 and 5.2 of the Accession Protocol and paragraphs 83(d) and 84(a)-(b) of the Working 
Party Report.  The United States further indicated that , in its view, the parties whose trading rights are 
being restricted under this measure are foreign en terprises, including foreign-invested enterprises in 
China, foreign individuals and Chinese pr ivately invested enterprises in China.
441   
7.581  China  argues that paragraphs 5.1, 5.2 or 1.2 of  the Accession Protocol govern only trade in 
goods.  For reasons explained above in relation to the US challenge to the Film Regulation , China 
considers that the United States has failed to estab lish that motion pictures for theatrical release, i.e., 
                                                      
439 If the term "films" in Article 30 were understood as meaning "contents that can be commercially 
exploited by projection in theatres", China would, by implication, also have failed to ensure that all enterprises 
in China and foreign enterprises and individuals have the right to import hard-copy cinematographic films, since 
only designated importers of contents could import hard-copy cinematographic films. 
440 United States' response to question No. 1. 
441 Ibid. WT/DS363/R 
Page 246  
 
  motion pictures intended to be shown in movie theatre s, could be considered as goods.  China submits 
that the relevant Chinese measures, including the Film Enterprise Rule , do not regulate the 
importation of goods but regulate services related to the licensing of rights for the exploitation of motion pictures.  Consequently, China considers th at paragraphs 5.1, 5.2 and 1.2 of the Accession 
Protocol do not apply and that the US claim lacks any legal basis. 
7.582  The Panel  first recalls its determination above that it can address the US claim in respect of 
films for theatrical release, and that this clai m concerns goods.  The Panel therefore proceeds to 
consider China's argument that its trading rights co mmitments are, nevertheless, inapplicable to the 
relevant provisions of the Film Enterprise Rule .    
Applicability
 
7.583  The United States is asking us to apply China's trading rights commitments to Articles 3 and 
16 of the Film Enterprise Rule , which both address who may import films.  Article 3 provides in 
relevant part that "[t]he State institutes a licen sing system to the operation qualifications for 
production, distribution, projection, import and export of films".  Article 16 provides in relevant part 
that "[t]he business of importing films shall be ex clusively conducted by film importing enterprises 
that are approved by SARFT".   
7.584  We note that Article 3 (licensing requirement) and Article 16 (approval requirement) of the 
Film Enterprise Rule  are similar to Article 5 (licensing requirement) and Article 30 (designation 
requirement) of the Film Regulation .  Also, China's arguments in support of its position that we 
should not apply China's trading rights commitments to Articles 3 and 16 of the Film Enterprise Rule  
are the same as those we have discussed previously  when addressing the same issue in relation to 
Articles 5 and 30 of the Film Regulation .  In the light of these elements, we consider that the reasons 
which led us to conclude th at Articles 5 and 30 of the Film Regulation  are subject to China's trading 
rights commitments are also applicable, mutatis mutandis , to Articles 3 and 16.  We thus conclude 
that these provisions are subject to China's trading rights commitments. 
Consistency  
7.585  Having satisfied ourselves that China's trad ing rights commitments are applicable to 
Articles 3 and 16 of the Film Enterprise Rule , we now turn to address the merits of the US claims that 
Articles 3 and 16 give rise to an inconsistency with China's trading rights commitments.    
Article 3 
7.586  So far as concerns Article 3, we first recall th at it establishes a licensing system for the import 
of films.  In response to a question from the Panel,  China confirmed that all importers of films must 
obtain a licence and that importers are granted licences through a designation process.442  Regarding 
the US claim in respect of Article 3, we note that  the United States has referred to this provision in 
response to a question from the Panel, but has not e xplained why and how it is inconsistent with one 
or more of the cited provisions of the Accession Protocol.443  In the light of this, we consider, and 
conclude, that the United States has not met its burde n of establishing that Article 3 gives rise to an 
inconsistency with the trading rights commitments  under China's Accession Protocol.  Nor has the 
                                                      
442 China's responses to question Nos. 170 and 171. 
443 United States' response to question No. 1.  Article  3 is mentioned at para. 66 of the United States' 
first written submission in a section entitled "Factual Backgrou nd".  Article 3 is not mentioned, however, in the 
section of the same written submission – Section IV – wher e the United States alleges that China's measures are 
inconsistent with China's trading rights commitments.  
The United States' first written submission mentions Article 3  WT/DS363/R 
 Page 247 
 
 
  United States established that Article 3 results in an inconsistency when considered together with 
other challenged measures. 
Article 16 
7.587  Regarding Article 16, we note that unlike Article 30 of the Film Regulation , it refers to the 
need to be "approved" by the SARFT, not "designa ted".  The United States argues that, despite the 
different terminology, the approval process provide d for in Article 16 is not different from the 
designation process provided for in Article 30 of the Film Regulation .  The United States notes in this 
respect that Article 16, like Article 30, is devoid of  criteria or other conditions confining the SARFT's 
discretion.  The United States further argues that the Imported Cultural Products Rule  confirms that a 
designation and not an approval requirement applies to film importers.444  According to the United 
States, Article 10 of the Imported Cultural Products Rule  states that "[m]otion picture import business 
shall be exclusively run by import units designated by SARFT".445   
7.588  In response to questions on this issue from the Panel, China initially stated that for films for 
theatrical release only a designation process is provide d for, and that there is no approval process.446  
Subsequently, and as already pointed out, China indicated that licences under Article 3 of the Film 
Enterprise Rule  are granted through a designation process.447  China also stated, however, that 
Article 16 provides that importers of films must be  approved by the SARFT, and that this contrasts 
with Article 30 of the Film Regulation , under which film importers must be designated by the 
SARFT.  China then went on to explain that, in  accordance with China's Law on Legislation, the Film 
Regulation  prevails over the Film Enterprise Rule .448  Finally, in response to the question whether 
Article 16 sets out an approval or a designation requirement, China said that the licence to import 
films is granted through a designation process.449       
7.589  It is difficult to reconcile China's various re plies.  China's view that Article 3 of the Film 
Enterprise Rule  is applied using a designation process woul d appear to suggest that Article 16 is 
likewise so applied, notwithstanding the fact  that Article 16 uses the term "approved".450  On the other 
hand, China could be understood as indicating that  Article 16 would not be applied using a 
designation process, but that China nonetheless designates importers, because Article 30 of the Film 
Regulation  sets out a designation requirement which prev ails over the approval requirement contained 
in Article 16.   
7.590  We note that China has not submitted the text of the relevant provision of the Law on 
Legislation.451  We are therefore unable to review it.  As a result, it is also unclear to us whether China 
would apply only Article 30 of the Film Regulation , or whether China would apply Article 16 so as to 
be consistent with Article 30, e.g., by approving  only enterprises which it would at the same time 
designate under Article 30.  Since there is no eviden ce on the record to demonstrate that Article 16 is 
not applied by China when determining who may conduct the business of importing films, our 
analysis proceeds on the basis that it is applied.   
                                                      
444 United States' response to question No. 11(a). 
445 Exhibit US-10. 
446 China's response to question No. 25(b).  In suppor t of its statement, China referred to Article 30 of 
the Film Regulation . 
447 China's response to question No. 170. 
448 Ibid.   
449 China's response to question No. 171. 
450 China's response to question No. 171 would also support this understanding. 
451 The United States has submitted the text of some provisions of the Legislation Law  as Exhibit 
US-72, but not the provision relied on by China. WT/DS363/R 
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  7.591  Pursuant to Article 16, only "approved" film import enterprises may conduct the business of 
importing films.  The United States claims that Arti cle 16 is inconsistent with China's obligation to 
allow all enterprises in China and foreign enterp rises and foreign individuals to import films.  
According to the United States, the approval requi rement in Article 16 is more than a mere 
administrative formality.  In the United States' vi ew, it serves a gate-keeping function to limit the 
number of enterprises selected by the SARFT.
452   
7.592  The United States further claims that the approval requirement introduces significant 
discretion into a process that China committed to be "non-discretionary".  The United States submits 
that it empowers the SARFT to assign trading rights to only those importers of its own choosing on no basis other than its own discretion.
453 
Paragraph 84(b) 
7.593  We begin our analysis with the second US cl aim, which we understand to be based on 
paragraph 84(b).  We recall that in accordance with Article 16 only "approved" film import 
enterprises have the right to import films.  There doe s not appear to be a process whereby applications 
could be filed.  Article 16 also contains no crite ria to be followed by the SARFT in deciding which 
enterprises to approve.  It is different, in this  respect, from the approval process set out, e.g., in 
Articles 41 and 42 of the Publications Regulation .  Article 16 is similarly different from the criteria-
based approval process established in the Film Regulation  for film distribution entities.454  Moreover, 
China has not contested the US contention that  the SARFT can approve importers "of its own 
choosing".  We thus infer that the SARFT enjoys  discretion as to which enterprises to approve.  
Accordingly, it appears that under Article 16 China n eeds to exercise discretion in order to grant the 
right to import films.  
7.594  We understand from Article 2 of the Film Enterprise Rule455 that it applies only to enterprises 
inside China.456  The United States has also pointed this out.457  As a result, it appears that the only 
enterprises that could be approved are enterpris es in China, which include foreign-invested 
enterprises.  Since the SARFT enjoys discretion as to  which enterprises to approve, we conclude that, 
as a result of Article 16, China does not grant tradi ng rights to foreign-invested enterprises in a non-
discretionary way.   
7.595  Regarding foreign enterprises not registered in  China and foreign individuals, we note that 
Article 16 states that the business of importing film s "shall be exclusively conducted by film import 
enterprises that are approved by SARFT".  As we unde rstand it, this phrase has the effect of excluding 
foreign enterprises not registered in China and foreign individuals from the business of importing 
films.458  We therefore consider that Article 16 does not give China the discretion to grant the right to 
trade to such enterprises or individuals as importers.  Accordingly, we conclude, that the United States 
has not met its burden of establishing that Artic le 16 gives rise to an  inconsistency with 
paragraph 84(b) in relation to fore ign enterprises not registered in China and to foreign individuals. 
                                                      
452 United States' responses to question Nos. 11(a) and (d). 
453 Ibid. 
454 Articles 36 and 37 of the Film Regulation . 
455 Article 2 states in relevant part that "[t]hese Provisions are applicable to the management of entry 
criteria for companies, enterprises and other economic organizations inside China that engage in the business of the ... import and export of films, and for outside compan ies, enterprises and other economic organizations that 
participate in the production and projection of films". 
456 We nonetheless note that, e.g., Article 15 explicitly also applies to individuals. 
457 United States' first written submission, para. 66. 
458 This understanding is also consistent w ith the provisions of Article 30 of the Film Regulation .    WT/DS363/R 
 Page 249 
 
 
  7.596  Regarding Chinese branches of foreign-register ed enterprises, we observe that the United 
States has not asserted that Article 16 affects such br anches and that this resu lts in an inconsistency 
with China's trading rights commitments.  In fact , the United States has never even mentioned the 
possibility of foreign-registered  enterprises setting up Chinese branch es.  Accordingly, we do not 
examine whether, as a result of any effect Arti cle 16 may have on Chinese branches of foreign-
registered enterprises, Article 16 gives rise to an inconsistency with paragr aph 84(b) in relation to 
foreign enterprises not registered in China. 
Paragraphs 5.1, 83(d) and 84(a) 
7.597  The other US claim in respect of Article 16 app ears to be based on paragraphs 5.1, 83(d) and 
84(a).  We recall in this regard that Article 16 a ppears to apply only to enterprises in China and other 
economic organizations in China.  Thus, Article 16 has the effect that  enterprises, or other economic 
organizations, in China that have not been appr oved by the SARFT cannot engage in the business of 
importing films.  In other words, they can obtain the right to import films only if the SARFT decides to approve them.  As indicated, there appears to be no process whereby they can submit applications.  
To us, this suggests that the approval requirement is not applied merely to ensure compliance with 
customs or fiscal requirements, or requirements im posed for "normal business regulation" purposes.  
Also, the fact that enterprises in  China appear to be approved exclusively at the initiative of the 
SARFT in our view suggests that the approval requirement is not applied to allow any and all enterprises in China to import films.  We therefor e see no reason to disagree with the United States' 
contention that the approval requirement set out in Article 16 serves a gate-keeping function.  In this 
respect, we recall that evidence submitted by th e United States shows that China has assigned the 
right to import to only one enterprise in China.
   
7.598  In the light of the foregoing, we consider that by providing in Article 16 that only SARFT-
approved enterprises may import films, China has faile d to ensure that all enterprises in China have 
the right to import films.  Therefore, we conclude that in respect of enterprises in China, Article 16 
results in China acting inconsistently with its obl igations under paragraphs 5.1, 83(d) and 84(a). 
7.599  Regarding foreign enterprises not registered in  China and foreign individuals, we recall our 
view that Article 16 has the effect of excluding fore ign enterprises not registered in China, and foreign 
individuals, from the business of importing films.  Therefore, we consider that China does not permit such enterprises or individuals to import films.   We thus conclude that Article 16 results in China 
acting inconsistently with para graph 84(a) in respect of such enterprises or individuals.  
7.600  Regarding Chinese branches of foreign-registered enterprises, we recall that the United States 
has not asserted that Article 16 affects such branches.   Accordingly, we do not examine whether, as a 
result of any effect Article 16 may have on Chin ese branches of foreign-registered enterprises, 
Article 16 gives rise to an inconsistency with para graph 84(a) in relation to foreign enterprises not 
registered in China. 
Paragraph 5.2 
7.601  Separately, we note that in response to a ques tion from the Panel, the United States suggested 
that the Film Enterprise Rule  results in an inconsis tency with paragraph 5.2.
459  I t  i s  n o t  c l e a r ,  
however, whether any such claim would concern Article 3 or Article 16 or both, nor why an inconsistency with either provision  is alleged to arise.  Consequently, we conclude that the United 
States has not established any claim under paragraph 5.2.   We also note that the United States has not 
established that the Film Enterprise Rule  results in an inconsistenc y with paragraph 5.2 when 
considered together with other challenged measures.             
                                                     
 
459 United States' response to question No. 1. WT/DS363/R 
Page 250  
 
  (ix) Film Distribution and Exhibition Rule 
7.602  The United States  notes that the Film Distribution and Exhibition Rule  primarily addresses 
the distribution and projection of films for theatrica l release in China.  However, it also notes that 
Article II of this measure addresses the importation of  films, providing that the "unifying imports and 
using imports to generate exports" shall continue to be a principle to be upheld.  As further pointed 
out by the United States, Article II also states in relevant part that China Film Group film 
import/export company shall be "entrust[ed] ... to un ify the importing of films consigned from foreign 
countries ...".  According to the United States, the Film Distribution and Exhibition Rule  thus clarifies 
how the requirements of the Film Regulation  are to be fulfilled, i.e., ex actly one domestic enterprise, 
owned by the State, is to import films for theatrical  release:  a Chinese wholly state-owned enterprise 
called China Film Import and Export Corporation. 
7.603  The United States submits that the Film Distribution and Exhibition Rule  explicitly 
establishes China's film importation monopoly, designating China Film Group as the exclusive importer of foreign films into China.  As indicated in connection with the Film Regulation , the United 
States claims that China's measures granting China Film Group a monopoly on the right to import 
films for theatrical release are inconsistent with  China's trading rights commitments.  In the United 
States' view this monopoly not only deprives enterpri ses in China (other than China Film Group) as 
well as foreign enterprises and individuals of the right to import films for theatrical release.  It also discriminates against foreign-invested enterprises an d foreign individuals, in contravention of China's 
trading rights commitments.   
7.604  In response to a question from th e Panel, the United States indicat ed that the inconsistencies 
claimed in relation to this measur e arise as a result of Article II of the measure, and under paragraphs 
5.1 and 5.2 of the Accession Prot ocol and paragraphs 83(d) and 84(a)-(b) of  the Working Party 
Report.  The United States further indicated that, in its view, the parties whose trading rights are being 
restricted under this measure are foreign enterprises,  including foreign-invested enterprises in China, 
foreign individuals and Chinese privat ely invested enterprises in China.
460   
7.605  China  notes that the US panel request does not refe r to this measure in relation to the US 
claim concerning trading rights.  China considers that  this measure has not been adequately identified 
within the meaning of Article 6.2 of the DSU.  Consequently, China requests the Panel to find that 
this measure is not within the Panel's terms of reference.   
7.606  The Panel  recalls its decision at paragraph 7.60 above that the Film Distribution and 
Exhibition Rule  is not within its terms of reference with  respect to the US claim regarding China's 
trading rights commitments, and so the Panel refrain s from addressing the merits of the US claim in 
respect of Article II of this measure. 
(x) 2001 Audiovisual Products Regulation  
7.607  The United States  notes that according to its Article 2, the 2001 Audiovisual Products 
Regulation  applies to, inter alia , the importation of audiovisual pr oducts (including audio and video 
tapes, records, and audio and video CDs) into China.  Thus, the United States points out, China 
includes sound recordings within the legal regime governing the importation of  audiovisual products.  
The United States also notes that according to Article 5 of the 2001 Audiovisual Products Regulation , 
the State institutes a licensing system for the importa tion of audiovisual products and that no entity or 
individual may engage in the importation of audiov isual products without the necessary permit.  The 
United States points out that Article 5 further elaborates on the confines of China's audiovisual 
                                                      
460 United States' response to question No. 1.  WT/DS363/R 
 Page 251 
 
 
  product import regime by providing th at permits and approva l documents may not be rented, lent, sold 
or assigned.    
7.608  The United States further argues that Chin a regulates imported audiovisual products, 
including AVHE products, according to whether they are finished or unfinished.  According to the 
United States, finished AVHE products are legitimate ly produced and replicated outside of China and 
require no additional production or replication in Ch ina before being made available to consumers.  
Unfinished AVHE products, on the other hand, are master copies to be used to publish and 
manufacture copies for sale in China.461 
7.609  Regarding what enterprises may import finished audiovisual products in to China, the United 
States refers to Article 27 of the 2001 Audiovisual Products Regulation , which states: 
"The import of finished audiovisual products  shall be handled by finished audiovisual 
product import entities designated by the cultural administration under the State Council.  Any entity or individual which has not been designated may not engage in the import of finished audiovisual products." 
7.610  Regarding enterprises that import unfinished audiovisual products, the United States points 
out that they must be approved by MOC using a formal application process.  The United States 
indicates that Chapter II (Articles 8-10) of the 2001 Audiovisual Products Regulation  establishes the 
application and approval procedures applicable to these enterprises.  The United States also refers to 
Article 28, which  provides, in relevant part, that  importers of audiovisual products for publication 
must bring their MOC-issued approval documents "to process import procedures at Customs".   
7.611  The United States contends that these desi gnation requirements (finished audiovisual 
products) and approval requirement s (unfinished audiovisual products) are more than mere 
administrative formalities.  In the United States' view, they serve a gate-keeping function to limit the number of enterprises selected by the Chinese Governme nt to import audiovisual products into China.  
The United States notes in this respect that under th ese requirements, only CNPIEC (a Chinese wholly 
state-owned enterprise) has been designate d to import finished audiovisual products.
462  A l s o ,  
according to the United States, only Chinese wholly  state-owned enterprises may be approved to 
engage in the importation of unfinished audiovisual products.463     
7.612  The United States claims that the designation re quirements for finished audiovisual products 
and the approval requirements for unfinished audiovisual products are inconsistent with China's 
trading rights commitments, because they inject qualifying criteria and government discretion into a 
process that China committed to  be "non-discretionary". 
7.613  In response to a question from th e Panel, the United States indicat ed that the inconsistencies 
claimed in relation to this measure arise as a resu lt of Articles 5 and 27-28 of the measure, and under 
paragraphs 5.1 and 5.2 of the Accession Protocol and paragraphs 83(d) and 84(a)-(b) of the Working 
                                                      
461 The United States refers to Articles 27 and 28 of the 2001 Audiovisual Products Regulation  and to 
Articles 8, 10, 13 and 14 of the Audiovisual Products Importation Rule .  The United States further points out 
that unfinished sound recordings include master recording discs. 
462 The United States refers to Article 5 of the Imported Cultural Products Rule  (stating that the 
"[i]mport of finished audiovisual products shall be exclusively handled by the China [National] Books Import 
and Export Corporation") (Exhibit US-10) and Article I of the Circular on Uniform Anti-Fake Logo for 
Audiovisual Products  (providing that "[a]ccording to the State Council, China National Publications Import and 
Export Corporation (CNPIEC) is the only entity that is approved by the State to engage in the importation of 
finished audiovisual products") (Exhibit US-19). 
463 The United States refers to Article 42 of the Publications Regulation  and Article 4 of the Imported 
Cultural Products Rule . WT/DS363/R 
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  Party Report.  The United States further indicated that , in its view, the parties whose trading rights are 
being restricted under this measure are foreign en terprises, including foreign-invested enterprises in 
China, foreign individuals and Chinese pr ivately invested enterprises in China.
464   
7.614  China  argues that none of the challenged measure s is inconsistent with China's obligations 
under paragraphs 5.1, 5.2 or 1.2 of the Accession Pr otocol.  China submits in this respect that the 
United States fails to take account of China's right to regulate trade in a manner consistent with the 
WTO Agreement, including Article XX of the GATT 1994, and that the measures governing the 
importation of reading materials and finished  audiovisual products, including finished sound 
recordings, are justified under Article XX(a) of the GATT 1994. 
7.615  China notes that the US claim in respect of this  measure targets both finished and what the 
United States calls "unfinished" products, the la tter being, in China's view, audiovisual products 
imported for publication purposes.  China submits that the concept of "unfinished audiovisual 
products" used by the United States in its claim does not appear in the Chinese regulations concerned.  
China notes that the concept used in Chinese regulations is that of  "audiovisual products used for 
publication", which refers to master copies with audi ovisual content that are to be published in China 
via copyright licensing agreements.465  
7.616  China argues that the United States wrongly assu mes, and fails to establish, that these 
"unfinished" audiovisual products ar e goods.  In China's view, it follows that the US claim concerning 
trading rights for "unfinished" audiovisual produc ts lacks any legal basis and should be rejected. 
7.617  China submits that these master copies carry audiovi sual content that is subject to a copyright 
licensing agreement between the foreign right holde r and a Chinese publisher.  China explains that 
this licensing agreement sets the conditions accord ing to which the audiovisual content will be 
exploited in China's territory.  Chin a states that the master copy is used for the sole purpose of making 
copies in accordance with the licensing agreement.   According to China, the master copy would 
eventually be returned or destroye d.  China considers, therefore, that the importation of the master 
copy is only an accessory of copyright licensing.  Consequently, China submits, the importation of 
audiovisual products used for publication does not correspond to the importation of goods, but to 
copyright licensing. 
7.618  In other words, China argues that the 2001 Audiovisual Products Regulation  and the 
Audiovisual Products Importation Rule  regulate the importation of audiovisual products used for 
publication as the licensing of the right to make copies of an audiovisual content, and not as the 
importation of goods.  In China's view, the "right to  import" audiovisual products used for publication 
consists of the right to enter into a copyright agre ement for the publication of copies of an audiovisual 
content, and not of the right to import goods intended for resale.   
7.619  China submits that this is reflected in the pro cedure applicable to fore ign audiovisual products 
used for publication.  In particular, China notes that Article 29 of the 2001 Audiovisual Products 
Regulation  states that "as regards the importation of a udiovisual products used for publication, the 
copyright thereof shall be registered with the ad ministrative department of copyright under the State 
Council".  China also notes that Article 14 of Audiovisual Products Importation Rule  specifies that "in 
the event of importing the audiovisual products for pub lication, application shall be filed with, and the 
following documents and materials shall be submitte d to, the Ministry of Culture: … draft of the 
copyright trade agreement (versions in Chinese and foreign language), certificate of original 
copyright, authorization letter of copyright and the certification of re gistration issued by the copyright 
                                                      
464 United States' response to question No. 1. 
465 China refers to Articles 27 and 28 of the 2001 Audiovisual Products Regulation  and to the 
Audiovisual Products Importation Rule .  WT/DS363/R 
 Page 253 
 
 
  certification agencies of the State …".  Accord ing to China, these measures demonstrate that 
copyright licensing is a prerequisite for the import operation. 
7.620  China argues that since the challenged measures regulate a service, i.e., the licensing of 
copyrights for publication of audiovisual content, China's commitments concerning the right to import 
goods do not apply to such measures.  
7.621  The United States  responds that there is no textual basi s for China's assertion that unfinished 
AVHE products and unfinished sound r ecordings are not goods.  In the United States' view, the fact 
that these tangible goods carry content does not take them out of the category of goods.  If it did, then 
reading materials, finished AVHE products, and fi nished sound recordings, would not be goods, an 
assertion that China has not advanced in this dispute.   
7.622  The United States also notes that the 2007 Harm onized System, which the United States says 
was implemented under the Harmonized System Co nvention, describes products under HS heading 
8523, in pertinent part, as follows:  "[d]iscs, tapes,  solid-state non-volatile storage devices, 'smart 
cards' and other media for the recording of sound or  of other phenomena, whether or not recorded, 
including matrices and masters for the production of discs".466  In the United States' view, this 
description makes clear that these products are goods .  The United States also argues that master 
copies of videocassettes, VCDs and DVDs, as well as master recording discs, to be reproduced and 
sold in China, would be covered by the broad description for HS heading 8524, because these master 
copies are "records, tapes and other recorded media for sound or other similarly recorded 
phenomena".  The United States further points out that  the CPC also classifies "recorded media for 
sound or other similarly recorded phenomena" other than films under goods subclass 47520.   
7.623  In addition, the United States submits that China treats these products as goods.  The United 
States notes that China's tariff sche dule, which has not yet implemented the 2007 changes to the HS, 
incorporates the description of these products under HS heading 8524.467  Moreover, the United States 
points out that in response to a question from the Pa nel, China concedes that it charges customs duties 
for hard-copy audiovisual products (includi ng sound recordings) intended for publication.468  
Furthermore, the United States observes that Article 2 of the Audiovisual Products Importation Rule  
defines audiovisual products as "audio tapes, video tapes, records, and audio and video CDs which 
have recorded content" and cross-references the HS codes for these products, which are provided in 
Annex 1 to the measure.  In the United States' vi ew, this further reinforces the conclusion not only 
that these items are goods, but that China treats them as goods.  
7.624  Regarding China's assertion that its measures do not regulate the right to import master copies 
of AVHE products or sound recordings, but simply deal with rights to enter into copyright 
agreements, the United States argues that, as with  films, China may have provisions regulating 
copyright licensing, but this does not change the f act that other Chinese provisions directly regulate 
who can import the good subject to that licensing.469  The United States notes in this connection that 
China does not contest the conclusion that finished AVHE products and finished sound recordings are 
goods, even though these products are also copyright protected.  
7.625  The Panel  begins by recalling that the provisions of the 2001 Audiovisual Products 
Regulation  apply to both hard copy sound reco rdings and other audiovisual products.470  T h e  
                                                      
466 Exhibit US-55. 
467 Exhibit JPN-2. 
468 China's response to question No. 132. 
469 The United States refers to Articles 8-10 of the 2001 Audiovisual Products Regulation  and Articles 
3, 7 and 8 of the Audiovisual Products Importation Rule . 
470 Article 2 of the 2001 Audiovisual Products Regulation . WT/DS363/R 
Page 254  
 
  provisions of the 2001 Audiovisual Products Regulation  identified by the United States as provisions 
giving rise to an inconsistency with China's trad ing rights commitments are Articles 5, 27 and 28.  
The US claims in respect of Articles 5 and 28 concern both finished and what the United States termed unfinished audiovisual products, i.e., audiovisual products used for publication.
471  The US 
claim in respect of Article 27 concerns only fini shed audiovisual products.  The Panel will first 
address the latter claim.   
7.626  Before addressing the claim in respect of Artic le 27, however, we note that in response to a 
question from the Panel, the United States suggested that the 2001 Audiovisual Products Regulation  
results in an inconsistency with pa ragraphs 5.1, 83(d), 84(a) and 5.2.472  It is not clear, though, in 
respect of which of the provisions at issue – Articl es 5, 27 or 28 – claims are made and under which 
of these paragraphs.  Nor is it clear why an inconsiste ncy is alleged to arise.  Consequently, the United 
States in our view has not met its burden of  establishing its claims under the aforementioned 
paragraphs. 
Article 27  
7.627  We recall that Article 27 provides that entities or  individuals that have not been designated 
may not engage in the import of finished audiovisual products.  It also provides that the import of 
finished audiovisual products must be handled  by finished audiovisual product import entities 
designated by the MOC.  Thus, it would appear that China can designate only finished audiovisual product import entities, not individuals.   
7.628  We further note that Article 27 does not explic itly state whether finished audiovisual product 
import entities need to be registered in China.  We recognize that the term "finished audiovisual 
product import entity" is unqualified.  In our view , this does not necessarily mean, however, that the 
term "finished audiovisual product import entity" coul d cover also foreign enterprises not registered in 
China.  We note in this respect that we have not been given any other trade-related Chinese laws or 
regulations that could indicate whether an "import entity " needs to be registered in China.  In view of 
the foregoing, and the lack of US arguments or ev idence on this issue, we consider that the United 
States has not demonstrated that the term "finishe d audiovisual product import entity" as it appears in 
Article 27 could cover foreign enterprises not register ed in China and that such enterprises could be 
designated as finished audiovisual product import enti ties.  We accept, however, that foreign-invested 
enterprises in China could be designated as finished audiovisual product import entities.  
7.629  As to whether the term "finished audiovis ual product import entities" could cover Chinese 
branches of foreign-registered enterprises, it is su fficient to note that the United States has not 
asserted that the 2001 Audiovisual Products Regulation  affects branches in China and that this results 
in an inconsistency with China's trading rights commitments.  In fact, the United States has never 
even mentioned the possibility of foreign-regi stered enterprises setting up Chinese branches.  
Accordingly, we do not examine this issue further.
473 
7.630  The United States contends that Article 27 au thorizes the MOC to appoint, based on its own 
discretion, the entities of its own choosing th at are permitted to engage in importation.474  The United 
States claims that the designation requirement is inconsistent with China's trading rights 
commitments, because it injects qualifying criteria and government discretion into a process that 
                                                      
471 United States' response to question No. 155. 
472 United States' response to question No. 1. 
473 Also, it is in any event not clear to us from the information on the record whether Chinese laws or 
regulations on branches of foreign enterprises allow foreign-registered enterprises to set up Chinese branches in the sector at issue. 
474 United States' response to question No. 9.  WT/DS363/R 
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  China committed to be "non-discretionary".  We understand this claim to be based on 
paragraph 84(b).475   
7.631  In considering Article 27, we observe that desi gnation is not automatic.  Rather, it is up to the 
MOC to initiate the designation process.476  Article 27 contains no criteria to be followed by the MOC 
in deciding whom to designate.  Moreover, China has not contested the US contention that MOC can 
designate importers "of its own choos ing".  Thus, it appears to us that the MOC enjoys discretion as to 
whom to designate.  Accordingly, under Article 27, China needs to exercise discretion in order to 
grant the right to import finished audiovisual products.   
7.632  With these observations about Article 27 in mind,  we now turn to the claimed inconsistency 
with paragraph 84(b).  In view of the fact that the discretion relates to the designation of "finished 
audiovisual product import entities", and not individuals, we conclude that Article 27 does not result 
in an inconsistency with paragr aph 84(b) with respect to the grant of trading rights to foreign 
individuals.  Furthermore, the United States has not established that Article 27 results in an 
inconsistency with paragraph 84(b) in respect of fo reign individuals when considered together with 
other challenged measures.   
7.633  On the other hand, we recall that in our view foreign-invested enterprises in China could be 
designated as "finished audiovisual product import en tities" within the meaning of Article 27.  We 
therefore conclude that, as a result of Article 27,  China does not grant trading rights to foreign-
invested enterprises for the import of finished audi ovisual products "in a non-discretionary way", and 
that, for that reason, China is acting inconsiste ntly with its obligation under paragraph 84(b). 
7.634  We also recall that the United States has not asser ted that Article 27 affects Chinese branches 
of foreign enterprises not registered in China, a nd that it has not demonstrated that China could 
designate foreign enterprises not registered in Ch ina as "finished audiovisual product import entities".  
We thus conclude that the United States has not es tablished that Article 27 results in China acting 
inconsistently with its obligation under paragraph 84(b) in respect of foreign enterprises not registered 
in China.  The United States has also not established that Article 27 results in  an inconsistency with 
paragraph 84(b) when considered toge ther with other challenged measures. 
7.635  Regarding the US argument that the designation requirement injects qualifying criteria, we 
note that we do not see how it does.  The United Stat es itself has stated in r esponse to a question from 
the Panel that designation is discretionary and th at there are no independent criteria governing how 
the competent agency designates importers.477   
Article 5  
7.636  According to Article 5, the State is to institute a licensing system for, inter alia , the import of 
audiovisual products.  It further provides that no entity or individual may engage in the import of 
audiovisual products without the necessary licence. 
7.637  The United States argues that Article 5 establishes an approval requirement.  In the United 
States' view, Article 5 relates to both finished audi ovisual products and audi ovisual products imported 
for publication.478  China has not specifically addressed the i ssue of whether Article 5 applies to both 
                                                      
475 We note that at para. 261 of its first written subm ission, the United States argues that the designation 
requirement serves a gate-keeping function to limit the number of enterprises selected to import audiovisual products into China.  However, the US submission does not put forward a claim that the designation 
requirement is, therefore, incons istent with one or more of China's trading rights commitments. 
476 China has confirmed this in responses to  question Nos. 25(a) and (b) and 31(c). 
477 United States' response to question No. 9. 
478 United States' response to question No. 155. WT/DS363/R 
Page 256  
 
  finished audiovisual products and audiovisual products  imported for publication.  We note that the US 
claim in respect of Article 5 concerns only audiovisual products im ported for publication.
479  It is clear 
from Article 28 of the 2001 Audiovisual Products Regulation  that the 2001 Audiovisual Products 
Regulation  applies to audiovisual products imported for publication.480  Since Article 5 applies 
broadly to "audiovisual products", it appears to us that it covers such products.   
7.638  The United States claims that the approval requirement introduces qualifying criteria and 
discretion into a process that China committed to be  "non-discretionary", and that it is therefore 
inconsistent with China's trading rights commitm ents.  We understand this claim to be based on 
paragraph 84(b).481  In considering this claim, we must  first examine China's argument that the 
provisions of the 2001 Audiovisual Products Regulation  are not subject to China's trading rights 
commitments.   
7.639  The United States has indicated th at its claim in respect of audiovisual products imported for 
publication concerns hard-copy, tangible products such as CDs or DVDs.482  More specifically, the 
claim concerns "master copies", such as videocassettes, VCDs and DVDs, or physical sound 
recordings, to be used to publish a nd manufacture copies for sale in China.483   
7.640  As to whether these master copies are goods, we note that China does not appear to dispute 
that they are.484  In considering this issue, we find relevant heading 8524 of the 1996 Harmonized 
Commodity Description and Coding System (HS), wh ich defines as goods "[r]ecords, tapes and other 
recorded media for sound or other similarly record ed phenomena, including matrices and masters for 
the production of records, but excluding products of Chapter 37".485  Similarly, heading 8523 of the 
2007 Harmonized System defines as goods "[d]iscs, tapes, solid-state non-volatile storage devices, 
'smart cards' and other media for the recording of sound or of other phenomena, whether or not 
recorded, including matrices and masters for the production of discs".486  In our view, both 
descriptions are sufficiently broad to cover master  copies, such as master video cassettes, VCDs and 
DVDs as well as master sound recordings discs.   
7.641  As pointed out by the United States, China' s own Schedule of Concessions, i.e., its goods 
schedule, incorporates the old HS heading 8524.487  Furthermore, China has confirmed that it charges 
customs duties on the importation of hard-copy audiovisual products intended for publication.488  The 
fact that master copies consist of a physical carrier  containing content in our view does not mean that 
they are not goods.   
7.642  In the light of the above, we consider that the audiovisual products intended for publication 
that are the subject of the US claim – tangible master copies – are goods for the purposes of China's 
trading rights commitments.  Therefore, we pro ceed to consider China's argument that its trading 
                                                      
479 United States' first written submission, paras. 261-262. 
480 Article 28 provides that "[a]udiovisual products imported for publication and finished audiovisual 
products imported for wholesale, retail or rental shall be submitted to the cultural administration under the State 
Council for review of  their contents". 
481 We note that at para. 261 of its first written submission, the United States argues that the approval 
requirement serves a gate-keeping function to limit the number of enterprises selected to import audiovisual 
products into China.  However, the US submission does not put forward a claim that the approval requirement is, therefore, inconsistent with one or mo re of China's trading rights commitments. 
482 United States' response to question No. 15. 
483 United States' response to question No. 18. 
484 China's comments on the United States' response to question No. 164. 
485 Exhibit JPN-2 (extracts from Schedule CLII, in HS96 nomenclature). 
486 Exhibit US-55. 
487 Exhibit JPN-2. 
488 China's response to question No. 132.  WT/DS363/R 
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  rights commitments are, nevertheless, inapplicable to Article 5 of the 2001 Audiovisual Products 
Regulation .   
7.643  As we see it, Article 5 in rele vant part regulates who may enga ge in the activity of importing 
audiovisual products intended for publication.  Artic le 5 applies to "audiovisual products".  It would 
appear that this term could cove r the relevant master copies as goods.  We note in this respect the 
provisions of Article 2 of the 2001 Audiovisual Products Regulation .  According to the US translation 
of Article 2, the 2001 Audiovisual Products Regulation  applies to "such activities as the … import … 
of recorded audio and video tapes, records, and audio and video CD's".489  Thus, if the term 
"audiovisual products" in Article 5 covered tangible master copies as goods, Article 5 would directly 
regulate who may engage in importing of such mast er copies.  Thus understood, Article 5 would be 
subject, in principle, to China' s trading rights commitments.   
7.644  Although China pointed out that master copies carry audiovisual content that is subject to a 
copyright licensing agreement, and that its me asures regulate the right to import audiovisual 
content490, China has not specifically argued that the te rm "audiovisual products" in Article 5 should 
be understood as meaning "audiovisual content that can be commercially exploited".491  In any event, 
in those cases where audiovisual content is impor ted on a hard-copy master copy, Article 5 would 
necessarily affect who may engage in importing of hard-copy master copies, because only licensed importers could engage in importing of audiovisual content on mast er copies.  Thus, even if the term 
"audiovisual products" in Article 5 were understood as indicated, Ar ticle 5 would appear to be 
subject, in principle, to China' s trading rights commitments.   
7.645  Accordingly, regardless of whether the refere nce in Article 5 to "audiovisual products" is 
understood as meaning a good or audi ovisual content, in cases where what is imported are hard-copy 
master copies, Article 5 would necessarily affect ha rd-copy master copies and, therefore, goods.   
7.646  We do not understand China to contest that Article  5 has, or may have, an effect on hard-copy 
master copies and, therefore, on goods.  China ar gues, however, that Article 5 regulates the service of 
licensing – the licensing of copyrights for the publication of copies of audiovisual content – and that 
although Article 5 may have an impact on hard-copy master copies, it should not be scrutinized under 
China's trading rights commitments, but under the di sciplines governing trade in services.  According 
to China, Article 5 regulates the service of licensing of copyrights by regulating who may enter into a 
copyright agreement for the publication of copies of audiovisual content.
492   
7.647  We would accept that the licensing of copyrights can be considered a service that is provided 
by the foreign right holder to th e Chinese publisher.  Also, as pointed out by China, Article 29 of the 
2001 Audiovisual Products Regulation  states that "[a]s regards the importation of audiovisual 
products used for publication, the copyright thereo f shall be registered with the administrative 
department of copyright under the State Council".  Thus, Article 29 appears to contemplate the 
existence of a licensing agreement between a fo reign right holder and a Chinese publisher.   
7.648  We recognize that in those cases where the Ch inese publisher is the importing entity,    
Article 5 appears to allow the MOC to control w ith which import entities foreign right holders could 
                                                      
489 China's translation is not substantially different.  China translates the relevant passage of Article 2 
as: "… shall apply to such activities as … importation … of  audiovisual products with recorded contents such as 
audio tapes, video tapes, gramophone records, compact discs and laser discs, etc.". 
490 China's response to question No. 192. 
491 In response to question No. 192, China draws a distinction between "audiovisual goods" and 
"audiovisual content".  Article 5 refers to "audiovisual products", however.  Also, Article 2 of the 2001 
Audiovisual Products Regulation appears to distinguish between "audiovisual products" and the "contents" they 
carry. 
492 E.g., China's response to question No. 192. WT/DS363/R 
Page 258  
 
  enter into a licensing agreement.  It is not clear, however, whether in the case of imports of 
audiovisual products for publication the import en tity necessarily needs to be the Chinese publisher.
493  
At any rate, we are prepared to proceed with our analysis on the assumption that foreign right holders 
need to enter into licensing agreements w ith licensed import entities in all cases.      
7.649   China submits that in the context of a provi sion like Article 5 which, in China's view, 
regulates licensing services, any effect that provisi on has on who may import hard-copy master copies 
should not be examined under China's trading rights commitments.  In support of this position, China 
puts forward the argument that a master copy is only an "accessory" to a service, i.e., copyright licensing.   
7.650  We note that a number of elements identified by China – including the fact that master copies 
are used for the sole purpose of making copies of an audiovisual content and that they must be 
returned or destroyed – could support the view th at hard-copy master copies are accessories to the 
licensing service to be provided by foreign right holders under a licensing agreement.   
7.651  Nevertheless, we are not persuade d that this would justify non-application of China's trading 
rights commitments to Article 5.  We note in this  regard that we have ex amined the same issue for 
hard-copy cinematographic films in the context of our analysis above of the Film Regulation .  The 
reasons we have given there in our view are also applicable, mutatis mutandis , to the master copies at 
issue in the present context.  
7.652  In sum, even if it is assumed that foreign right  holders must, in all cases, enter into licensing 
agreements with licensed import entities, we are no t convinced by China's position that any effect 
Article 5 has on who may import hard-copy master copies should not be examined under China's 
trading rights commitments.  We thus conclude th at Article 5 is subject to China's trading rights 
commitments. 
7.653  Having determined that China's trading right s commitments, which include paragraph 84(b), 
are applicable to Article 5, we now turn to address the merits of the US claim.  We begin by recalling 
that in accordance with Article 5 only licensed entities or individuals have the right to import 
audiovisual products.  Thus, reading Article 5 in is olation, it could appear that China can licence not 
just entities, but also individuals, to import audiovisual products.  However, as already discussed above, Article 27 of the 2001 Audiovisual Products Regulation  suggests that only entities may be 
designated to import finished audiovisual products.  Similarly, Article 28 of the 2001 Audiovisual 
Products Regulation , which applies to finished audiovisu al products and audiovisual products 
imported for publication, refers to entities, but omits reference to individuals.  Article 28 states in 
relevant part that "[a]n entity which imports audi ovisual products for publishing and a business entity 
which imports finished audiovisual products shall bring approval documents issued by the cultural 
administration under the State Council to process import procedures at Customs".  Article 28 of the 2001 Audiovisual Products Regulation  appears to be paralleled by Article 26 of the Audiovisual 
Products Importation Rule .  Like Article 28, Article 26 seems  to apply to audiovisual products 
imported for publication, in that it refers to "m aster tapes (master discs)" separately from finished 
audiovisual products.  Moreover, while it refers to "a udiovisual product import units", i.e., entities, it 
does not refer to individuals.  Elsewhere, e.g., in Article 19, the Audiovisual Products Importation 
Rule differentiates between units and individuals. 
7.654  Articles 27 and 28 are part of the context of Article  5.  Since they appear to indicate that only 
entities could be importers of audiovisual products, including those intended for publication, we are 
not persuaded that individuals could be licensed  under Article 5 to import audiovisual products 
                                                     
 
493 Referring to Article 29, China has merely indicated that copyright licensing is a prerequisite for 
import operations.  WT/DS363/R 
 Page 259 
 
 
  intended for publication.  We note that this is al so consistent with our understanding that similar 
measures, like the Publications Regulation , the 1997 Electronic Publications Regulation  and the Film 
Regulation , also do not allow individuals to be approve d or designated as importers of the relevant 
products.   
7.655  Regarding the grant of licences to "entities", we  note that Article 5 does not explicitly state 
whether import entities need to be registered in Chin a to be licensed.  We recall, however, our finding 
above that under Article 27 foreign-invested ente rprises in China can be designated as "finished 
audiovisual product import entities", and that it has not  been demonstrated that foreign enterprises not 
registered in China could, likewise, be designate d as "finished audiovisual product import entities".  
We see no reason to consider that these types of enterprise would be treated differently by China 
when they wish to import audiovisual products that are for publication rather than finished 
audiovisual products.494  In light of this, and the lack of US arguments and evidence on this issue, we 
consider that the United States has not demonstrat ed that under Article 5 foreign enterprises not 
registered in China could be licensed to import audiovisual products for publication.  We accept, 
however, that foreign-invested enterprises in Chin a could be licensed to import such products.  Also, 
we note that the United States has not asserted that  Article 5 affects Chinese branches of foreign 
enterprises not registered in China, and that this r esults in an inconsistency with China's trading rights 
commitments.    
7.656  In considering Article 5, we not e, additionally, that there does not appear to be any process 
for submitting applications and obtaining a licence,  nor is there any indication that licences are 
granted automatically.  We also observe that Article  5 contains no criteria to be followed by the MOC 
in deciding whom to licence as importer of a udiovisual products intended for publication.495   
7.657  The foregoing elements suggest that China enjoys  discretion as to the entities to be licensed as 
importers.  We note that China has not stated otherwise.496  Accordingly, we consider that, under 
Article 5, China needs to exercise discretion in orde r to grant the right to import audiovisual products 
intended for publication to foreign-invested enterprises in China.  We thus conclude that, as a result of 
Article 5, China does not grant trading rights to fo reign enterprises "in a non-discretionary way" and 
that, for this reason, China is acting inconsisten tly with its obligations under paragraph 84(b).   
7.658  Since the United States has not demonstrated that  foreign enterprises not registered in China 
could be licensed to import audiovisual products fo r publication, and since the United States has not 
asserted that Article 5 affects Chinese branches of foreign enterprises not registered in China, we 
further conclude that the United States has not established that Article 5 results in China acting 
inconsistently with its obligation under paragraph 84(b) in respect of foreign enterprises not registered 
in China.  The United States has also not established that Article 5 results in an inconsistency with 
paragraph 84(b) when considered toge ther with other challenged measures. 
                                                      
494 We recall in this connection that Article 28 pres cribes the same import procedures for finished 
audiovisual products and audiovisual products imported for publication. 
495 We note in this context that the United Stat es has referred to Articles 8 and 9 of the 2001 
Audiovisual Products Regulation  which establish conditions and a process for approval as "audiovisual 
publishing entity".  The United States has not explained, however, the relevance of these provisions to the 
import of audiovisual products for publication.  As Articles 8 and 9 relate to the activity of publishing 
audiovisual products, not of importing such products, it is not clear to us that these articles are relevant. 
496 We recall China's statement in response to a question from the Panel that the licences to be obtained 
by importers of films for theatrical release pursuant to Article 5 of the Film Regulation  and Article 3 of the Film 
Enterprise Rule  are granted through a designation process (China's response to question No. 170).  China made 
no such statement with regard to Article 5 of the 2001 Audiovisual Products Regulation .  We nonetheless note 
that Article 5 is very similar to the aforementioned provisions relating to films for theatrical release.  China confirmed that designation may occur at the government's initiative only (China's response to question No. 
25(a)). WT/DS363/R 
Page 260  
 
  7.659  Furthermore, as we have not been persuade d that individuals could be licensed under 
Article 5, we conclude that the United States ha s not established that Article 5 results in an 
inconsistency with paragraph 84(b) with respect to the grant of trading rights to foreign individuals.  
The United States has also not established that Article 5 results in an inconsistency with 
paragraph 84(b) when consid ered together with other challenged measures.    
7.660  Regarding the US argument that the licensing requirement in Article 5 injects qualifying 
criteria
497, we observe that we do not see how it does.   
Article 28  
7.661  We now address the US claim in respect of Article 28.  Article 28 provides, inter alia , that 
audiovisual products imported for publication "shall be submitted to the cultural administration under 
the State Council for review of their contents".  It goes on to say that upon approval by the MOC, 
"approval documents shall be issued".  Article 28 then provides, and this is the part referred to by the 
United States, that entities importing audiovisual products for publication must bring their MOC-
issued approval documents "to process import proce dures at Customs".  As we understand it,     
Article 28 deals with approvals given to audiovi sual products for publication which are to be 
imported.  It does not appear to deal with appr ovals given to entities who wish to engage in the 
business of importing audiovisual products for publishing.   
7.662  The United States has not explained why and how Article 28 results in China acting 
inconsistently with its trading rights commitments.  It is also unclear, therefore, which of these 
commitments is at issue.  In the light of this, we conclude that the United States has failed to meet its 
burden of establishing that Article 28 is inconsiste nt with China's trading rights commitments under 
the Accession Protocol.  Also, we note that the Unite d States has not established that Article 28 results 
in an inconsistency when considered to gether with other challenged measures. 
(xi) Audiovisual Products Importation Rule 
7.663  The United States  notes that pursuant to Article 3 of the Audiovisual Products Importation 
Rule, which was issued on the basis of the 2001 Audiovisual Products Regulation , the Audiovisual 
Products Importation Rule  also applies to the importation of both  finished and unfi nished audiovisual 
products into China.  As also noted by the United St ates, Article 2 of this measure defines audiovisual 
products as "audio tapes, video tapes, records, audio and video CDs which have recorded contents".   
7.664  The United States also refers to Article 7 of the Audiovisual Products Importation Rule , 
which says that the State shall maintain a licen sing system for the importation of audiovisual 
products.  The United States further points out that Article 8 reaffirms that only those enterprises 
"designated" by MOC may import finished audiovisu al products into China and that no entity or 
individual may import finished audiovisual products without such a designation.  Finally, the United 
States notes that according to Article 10 the publis hing of imported unfinished audiovisual products 
may be conducted by audiovisual p ublishers to the extent that they  have been approved by MOC to do 
so.  
7.665  The United States argues that Articles 7 and 8 of the Audiovisual Products Importation Rule  
replicate the designation and approval requirements found in the 2001 Audiovisual Products 
Regulation  for importers of finished audiovisual products.  The United States claims that this element 
of the Audiovisual Products Importation Rule  is inconsistent with Chin a's trading rights commitments 
in the same way as the 2001 Audiovisual Products Regulation . 
                                                      
497 See supra , para. 7.638.  WT/DS363/R 
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  7.666  In response to a question from th e Panel, the United States indicat ed that the inconsistencies 
claimed in relation to this measure arise as a result of Articles 7-10 of the measure, and under paragraphs 5.1 and 5.2 of the Accession Protocol and paragraphs 83(d) and 84(a)-(b) of the Working 
Party Report.  The United States further indicated that , in its view, the parties whose trading rights are 
being restricted under this measure are foreign en terprises, including foreign-invested enterprises in 
China, foreign individuals and Chinese pr ivately invested enterprises in China.
498   
7.667  China  argues that none of the challenged measure s is inconsistent with China's obligations 
under paragraphs 5.1, 5.2 or 1.2 of the Accession Pr otocol.  China submits in this respect that the 
United States fails to take account of China's right to regulate trade in a manner consistent with the 
WTO Agreement, including Article XX of the GATT 1994, and that the measures governing the 
importation of reading materials and finished  audiovisual products, including finished sound 
recordings, are justified under Article XX(a) of the GATT 1994. 
7.668  China notes that the US claim in respect of this  measure targets both finished and what the 
United States calls "unfinished" products.  China argues that, for reasons explained above in relation 
to the US challenge to the 2001 Audiovisual Products Regulation , the United States wrongly assumes, 
and fails to establish, that these "unfinished" audiov isual products are goods.  In China's view, the US 
claim concerning trading rights for "unfinished" audi ovisual products therefore lacks any legal basis 
and should be rejected. 
7.669  The Panel  notes that the provisions of the Audiovisual Products Importation Rule  apply to 
both hard-copy sound recordings and ot her hard-copy audiovisual products.499  The provisions of the 
Audiovisual Products Importation Rule  identified by the United States as provisions giving rise to an 
inconsistency with China's trading rights commitment s are Articles 7-10.  We note that Article 3 of 
the Audiovisual Products Importation Rule  specifically states that it applies to the importation of both 
finished audiovisual products and audiovisual products  used for publishing.  The US claims in respect 
of Articles 7 and 10 concern audiovisu al products imported for publication.500  The US claims in 
respect of Articles 8 and 9 concern finished audiov isual products.  The Panel will address these claims 
in turn.   
7.670  Before addressing these claims, we note that in  response to a question from the Panel, the 
United States suggested that the Audiovisual Products Importation Rule  results in an inconsistency 
with, inter alia , paragraphs 5.1, 83(d), 84(a) and 5.2.501  It is not clear, however, which claim is made 
in respect of each of the provisions at issue, i.e., Ar ticles 7-10.  Nor is it clear why an inconsistency is 
alleged to arise.  Consequently, we conclude th at the United States has not established any claims 
under the aforementioned paragraphs.  Nor has the Unite d States established that Articles 7, 8, 9 or 10 
                                                      
498 United States' response to question No. 1. 
499 Article 2 of the Audiovisual Products Importation Rule . 
500 At para. 263 of the United States' first written submission, the United States observes that the 
Audiovisual Products Importation Rule  replicates the licensing requirement found in the 2001 Audiovisual 
Products Regulation  for importers of finished audiovisual products.  However, as discussed above, the United 
States is challenging the li censing requirement of the 2001 Audiovisual Products Regulation  in respect of 
"unfinished" audiovisual products.  Since the United States is claiming that the Audiovisual Products 
Importation Rule  is inconsistent with China's trading rights commitments in the same way as the 2001 
Audiovisual Products Regulation , we are assuming that the United States is challenging Article 7 in respect of 
"unfinished" audiovisual products.  We also note China's response to question No. 182, where China says that Article 8 of the Audiovisual Products Importation Rule  is the same as Article 27 of the 2001 Audiovisual 
Products Regulation , in that the former provides detailed rule s concerning importation in accordance with the 
latter.  Thus, the same logic would appear to extend to Article 7 of the Audiovisual Products Importation Rule  
and Article 5 of the 2001 Audiovisual Products Regulation . 
501 United States' response to question No. 1. WT/DS363/R 
Page 262  
 
  result in an inconsistency with these paragraphs when considered together with other challenged 
measures. 
Article 7
 
7.671  As noted above, Article 7 provides that the State is to implement a licensing system for the 
importation of audiovisual products.  The United Stat es argues that Article 7 replicates the licensing 
requirement in the 2001 Audiovisual Products Regulation .  The United States claims that this element 
of the Audiovisual Products Importation Rule  is inconsistent with Chin a's trading rights commitments 
in the same way as the corresponding element of the 2001 Audiovisual Products Regulation .  Thus, 
we understand this claim to concern audiovisual pr oducts intended for publica tion and to be based on 
China's commitment in paragraph 84(b) that it woul d grant trading rights to foreign enterprises and 
individuals in a "non-discretionary" way.  More par ticularly, the United States  appears to claim that 
the approval requirement introdu ces qualifying criteria and discretion into a process that China 
committed to be "non-discretionary", and that it is therefore inconsistent w ith paragraph 84(b).   
7.672  We first recall our determination above that th e audiovisual products intended for publication 
that are the subject of US claims – tangible master copies – are goods for the purposes of China's 
trading rights commitments.  Article 7 applies to "aud iovisual products".  As this term is unqualified, 
it would appear that this term coul d cover the relevant master copies  as goods.  We note in this respect 
the provisions of Article 2 of the Audiovisual Products Importation Rule .  It identifies as covered 
audiovisual products audio tapes, video tapes, re cords, and audio and video CDs with recorded 
content and refers to an annex which provides the HS codes for the covered products.  Hence, if the 
term "audiovisual products" in Ar ticle 7 covered tangible master copies as goods, Article 7 would 
directly regulate who may engage in importing of such master copies.  Thus understood, Article 7 
would be subject, in principle, to Ch ina's trading rights commitments.   
7.673  But even if the term "audiovisual products " in Article 7 should be understood as meaning 
"audiovisual content that can be commercially exploi ted", in those cases where audiovisual content is 
imported on a hard-copy master copy, Article 7 would necessarily affect who may engage in 
importing of hard-copy master copies, because only licensed importers could engage in importing of 
content on master copies.  Thus, even if the term "audiovisual products" in Article 7 were understood 
as indicated, Article 7 would appear to be subject, in principle, to China's trading rights commitments.   
7.674  China considers, however, that its trading ri ghts commitments under the Accession Protocol 
are inapplicable to Article 7 of the Audiovisual Products Importation Rule .  We note that Article 7 of 
the Audiovisual Products Importation Rule  is very similar to Article 5 of the 2001 Audiovisual 
Products Regulation .  Also, China's arguments in support of  its position that we should not apply 
China's trading rights commitments to Article 7 of the Audiovisual Products Importation Rule  are the 
same as those we have discussed previously when a ddressing the same issue in relation to Article 5 of 
the 2001 Audiovisual Products Regulation .502  In the light of these elements, we consider that the 
reasons which led us to conc lude that Article 5 of the 2001 Audiovisual Products Regulation  is 
                                                      
502 We note that, in addition, China referred to Article 14 of the Audiovisual Products Importation Rule  
which provides that:  
"In regard to audiovisual products imported for the purpose of publishing, application shall be 
made to the Ministry of Culture and the following documents and materials submitted: … 
Draft of the copyright trade agreement (Chinese and foreign language versions), original copyright certificate, copyright authorization letter and registration and authentication 
document from the State copyrigh t authentication agency …".    WT/DS363/R 
 Page 263 
 
 
  subject to China's trading rights commitments are also applicable, mutatis mutandis , to Article 7.503  
We thus conclude that the provisions of Article 7 are subject to China's trading rights commitments. 
7.675  Having satisfied ourselves that China's trading righ ts commitments are applicable to Article 7, 
we now turn to address the merits of the US claim that Article 7 gives rise to an inconsistency with 
paragraph 84(b).  We note in this respect that unde r Article 7 only licensed importers appear to have 
the right to import audiovisual products intended for publication. 
7.676  Article 7 mentions neither entities nor individuals .  It could thus appear that China could 
license both entities and individuals.  However, we note that the Audiovisual Products Importation 
Rule has been drawn up on the basis of the 2001 Audiovisual Products Regulation .504  We also recall 
that we have not been persuade d that under Article 5 of the 2001 Audiovisual Products Regulation , 
which is the equivalent of Article 7, individual s could be licensed to import audiovisual products 
intended for publication.  For these reasons, we do no t see a basis for reaching a different conclusion 
with regard to Article 7.505   
7.677  Regarding the grant of licences to "entities", we  note that Article 7 does not explicitly state 
whether import entities need to be registered in China.  We recall, however, our view that under 
Article 5 of the 2001 Audiovisual Products Regulation  foreign-invested enterprises in China could be 
licensed to import audiovisual products for publicati on, and that it has not been demonstrated that 
foreign enterprises not registered in China could be licensed to import such products.  As Article 7 is 
based on Article 5, we see no basis for reaching a different conclusion with regard to Article 7. 
7.678  As to whether Chinese branches of foreign-regi stered enterprises could be licensed, we note 
that the United States has not asserted that the Audiovisual Products Importation Rule  affects 
branches in China and that this r esults in an inconsistency with Ch ina's trading rights commitments.  
In fact, the United States has never even mentione d the possibility of foreig n-registered enterprises 
setting up Chinese branches.  Accordingly, we do not examine this issue further.506  
7.679  We note, finally, that there does not appear to  be any process for submitting applications and 
obtaining a licence, nor is there any indication that  licences are granted automatically.  We also note 
that Article 7 contains no criteria to be followed by the MOC in deciding whom to licence as importer 
of audiovisual products intended for publication.   
7.680  The foregoing elements suggest to us that Ch ina enjoys discretion as to the entities to be 
licensed as importers.  We note that  China has not stated otherwise.507  Accordingly, we consider that 
under Article 7 China needs to exercise discretion in  order to grant foreign-invested enterprises in 
                                                      
503 In respect of Article 14 of the Audiovisual Products Importation Rule , we note that even if it 
supported the view that foreign right holders in all cases need to enter into licensing agreements with licensed 
import entities, we are not convinced by China's position th at any effect Article 7 has on who may import hard-
copy master copies should not be examined under China's trading rights commitments.   
504 See Article 1 of the Audiovisual Products Importation Rule . 
505 As previously pointed out, Article 26 of the Audiovisual Products Importation Rule  addresses 
import procedures to be followed for master tapes and discs and refers to audiovisual product import units, but 
not individuals. 
506 Also, it is in any event not clear to us from the information on the record whether Chinese laws or 
regulations on branches of foreign enterprises allow foreign-registered enterprises to set up Chinese branches in 
the sector at issue. 
507 We recall China's statement in response to a question from the Panel that the licences to be obtained 
by importers of films for theatrical release pursuant to Article 5 of the Film Regulation  and Article 3 of the Film 
Enterprise Rule  are granted through a designation process (China's response to question No. 170).  China made 
no such statement with regard to Article 7 of the Audiovisual Products Importation Rule .  We nonetheless note 
that Article 7 is very similar to the aforementioned provisions relating to films for theatrical release. WT/DS363/R 
Page 264  
 
  China the right to import audiovisual products intended  for publication.  We thus conclude that, as a 
result of Article 7, China does not grant trading ri ghts to foreign enterpri ses "in a non-discretionary 
way" and that, for this reason, China is act ing inconsistently with its obligations under 
paragraph 84(b). 
7.681  Since the United States has not demonstrated that  foreign enterprises not registered in China 
could be licensed to import audiovisual products fo r publication, and since the United States has not 
asserted that Article 7 affects Chinese branches of foreign enterprises not registered in China, we 
further conclude that the United States has not established that Article 7 results in China acting 
inconsistently with its obligation under paragraph 84(b) in respect of foreign enterprises not registered 
in China.  The United States has also not established that Article 7 results in an inconsistency with 
paragraph 84(b) when cons idered together with other challenged measures.  
7.682  Furthermore, as we have not been persuade d that individuals could be licensed under 
Article 7, we conclude that the United States ha s not established that Article 7 results in an 
inconsistency with paragraph 84(b) w ith respect to the grant of trading rights to foreign individuals.    
The United States has also not established that Article 7 results in an inconsistency with 
paragraph 84(b) when consider ed together with other challenged measures.       
7.683  Regarding the US argument that the licensing requirement in Article 7 injects qualifying 
criteria
508, we observe that we do not see how it does.   
Article 8  
7.684  We recall that Article 8 provides that entities or  individuals which have  not been designated 
may not engage in the import of finished audiovisual products.509  It also provides that the import of 
finished audiovisual products must be entrusted to  "audiovisual units" designated by the MOC.  Thus, 
it would appear that China can designate only audiovisual units, not individuals.   
7.685  We further note that Article 8 does not explicitl y state whether audiovisual units need to be 
registered in China.  We recognize that the term "a udiovisual units" is unqualified.  In our view, this 
does not necessarily mean, however, that the term  "audiovisual units" could cover also foreign 
enterprises not registered in China.   We note in this respect that we have not been given any other 
trade-related Chinese laws or regulations that coul d indicate whether an "import unit" needs to be 
registered in China.  In view of the foregoing, and the lack of US arguments and evidence on this 
issue, we consider that the United States has not de monstrated that the term "audiovisual units " as it 
appears in Article 8 could cover foreign enterprises no t registered in China a nd that such enterprises 
could be designated as audiovisual units.  We acce pt, however, that foreign-invested enterprises in 
China could be designated as audiovisual units.  
7.686  As to whether the term "audiovisual units" c ould cover Chinese branches of foreign-registered 
enterprises, it is sufficient to recall that  the United States has not asserted that the Audiovisual 
Products Importation Rule  affects branches in China and that th is results in an inconsistency with 
China's trading rights commitments.  Accordingl y, we do not examine this issue further. 
7.687  The United States argues that Article 8 rep licates the designation requirement in the 2001 
Audiovisual Products Regulation .  The United States claims that this element of the Audiovisual 
Products Importation Rule  is inconsistent with China's trading rights commitments in the same way as 
the 2001 Audiovisual Products Regulation .  Thus, we understand this claim to be based on China's 
commitment in paragraph 84(b) that it would grant trading rights to foreign enterprises and 
                                                      
508 See supra , para. 7.671. 
509 We note that Article 8, as translated by the Un ited States, refers to "units" rather than entities.  WT/DS363/R 
 Page 265 
 
 
  individuals in a "non-discretionary" way.  More par ticularly, the United States  appears to claim that 
the designation requirement introduces qualifying cr iteria and discretion into a process that China 
committed to be "non-discretionary", and that it is therefore inconsistent with paragraph 84(b).  The 
United States appears to contend that Article 8 authorizes the MOC to appoint entities of its own 
choosing to engage in importation.510   
7.688  We understand that designation unde r Article 8 is not automatic.  Rather, it is up to the MOC 
to initiate the designation process.511  Article 8 contains no criteria to be followed by the MOC in 
deciding whom to designate.  Moreover, China has not contested the US contention that the MOC can 
designate importers "of its own choos ing".  Thus, it appears to us that the MOC enjoys discretion as to 
whom to designate.  Accordingly, under Article 8, Ch ina needs to exercise discretion in order to grant 
the right to import finished audiovisual products.   
7.689  With the foregoing in mind, we now turn to th e claimed inconsistency with paragraph 84(b).  
In view of the fact that the discretion relates to the designation of "audiovisual units", and not 
individuals, we conclude that Artic le 8 does not result in an inconsis tency with paragraph 84(b) with 
respect to the grant of trading rights to foreign individuals.  Furthermore, the United States has not 
established that Article 8 results in an inconsiste ncy with paragraph 84(b) in respect of foreign 
individuals when considered together  with other challenged measures.   
7.690  On the other hand, we recall that in our view foreign-invested enterprises in China could be 
designated as "audiovisual units" within the meaning of Article 8.  We therefore conclude that, as a 
result of Article 8, China does not grant trading right s to foreign-invested en terprises in China for the 
import of finished audiovisual products "in a non-disc retionary way", and that, for that reason, China 
is acting inconsistently with its  obligation under paragraph 84(b). 
7.691  We also recall that the United States has not asserted that Article 8 affects Chinese branches 
of foreign enterprises not registered in China, a nd that it has not demonstrated that China could 
designate foreign enterprises not registered in China as "audiovisual units".  We thus conclude that the 
United States has not established that Article 8 results in China acting inconsistently with its 
obligation under paragraph 84(b) in respect of foreig n enterprises not registered  in China.  The United 
States has also not established that Article 8 results  in an inconsistency with paragraph 84(b) when 
considered together with other challenged measures. 
7.692  Regarding the US argument that the designation requirement injects qualifying criteria512, we 
note that we do not see how it does.  The United Stat es has itself stated in r esponse to a question from 
the Panel that designation is discretionary and th at there are no independent criteria governing how 
the competent agency designates importers.513   
Article 9  
7.693  Article 9 provides that "[s]uch units as libra ries, audiovisual reference libraries, R&D 
institutions and schools wishing to import finished audiovisual products for research and reference in 
teaching shall entrust finished audiovisual product import [entities] designated by the [MOC] to 
handle the examination and approval importing procedur es".  It appears that the procedures at issue 
are those concerning the examination of the content of finished audiovisual products and the approval 
of importation of such products. 
                                                      
510 United States' response to question No. 9. 
511 China appears to have confirmed this in resp onse to question Nos. 25(a) and (b) and 31(c). 
512 See supra , para. 7.687. 
513 United States' response to question No. 9. WT/DS363/R 
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  7.694  The United States has not explained why a nd how Article 9 results in China acting 
inconsistently with its trading rights commitments.  It is also unclear, therefore, which of these 
commitments is at issue.  In the light of this, we conclude that the United States has failed to meet its 
burden of establishing that Article 9 is inconsistent with China's trading rights commitments under the 
Accession Protocol.  Also, we note that the United St ates has not established that Article 9 results in 
an inconsistency when considered toge ther with other challenged measures.  
Article 10
 
7.695  Article 10 provides that "[a]udiovisual publis hing entities may engage in the publishing of 
imported audiovisual products within the limits of their approved scope of publishing".  Thus, 
Article 10 appears to be about the activity of "publis hing" rather than importi ng, and about "imported" 
products.   
7.696  The United States has not explained why and how Article 10 results in China acting 
inconsistently with its trading rights commitments.  It is also unclear, therefore, which of these 
commitments is at issue.  In the light of this, we conclude that the United States has failed to meet its 
burden of establishing that Article 10 is inconsiste nt with China's trading rights commitments under 
the Accession Protocol.  Also, we note that the Unite d States has not established that Article 10 results 
in an inconsistency when considered toge ther with other challenged measures.   
(xii) Audiovisual (Sub-) Distribution Rule 
7.697  The United States  notes that the Audiovisual (Sub-) Distribution Rule , which was 
promulgated pursuant to the 2001 Audiovisual Products Regulation , is principally focused on the 
distribution of AVHE products, including sound reco rdings.  The United States points out, however, 
that according to Article 21 Chinese-foreign cont ractual enterprises, which are the only foreign-
invested enterprises that may be engaged in the sub-distribution of audiovisual products, are not 
allowed to engage in the importation of  audiovisual products into China.   
7.698  The United States claims that Article 21 of the Audiovisual (Sub-) Distribution Rule  is 
inconsistent with China's trading rights commitme nts, because it denies Chinese-foreign contractual 
audiovisual product distribution enterprises the ri ght to import AVHE products, including sound 
recordings. 
7.699  In response to a question from th e Panel, the United States indicat ed that the inconsistencies 
claimed in relation to this measure arise as a result of Article 21 of the measure, and under 
paragraphs 5.1 and 5.2 of the Accession Protocol and paragraphs 83(d) and 84(a)-(b) of the Working 
Party Report.  The United States further indicated that , in its view, the parties whose trading rights are 
being restricted under this measure are foreign en terprises, including foreign-invested enterprises in 
China and foreign individuals.514  
7.700  China  argues that none of the challenged measure s is inconsistent with China's obligations 
under paragraphs 5.1, 5.2 or 1.2 of the Accession Pr otocol.  China submits in this respect that the 
United States fails to take account of China's right to regulate trade in a manner consistent with the 
WTO Agreement, including Article XX of the GATT 1994, and that the measures governing the 
importation of reading materials and finished  audiovisual products, including finished sound 
recordings, are justified under Article XX(a) of the GATT 1994. 
7.701  The Panel  notes that the United States h as identified Article 21 of the Audiovisual (Sub-) 
Distribution Rule  as the provision giving rise to an inconsistency with China's trading rights 
                                                      
514 United States' response to question No. 1.  WT/DS363/R 
 Page 267 
 
 
  commitments.  Article 21 provides that "[a] Ch inese-foreign contractual joint venture for sub-
distribution of audiovisual products may not engage in  the import of audiovisual products".  Article 2 
of the Audiovisual (Sub-) Distribution Rule  indicates that the term "audiovisual products" applies to 
sound recordings and other audiovisual products, as it specifically states that the term refers to audio 
tapes, video tapes, records, and audio and vi deo CDs with audiovisual recorded contents. 
7.702  The United States claims that Article 21 denies Chinese-foreign contractual joint ventures the 
right to import audiovisual products.  Chinese-fore ign contractual joint ventures are enterprises in 
China.  Therefore, we understand the United States ' claim to be based on paragraphs 5.1, 83(d) and 
84(a).    
Paragraphs 5.1, 83(d) and 84(a)  
7.703  The legal effect of Article 21 is that Chinese -foreign contractual joint ventures for the sub-
distribution of audiovisual products do not have, and cannot obtain, the right to import audiovisual products.  We therefore consider that, by maintaini ng Article 21, China has failed to ensure that "all 
enterprises in China", which includes Chinese-fo reign contractual joint ventures for the sub-
distribution of audiovisual products, have the right to import all goods.  This is contrary to China's 
obligations under paragraphs 5.1, 83(d) and 84(a).  We thus conclude  that Article 21 is inconsistent 
with China's trading rights commitments under the Accession Protocol. 
7.704  Since Article 21 concerns only Chinese-forei gn contractual joint ventures, we further 
conclude that the United States has not establis hed that Article 21 results in China acting 
inconsistently with paragraph 84(a) in respect of foreign individuals or foreign enterprises other than 
foreign-invested enterprises in China.  
Paragraphs 5.2 and 84(b)
 
7.705  As indicated, the United States has also claimed that the Audiovisual (Sub-) Distribution Rule  
results in an inconsistency with paragraphs 5. 2 and 84(b).  The United States has not explained, 
however, why and how it considers an  inconsistency with these paragraphs arises.  Consequently, we 
conclude that the United States has not met its  burden of establishing an inconsistency with 
paragraph 5.2 or 84(b).  Also, we note that the United States has not established that Article 21 results 
in an inconsistency with these paragraphs when cons idered together with other challenged measures.  
(xiii) Summary of conclusions  
7.706  As indicated above, in view of the large numb er of measures and provisions challenged, we 
summarize below the Panel's main conclusions.   
Catalogue  (Articles X.2-X.3) and Foreign Investment Regulation  (Articles 3-4)  
(a) Article X.2 of the Catalogue  of Prohibited Foreign Investment Industries, in 
conjunction with Articles 3 and 4 of the Foreign Investment Regulation , result in 
China acting inconsistently with paragraph 5.1 as well as paragraphs 83(d) and 84(a) 
and, hence, paragraph 1.2.   
(b) Article X.3 of the Catalogue  of Prohibited Foreign Investment Industries, in 
conjunction with Articles 3 and 4 of the Foreign Investment Regulation , result in 
China acting inconsistently with paragraph 5.1 as well as paragraphs 83(d) and 84(a) 
and, hence, paragraph 1.2.   WT/DS363/R 
Page 268  
 
  (c) The Panel has exercised judicial economy in respect of the US claims under 
paragraphs 5.2 and 84(b) to the extent they re late to foreign-invested enterprises.  In 
respect of foreign individuals and foreign enterprises not registered in China, the 
United States has not established that Artic les X.2 and X.3, in conjunction with 
Articles 3 and 4, result in China acting inconsistently with either of the 
aforementioned paragraphs.  
Several Opinions  (Article 4)
 
(a) Article 4 results in China acting incons istently with paragraph 5.1 as well as 
paragraphs 83(d) and 84(a) and,  hence, paragraph 1.2.   
(b) The Panel has exercised judicial economy in respect of the US claims under 
paragraphs 5.2 and 84(b) to the extent they re late to foreign-invested enterprises.  In 
respect of foreign individuals and foreign enterprises not registered in China, the 
United States has not established that Article 4 results in China acting inconsistently 
with either of the aforementioned paragra phs.  Consequently, no  inconsistency with 
paragraph 1.2 has been established either.    
Publications Regulation  (Articles 41-43)  
(a) The United States has not established that  Article 43 results in China acting 
inconsistently with its trading rights commitments under the Accession Protocol. 
(b) In respect of three requirements contained in Article 42, Article 42, in conjunction 
with Article 41, results in China acting in consistently with pa ragraph 5.1 as well as 
paragraphs 83(d) and 84(a) and, hence,  paragraph 1.2, except for audiovisual 
products.  In relation to five other require ments contained in Article 42, the United 
States has not established that Article 42 resu lts in China acting inconsistently with 
paragraph 5.1, or paragraphs 83(d) or 84( a).  Consequently, no inconsistency with 
paragraph 1.2 has been established either. 
(c) The United States has not established that  Article 42 results in China acting 
inconsistently with paragraph 5.2 as well as paragraph 84(b) (discrimination) in 
respect of foreign individuals and forei gn enterprises not registered in China.  
Consequently, no inconsistency with paragraph 1.2 has been established either.  To 
the extent that Article 42 affects foreign-i nvested enterprises, th e Panel has exercised 
judicial economy in respect of one US clai m based on the aforementioned paragraphs.  
In respect of another US claim, the United States has not established that Article 42 
results in China acting inconsistently with paragraph 5.2 or paragraph 84(b) 
(discrimination).  Consequently, no inc onsistency with paragraph 1.2 has been 
established either.  
(d) The United States has not established that  Article 42 results in China acting 
inconsistently with paragr aph 84(b) (discretion).  C onsequently, no inconsistency 
with paragraph 1.2 has been established either.   
(e) Article 41 results in China acting inconsiste ntly with paragraph 84(b) (discretion) 
and, hence, paragraph 1.2. 
Importation Procedure  (paragraphs 2 and 8)  
(a) The Panel did not rule on the US claims in respect of the Importation Procedure .  WT/DS363/R 
 Page 269 
 
 
  1997 Electronic Publications Regulation  (Articles 8 and 50-55)  
(a) The United States has not established that Article 8 results in China acting 
inconsistently with paragraph 5.1 as well as paragraphs 83(d) and 84(a).  
Consequently, no inconsistency with para graph 1.2 has been established either. 
(b) The United States has not established that Article 8 results in China acting 
inconsistently with paragra ph 5.2 or paragraph 84(b) (di scrimination).  Consequently, 
no inconsistency with paragraph 1.2 has been established either. 
(c) The United States has not established that Article 8 results in China acting 
inconsistently with paragr aph 84(b) (discretion).  C onsequently, no inconsistency 
with paragraph 1.2 has been established either. 
(d) The United States has not established that Articles 50 and 51 result in China acting 
inconsistently with paragr aph 84(b) (discretion).  C onsequently, no inconsistency 
with paragraph 1.2 has been established either. 
(e) The United States has not established that Articles 50 and 51 result in China acting 
inconsistently with paragra phs 5.2 or 84(b) (discrimin ation).  Consequently, no 
inconsistency with pa ragraph 1.2 has been established either. 
(f) The United States has not established that Articles 50 and 51 result in China acting 
inconsistently with the second senten ce of paragraph 84(b) (requirements for 
obtaining trading rights).  Consequently, no inconsistency with paragraph 1.2 has 
been established either. 
(g) The United States has not established that Articles 52 to 55 result in China acting 
inconsistently with paragra phs 5.2 or 84(b) (discrimin ation).  Consequently, no 
inconsistency with pa ragraph 1.2 has been established either. 
(h) The United States has not established that Articles 52 to 55 result in China acting 
inconsistently with paragr aph 84(b) (discretion).  C onsequently, no inconsistency 
with paragraph 1.2 has been established either. 
Film Regulation  (Articles 5 and 30)  
(a) The United States has not established that Article 5 results in China acting 
inconsistently with its trading rights commitments under the Accession Protocol. 
(b) Article 30 results in China acting inconsiste ntly with paragraph 84(b) (discretion) 
and, hence, paragraph 1.2.     
(c) Article 30 results in China acting incons istently with paragraph 5.1 as well as 
paragraphs 83(d) and 84(a) and,  hence, paragraph 1.2.   
(d) The United States has not established any in consistency with paragraph 5.2.   
Film Enterprise Rule  (Articles 3 and 16)  
(a) The United States has not established that Article 3 results in China acting 
inconsistently with its trading rights commitments under the Accession Protocol. WT/DS363/R 
Page 270  
 
  (b) Article 16 results in China acting inconsiste ntly with paragraph 84(b) (discretion) 
and, hence, paragraph 1.2.   
(c) Article 16 results in China acting incons istently with paragraph 5.1 as well as 
paragraphs 83(d) and 84(a) and,  hence, paragraph 1.2.   
(d) The United States has not established any in consistency with paragraph 5.2.   
Film Distribution and Exhibition Rule  (Article II)
 
(a) The Panel did not rule on the US claims in respect of the Film Distribution and 
Exhibition Rule . 
2001 Audiovisual Products Regulation  (Articles 5, 27-28)  
(a) Article 5 results in China acting inconsistent ly with paragraph 84(b) (discretion) and, 
hence, paragraph 1.2. 
(b) Article 27 results in China acting inconsiste ntly with paragraph 84(b) (discretion) 
and, hence, paragraph 1.2. 
(c) The United States has not established that  Article 28 results in China acting 
inconsistently with its trading rights commitments under the Accession Protocol. 
(d) The United States has not established any in consistency with pa ragraph 5.1, 83(d), 
84(a) or 5.2.  Consequently, no inconsistenc y with paragraph 1.2 has been established 
either. 
Audiovisual Products Importation Rule  (Articles 7-10)  
(a) Article 7 results in China acting inconsistent ly with paragraph 84(b) (discretion) and, 
hence, paragraph 1.2. 
(b) Article 8 results in China acting inconsistent ly with paragraph 84(b) (discretion) and, 
hence, paragraph 1.2. 
(c) The United States has not established that Article 9 results in China acting 
inconsistently with its trading rights commitments under the Accession Protocol. 
(d) The United States has not established that  Article 10 results in China acting 
inconsistently with its trading rights commitments under the Accession Protocol. 
(e) The United States has not established any in consistency with pa ragraph 5.1, 83(d), 
84(a) or 5.2.  Consequently, no inconsistenc y with paragraph 1.2 has been established 
either. 
Audiovisual (Sub-) Distribution Rule  (Article 21)  
(a) Article 21 results in China acting incons istently with paragraph 5.1 as well as 
paragraphs 83(d) and 84(a) a nd, hence paragraph 1.2.   
(b) The United States has not established any inco nsistency with paragraph 5.2 or 84(b).  
Consequently, no inconsistency with para graph 1.2 has been established either.  WT/DS363/R 
 Page 271 
 
 
  7.707  We note that our findings of inconsistency in respect of the Film Regulation  and the Film 
Enterprise Rule  constitute final conclusions, as do the findi ngs of inconsistency in respect of the 2001 
Audiovisual Products Regulation  and the Audiovisual Products Importation Rule , insofar as they 
concern audiovisual products intended for publicati on.  The Panel's findings of inconsistency in 
respect of other measures  and the 2001 Audiovisual Products Regulation  and the Audiovisual 
Products Importation Rule , insofar as they concern finished audiovisual products, are tentative 
conclusions.  This is because China has argued that if we find any inconsistencies in respect of the 
latter category of measures and products, they woul d be justified under Article XX(a) of the GATT 
1994.  Thus, before coming to an y final conclusions on these measures, we must assess the merits of 
China's Article XX(a) defence.   
2. China's defence based on the "right to regulate trade" and Article XX(a) of the 
GATT 1994 
7.708  The Panel  now turns to address the broad defence ra ised by China based on the "right to 
regulate trade", as confirmed by paragraph 5.1 of the Accession Protocol, and Article XX(a) of the 
GATT 1994.  Specifically, China argues that the challe nged measures, except to the extent that they 
apply to films for theatrical release and audiovisu al products intended for publication, are covered by 
its "right to regulate trade" in a WTO-consistent  manner, and are consistent with, and therefore 
justified by, the provisions of Article XX(a).  Chin a submits that, for this reason, its measures are 
fully compatible with its WTO obligations.  
7.709  Article XX(a) of the GATT 1994 provides: 
 "Subject to the requirement that such measures are not applied in a manner 
which would constitute a means of arbitrary or unjustifiable discrimination between 
countries where the same conditions prev ail, or a disguised restriction on 
international trade, nothing in this Agre ement shall be construed to prevent the 
adoption or enforcement by any contracting party of measures: 
 (a) necessary to protect public morals; 
 ..." 
7.710  Before examining China's defence, it is useful to give an overview of the parties' main 
arguments.  
7.711  China  argues that what the United States is ch allenging through its claims based on China's 
trading rights commitments is a series of measures on the basis of which China selects and limits the number of entities to which the right to import the produc ts at issue is granted.  In China's view, its 
measures establishing a system for the selection of im port entities fall within the scope of its "right to 
regulate trade", as defined in paragraph 5.1 of th e Accession Protocol, and are fully justified under 
Article XX(a).  China considers, therefore, that  its measures are fully compatible with its WTO 
obligations. 
7.712  China submits that Chinese regulations govern ing the importation of cultural goods establish 
a content review mechanism and a system for the selection of import entities directed at protecting 
public morals in China.  China notes that cultural go ods are unique in that they may have a potentially 
serious impact on societal and individual morals.  China argues that imported cultural goods, because 
they are vectors of different cultural values, ma y collide with standards of right and wrong conduct 
which are specific to China.   WT/DS363/R 
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  7.713  China explains that as a result of the high le vel of protection of pub lic morals adopted by 
China in this sector, China set up an effective and efficient content review mechanism which prohibits 
the importation of cultural goods, the content of whic h could have a negative im pact on public morals.  
China notes that the content review mechanism is  operated through a system for the selection of 
import entities which play an essential role in the content review process.  China submits that 
although this may result in limitations of the right to trade, the system is consistent with China's "right 
to regulate trade" as defined in paragr aph 5.1 and justified under Article XX(a). 
7.714  China points out that the measures at issue defi ne which contents have  a negative impact on 
public morals and must therefore not be allowed to  be imported into China.  China notes that these 
contents cover a wide range of issues, ranging fr om the depiction or condoning of violence or 
pornography, to other important values, including  the protection of Chinese culture and traditional 
values.  China further argues that the measures at issue establish a content review mechanism for 
imported cultural goods based on a selection of import entities that ensures an effective contribution of these entities to the content revi ew.  China submits, therefore, that the laws and regulations 
providing for this selection system are designed to protect public morals. 
7.715  Moreover, China submits that the selection of import entities is "necessary" to protect public 
morals.  According to China, the selection of import entities is a decisive element of the effective and 
efficient content review mechanism for imported cultural goods. More specifically, China argues that 
its selection criteria, i.e., (i) an appropriate organizational structure of the selected entities, (ii) a reliable, competent and capable personnel within the selected entities, (iii) appropriate geographical 
coverage by the selected entities and (iv) a limite d number of selected entities, contribute to an 
efficient and effective content review and to the fu lfilment of its objective, i.e., the prohibition of 
cultural products with inappropriate  content.  China also argues that the selection of import entities is 
necessary to avoid any possible circumvention of the content review process in the case of imported products.  Furthermore, China submits that the selection of import entities has a limited impact on 
international trade.  For China, it is clear, ther efore, that the contribution of the import entities to 
content review is necessary to  protect public morals.  
7.716  China also argues that its measures limiting the ri ght to import to certain selected enterprises 
are not arbitrary in view of the fact that dom estic publishers of cultural goods face comparable 
limitations, are applied reasonably and in good faith,  and therefore comply with the requirements of 
the chapeau of Article XX.   
7.717  The United States  argues that China has not met its bur den to demonstrate that its measures 
satisfy the requirements of Article XX(a).  In th e United States' view, China's measures are neither 
necessary to protect public morals, nor are they consistent with the chapeau of Article XX.  The United States submits that, fundamentally, denying tr ading rights to all foreign importers and to all 
privately owned Chinese importers cannot be jus tified under Article XX.  The United States argues 
that content review, which is China's concern, is independent of importation and can be performed by 
individuals or entities unrelated to the importation process at any time before, during or after that 
process.  The United States observes in this rega rd that CNPIEC – the monopoly importer of AVHE 
products and sound recordings – conducts conten t review before it even begins negotiating 
importation.
515  The United States further points out that Article 31 of the Film Regulation  provides 
that "[t]hose intending to import fi lms for public screening shall, befo re importing, submit the film to 
the Film Censorship Board for review".  Thus, the United States argues, for imported films the 
designated state-owned importer does no t even perform the content review. 
7.718  The United States considers that the measures at  issue are not "necessary" within the meaning 
of Article XX(a), and that they constitute "arbitrary or unjustifiabl e discrimination" and a "disguised 
                                                      
515 The United States refers to China' s first written submission, para. 225.  WT/DS363/R 
 Page 273 
 
 
  restriction on international trade".  The United St ates argues that while Chin a asserts that its selected 
importers play a critical role in content review, it never explains why the entities involved in content 
review need to monopolize the importation process.  The United States recalls that according to the 
Appellate Body, "a necessary measure is ... located significantly closer to the pole of 'indispensable' 
than to the opposite pole of simply 'making a contribution to'."516  The United States contends that, 
given the absence of a nexus between the challenge d measures and the protection of public morals, 
China's measures denying trading rights lie far too distant from the pole of indispensability to qualify 
as "necessary" within the meaning of Article XX(a). 
7.719  The United States further recalls that the Appe llate Body has not found a measure to be 
necessary where there is a "reasonably available WTO-consistent alternative".517  The United States 
submits that in the present case, there are many such  alternatives at hand.  According to the United 
States, content review can be conducted before, durin g or after importation by any number of entities, 
with no need to give China's state-owned enterprises a monopoly on importing.  The United States asserts that China's "in-house" content review re gime for domestic producers offers a fully WTO-
consistent alternative to China's measures.  In the United States' view, the existence of this regime by 
itself demonstrates that China's measures are not necessary.   
7.720  Furthermore, the United States considers that China's arguments regarding the chapeau of 
Article XX are unpersuasive.  The United States reca lls that under the chapeau , "measures are not [to 
be] applied in a manner which would constitute a m eans of arbitrary or unjustifiable discrimination 
between countries where the same conditions prevail, or  a disguised restriction on international trade."  
According to the United States, as applied, China's measures ban foreign and private Chinese 
importers from the business of importing the relevant  products into China, thereby protecting the 
business interests of a limited group of Chinese stat e-owned enterprises.  The United States submits 
that China has never explained why content revi ew cannot be conducted by foreign enterprises, 
foreign individuals and privately held enterprises in China.  Nor does the United  States consider that 
China has shown that entities engaging in content revi ew must also be the exclusive importers of the 
relevant products into China. 
7.721   The Panel  notes that, in essence, China's defence presents the issue whether the measures 
which the Panel has found to be inconsistent with  paragraph 5.1 of the Ac cession Protocol and/or 
paragraphs 83(d), 84(a) and/or 84(b) of the Worki ng Party Report (and thus w ith paragraph 1.2 of the 
Accession Protocol) may nevertheless be maintain ed – on the grounds that they are covered by 
China's right to regulate trade in a WTO-consistent  manner and that the right to regulate trade takes 
precedence over the relevant obligations cont ained in the aforementioned paragraphs.  
7.722  In connection with China's argument, it is well to recall some of the conclusions we have 
arrived at earlier.  First, the relevant obligation in  paragraph 5.1, but also the relevant obligations in 
paragraphs 83(d) as well as 84(a) and (b), should be understood as being without prejudice to China's 
right to regulate trade in a WTO-cons istent manner.  Secondly, the "ri ght to regulate trade" in a WTO-
consistent manner in our view includ es, by implication, a consequent ri ght to regulate importers of the 
relevant goods.  More specifically, the "right to re gulate trade" permits China to regulate importers of 
the relevant goods if: (i) the regulation of importe rs has a reasonable link to the regulation of the 
goods at issue, and thus is incidental to the regula tion of the relevant goods and (ii) the regulation of 
importers is WT O-consistent.  
7.723  In relation to the last point, we note that the parties have focused their arguments on the 
second condition, i.e., on whether the Chinese measures at  issue, which restrict certain importers' right 
                                                     
 
516 The United States refers to Appellate Body Report on Korea – Various Measures on Beef , para. 161. 
517 The United States refers to Appellate Body Reports on US – Gambling , para. 308, and Korea – 
Various Measures on Beef , para. 166. WT/DS363/R 
Page 274  
 
  to trade, are WTO-consistent, and in particular, whet her they are consistent with Article XX(a).  Our 
analysis proceeds accordingly.  For the purposes of our analysis concerning the second condition, we will assume that China's restrictions of the right to trade are incidental to regulation of the relevant 
goods.  Should we find that the WTO-consistency conditi on is satisfied, we would need to examine, in 
addition, whether the first condition is, in fact, met.   
7.724  Consistent with the foregoing, we  consider next which of the relevant measures China claims 
are justified under Article XX(a).   
(a) Measures claimed to be justified by Article XX(a)   
7.725  The Panel  understands from China's submissions that the measures China cl aims are justified 
under Article XX(a) concern reading materials, wh ich include books, newspa pers, periodicals and 
electronic publications; and finished audiovisual  products, including finished sound recordings.
518  
China is not seeking to defend under Article XX(a) an y of the relevant measures concerning film for 
theatrical release.519  This is because of China's position that  these measures are not subject to China's 
trading rights commitments under the Accession Protocol.  As previously pointed out, China has put forward the same argument in relation to relevant  provisions of Chinese rules and regulations which 
concern audiovisual produc ts imported for publication.
520  It is, therefore, our understanding that 
China does not invoke Article XX(a) in respect of relevant provisions concerning these products.521   
7.726  Thus, taking account of our earlier findings of inconsistency based on the Accession Protocol, 
we deduce that China's Article XX( a) defence covers the following measures and provisions (except 
to the extent that they apply to films for theat rical release and audiovisual products intended for 
publication): 
(a) The Catalogue  and the Foreign Investment Regulation  (Articles X.2 and X.3 as well 
as Articles 3 and 4);522 
(b) the Several Opinions  (Article 4);523 
(c) the Publications Regulation  (Article 42 in conjunction with Article 41, and 
Article 41);  
(d) the 2001 Audiovisual Products Regulation  (Article 27); 
(e) the Audiovisual Products Importation Rule  (Article 8);  and 
(f) the Audiovisual (Sub-)Distribution Rule  (Article 21). 
7.727  We note that China in its submissions to the Panel has not explained specifically for each of 
the above-mentioned provisions why they are justifie d under Article XX(a).  In response to a request 
from the Panel for elaboration, China merely stated  that "all trading rights related provisions in 
                                                      
518 E.g., China's first written submission, paras. 200-209. 
519 China's response to question No. 182. 
520 China's first written submission, para. 126. 
521 This understanding is consistent with the fact that  in its first written submission, at para. 154, China 
only references finished audiovisual products. 
522 That the Catalogue  and, by implication, the Foreign Investment Regulation  are covered by China's 
Article XX(a) defence is clea r to us from China's response to question No. 182. 
523 That the Several Opinions  is covered by China's Article XX(a) defence is clear to us from China's 
response to question No. 182 and footnote 49 of China's first written submission.  WT/DS363/R 
 Page 275 
 
 
  identified measures could be justified under Ar ticle XX(a), because the system of selecting 
importation entities undertaking content review is, as a whole, necessary to protect public morals".524    
7.728  Since China asserts that its restrictions of the ri ght to trade are connected to a content review 
mechanism, it is well to make clear at the outset that only some  of the above-mentioned measures 
contain provisions which prohib it relevant products (reading materials and finished audiovisual 
products) from carrying certain content, and which requi re that the content of such products must be 
reviewed before they are imported into China.  Also, it is important to point out that the part played by 
import entities in the content review process differs depending on the product at issue. 
7.729  Hence, we note that neither the Foreign Investment Regulation  nor the Catalogue , nor the 
Several Opinions , contain provisions which prohibit releva nt products from carrying certain content 
and require that their content must be reviewed befo re the products are imported.  The same holds true 
for the Audiovisual (Sub-)Distribution Rule .525 
7.730  The remaining measures contain provisions of the described type.  Specifically, the 
Publications Regulation  in Articles 26 and 27 identifies content which publications may not contain.  
Article 44 states that publications imported by appr oved or designated publication import entities may 
not include any content prohibited under Article 26 or 27.  It further stipulates that publication import 
entities are "responsible for examining the content of  the publications" imported.  China has explained 
that the GAPP, i.e., the competent Chinese Government  authority, has a subsidiary role, but that it 
may intervene in the day-to-day content review.  In particular, China has pointed out that the GAPP 
carries out annual inspections of the publication im port entities, to make sure that they fulfil their 
obligations in respect of content review.  Furt hermore, pursuant to Article 44, publication import 
entities may request the GAPP to review a publicati on if they are unable to determine whether the 
publication is in conformity with Articles 26 and 27.  Finally, pursuant to Article 45, a publication 
import entity must, before importing publications, pr ovide the GAPP with a list of the publications 
they intend to import.  China has stated that, b ased on the list, the GAPP may decide to review the 
content of certain publications itself.  If it finds  that the importation of the publication in question 
should be prohibited, the GAPP can prevent the re levant publication import entity from importing the 
publication.   
7.731  The 2001 Audiovisual Products Regulation  in Article 3 likewise identifies content which 
audiovisual products, including finished audiovisual  products, may not contain.  Article 28 provides 
that finished audiovisual products must be submitt ed to the MOC for content review and approval.  
The approval documents issued by the MOC are need ed to import the products.  China notes that 
import entities must provide, as part of their appl ications, a report reviewing the content of the 
products to be imported.  This is  confirmed by a review application submitted by China that contains 
a "review opinion" provided by the only importing entity for finished audiovisual products, the CNPIEC.
526  The opinion states that after a preliminary review by the importing entity, the entity did 
not find any prohibited content.  Nonetheless, China has also pointed out that in the case of finished 
audiovisual products to be imported, the final c ontent review is carried out by the MOC, i.e., a 
Chinese government authority.527  The MOC conducts its review ba sed on "samples" of the products 
to be imported.528        
                                                      
524 China's response to question No. 182. 
525 We note in passing that this presents the issue whether the provisions in these measures which we 
have determined to be inconsistent with China's trading rights commitments can be considered to be incidental to any regulation of the relevant products.  As indicated above, we will revert to this issue should we find that 
the provisions in question are consistent with Article XX(a).   
526 Exhibit CN-25. 
527 China's response to question No. 196. 
528 China's response to question No. 191. WT/DS363/R 
Page 276  
 
  7.732  Finally, the Audiovisual Products Importation Rule  in Article 6 identifies content which 
audiovisual products, including finished audiovisual  products, may not contain.  Article 11 provides 
that audiovisual import entities must submit finished audiovisual products to be imported to the MOC for content review.  Pursuant to Article 18, the MOC must either approve applications or reject them.  
It is, therefore, the MOC that performs the final co ntent review in respect of finished audiovisual 
products to be imported.
529    
7.733  It is clear from the foregoing that none of the provisions which we have found to result in 
China acting inconsistently with its trading rights commitments under the Accession Protocol are provisions which prohibit certain content or require content review prior to importation.  We observe 
in this respect that the United States has not ques tioned China's right to review the content of reading 
materials and finished audiovisual produc ts that are to be imported into China.
530     
7.734  Having addressed the measures in respect of which China invokes Article XX(a), we next 
consider whether Article XX(a) is an applicable  provision in the circumstances of the present case. 
(b) Applicability of Article XX(a)   
7.735  China  recalls that the "without prejudice" clause of paragraph 5.1 of the Accession Protocol 
provides that the "right to regulate trade" must be exercised in a manner consistent with the WTO 
Agreement.  According to China, the term "WTO  Agreement" includes the WTO Agreement and all 
its Annexes.  Hence, China argu es, China has the right to take measures regulating trade that are 
authorized by any of the WTO agreements.  
7.736  More specifically, China argues that, since its  commitment in paragraph 5.1 concerns the 
right to import and export goods, China's right to re gulate trade must be interpreted in conjunction 
with WTO agreements applicable to  trade in goods, including the GATT 1994.531  In China's view, it 
follows that China has the right to take measures pursuing policy ob jectives in a manner consistent 
with Article XX of the GATT 1994.    
7.737  China submits that it therefore has the right, u nder paragraph 5.1, to impose restrictions and 
conditions on the grant of trading rights, including by  limiting the right to import the products at issue 
in this dispute to certain selected entities, provide d that it does so in a manner consistent with 
Article XX.   
7.738  China also recalls its position that, like the commitment in paragraph 5.1, the other trading 
rights commitments at issue – i.e., those contained in paragraphs 83(d), 84(a) and 84(b) – are without 
prejudice to China's right to regulate trade in a ma nner consistent with the WTO Agreement.  As a 
consequence, China considers that it can rely on Article XX to justify breaches not only of 
paragraph 5.1, but also of paragra phs 83(d), 84(a) and 84(b).       
7.739  The United States  considers that the relationship between Article XX(a) of the GATT 1994 
and the Accession Protocol is a question of broad sy stemic import.  The United States also considers, 
however, that it is not necessary to determine whet her Article XX applies to China's commitments 
contained in the Accession Protocol.   
7.740  The United States notes that the Appellate B ody was faced with a similar situation in US – 
Customs Bond Directive .  The United States points out that in that dispute, the Appellate Body was 
                                                      
529 China's response to question No. 191. 
530 E.g., United States' comments on Chin a's response to question No. 184. 
531 China points out that Annex 1A on "Multilate ral Agreements on Trade in Goods" of the WTO 
Agreement includes the GATT 1994.  WT/DS363/R 
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  presented with an appeal concerning an affirmativ e defence under Article XX(d) of the GATT 1994 to 
justify a measure found to be inconsistent with the Anti-Dumping Agreement .  The United States notes 
that that appeal raised the issue of the availabilit y of such an Article XX defence.  The United States 
explains that the Appellate Body elected 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.  After finding that the measure was not  "necessary" within the meaning of Article XX(d), 
the Appellate Body concluded that it did not need to express a view on the question of the availability 
of the Article XX defence.532   
7.741  In respect of the measures at issue, the United States submits that they reside well outside of 
the parameters of Article XX(a), a nd that their application fails to meet the requirements contained in 
the chapeau of Article XX.  In the United States' view, it is, therefore, not necessary to determine 
whether Article XX is available as an affirmative defence to China's commitments contained in the 
Accession Protocol. 
7.742  The Panel  begins by recalling that, in its view, the relevant obligations stipulated in 
paragraphs 5.1, 83(d) as well as 84(a) and (b) s hould all be understood as being without prejudice to 
China's right to regulate trade in a manner consistent with the WTO Agreement.   
7.743  It is clear that the WTO Agreement includes the GATT 1994, and that the GATT 1994 
includes Article XX(a).  Nevertheless, China's i nvocation of Article XX(a) presents complex legal 
issues.  We observe in this respect that Article XX  contains the phrase "nothing in this Agreement", 
with the term "Agreement" referring to the GATT 1994, not other agreements like the Accession 
Protocol.  The issue therefore arises whether Article XX can be directly invoked as a defence to a 
breach of China's trading rights commitments unde r the Accession Protocol, which appears to be 
China's position, or whether Article XX could be invoked only as a defence to a breach of a GATT 1994 obligation. 
7.744  The United States invites the Panel to examine arguendo  China's Article XX defence to a 
breach of its trading rights commitments and to determine on that basis whether China's defence 
would have merit before resolving the issue whether Ar ticle XX is available as a defence.  As pointed 
out by the United States, the Appellate Body in the US – Customs Bond Directive case followed a 
similar approach.  That case presented the issue of whether the United States could invoke Article XX(d) as a defence for a measure which had been found to be inconsistent with, inter alia , 
Article 18.1 of the Anti-Dumping Agreement.   The Appellate Body fou nd it appropriate to examine 
first whether the measure at issue met the requirements of Article XX(d).  The Appellate Body 
indicated that, if necessary, it would return to the "systemic" issue whether Article XX(d) was 
available as a defence after having ex amined the merits of the defence.
533  It turned out, however, that 
the Appellate Body had no need to revert to  the issue of the availability of the defence.534    
7.745  We find it appropriate in this case to follow th e approach of the Appellate Body in the US – 
Customs Bond Directive case.  Thus, we will proceed on the assumption that Article XX(a) is 
available to China as a defence fo r the measures we have found to be inconsistent with its trading 
rights commitments under the Accession Protocol.  Based on that assumption, we will examine 
whether the relevant measures satisfy the requirements of Article XX(a).  Should we find that this is 
the case, we would revert to the issue of whether Ar ticle XX(a) can, in fact, be directly invoked as a 
defence to a breach of China's trading rights commitments under the Accession Protocol.      
                                                      
532 The United States refers to the Appellate Body Report on US – Customs Bond Directive , 
paras. 304-319. 
533 Appellate Body Report, US – Customs Bond Directive , para. 310.   
534 Ibid., para. 319.  The Appellate Body upheld the panel's finding that the measure at issue did not 
meet the requirements of Article XX(d). WT/DS363/R 
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  (c) Application of Article XX(a) to China's measures   
7.746  The Panel  commences its Article XX(a) analysis by recalling that according to the Appellate 
Body, examination of a measure under Article XX is two-tiered.  A panel must first examine whether 
a measure falls under one of the exceptions listed in  the various sub-paragraphs of Article XX.  
Subsequently, a panel must examine whether the me asure in question satisfies the requirements of the 
chapeau of Article XX.
535  For an Article XX defence to succeed, both elements of the two-tiered test 
must be met. 
7.747  It is up to the party invoking an Article XX de fence to demonstrate that a measure qualifies, 
and is provisionally justified, under one of the sub- paragraphs of Article XX, and also to demonstrate 
that the measure complies with the requi rements of the chapeau of Article XX.536   
7.748  Therefore, China as the party invoking an ex ception under Article XX(a) is required to show, 
first, that the relevant measures fall within th e scope of sub-paragraph (a) of Article XX and, 
secondly, that these measures satisfy the requi rements of the chapeau of Article XX. 
7.749  Consistent with the above, we now go on to assess whether China has met its burden of 
showing that its measures fall within the sc ope of sub-paragraph (a) of Article XX. 
(i) Provisional justification of the measures at issue under sub-paragraph (a) of Article XX 
7.750  The Panel  begins its inquiry by considering the link China alleges to exist between import 
entities, the content review mechanism for imports of reading materials and finished audiovisual 
products, and the protection of public mo rals within China's territory.    
Link between import entities, content review  and the protection of public morals  
7.751  China  considers that reading materials and finished audiovisual products are so-called 
"cultural goods", i.e., goods with cultural content.  China submits that they are products of a unique 
kind with a potentially serious negative impact on pu blic morals.  China explains that, as vectors of 
identity, values and meaning, cultural goods play an  essential role in the evolution and definition of 
elements such as societal features, values, ways of living together, ethics and behaviours.  China notes in this respect the UNESCO Universal Declaration on Cultural Diversity , which China says was 
adopted by all UNESCO Members, including the United States.  In its Article 8, the Declaration  
states that cultural goods are "vectors of identity, values and meaning" and that they "must not be 
treated as mere commodities or consumer goods".
537  In China's view, it is clear, therefore that, 
depending on their content, cultural goods can  have a major impact on public morals.   
7.752  China points out that because of this impact of cultural goods, it put in place an appropriate 
content review mechanism so as to  prevent the dissemination of cu ltural goods with a content that 
could have a negative impact on public morals in China.  China notes that it implements a content 
review mechanism in respect of both products imported into China and domestically produced 
products.  In respect of the imported products, China points out that their importation is prohibited if 
they have content that could have a negative impact  on public morals in China.  China further notes 
that the prohibition on content that could have a ne gative impact on public morals is enforced through 
dissuasive sanctions, including fines, the revocati on of operating licences and criminal sanctions.   
                                                      
535 Appellate Body Report on Brazil – Retreaded Tyres , para. 139. 
536 Appellate Body Report on US – Gasoline , DSR 1996:I, 3 at 21. 
537 UNESCO document CLT-2002/WS/09 (Exhibit CN-17).    WT/DS363/R 
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  7.753  Regarding the types of content which China thinks must be prohibited from cultural products 
that are distributed in China, China notes that  it includes a wide range of content ranging from 
violence or pornography to other important values, including the protection of the Chinese culture and traditional values.  China notes that its measure s concerning reading materials and finished 
audiovisual products contain provisions  which specifically define the types of content that relevant 
products may not contain.  Specifically, and having regard to the relevant measures, China identifies 
Articles 26 and 27 of the Publications Regulation , Article 3 of the 2001 Audiovisual Products 
Regulation  and Article 6 of the Audiovisual Products Importation Rule .   
7.754  China further argues that in the case of products to be imported it is critical that the content 
review be carried out at the border.  China notes that it has therefore estab lished a system for the 
selection of import entities directed at protecting public  morals in China.  According to China, its 
administrative authorities are not in a position, due to  limited resources, to carry out content review all 
by themselves without creating undue delays.  China maintains that import entities therefore need to 
be given a role in the content review.  China conte nds that the contribution of the import entities to the 
content review is a substantial and essential condition for an effective and efficient content review.  
China considers that the importance of the input by  the import entities in the content review process 
justifies the appropriate selection of those entities by  the competent Chinese aut horities, even if it may 
result in restrictions of the right to import.  China argues that what is at st ake is the effectiveness and 
efficiency of the content review.   
7.755  China submits that, accordingly, the objectiv e behind the Chinese regulations and rules 
challenged by the United States is to prevent th e importation of reading materials and finished 
audiovisual products with a content that could have  a negative impact on public morals in China.  
China notes that the measures at issue first define  which type of content has a negative impact on 
public morals and must therefore not be allowe d for importation into China and then establish a 
content review mechanism for imported products and a system for the selection of import entities that 
ensures an effective contribution of  these entities to the content review. 
7.756  The United States  does not specifically argue that the measures at issue are not measures to 
protect public morals.  The United States is challe nging the means China has chosen to achieve its 
objective of protecting public morals.  More par ticularly, the United States argues that it is not 
"necessary" within the meaning of Article XX(a) for importers to perform content review.  According 
to the United States, content review is indepe ndent of importation and can be performed by 
individuals or entities unrelated to  the importation process.      
7.757  The Panel  begins its analysis by addressing those of  the relevant measures which China says 
identify prohibited content and require that the cont ent of reading materials and finished audiovisual 
products must be reviewed before they are imported into China.  They are the Publications 
Regulation , the 2001 Audiovisual Products Regulation  and the Audiovisual Products Importation 
Rule.    
7.758  We note China's contention that the types of content which are prohibited under the 
aforementioned measures could have  a negative impact on public morals in China, if brought into 
China as part of physical products.538  To consider this contention, we first need to address the 
meaning of the concept of "public mora ls" as it appears in Article XX(a).   
                                                      
538 We note China's reference to the UNESCO Declaration on Cultural Diversity .  We observe in this 
respect that China has not invoked the Declaration  as a defence to its breaches of trading rights commitments 
under the Accession Protocol.  Rather, China has referred to the Declaration  as support for the general 
proposition that the importation of products of the type at issue in this case could, depending on their content, 
have a negative impact on public morals in China.  We have no difficulty accepting this general proposition, but WT/DS363/R 
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  7.759  We note that the panel and Appellate Body in US – Gambling  examined the meaning of the 
term "public morals" as it is used in Article XIV(a) of the GATS, which is the GATS provision 
corresponding to Article XX(a) .  The panel in US – Gambling , in an interpretation not questioned by 
the Appellate Body, found that "the term 'public morals' denotes standards of right and wrong conduct 
maintained by or on behalf of a community or nation".
539  The panel went on to note that "the content 
of these concepts for Members can vary in time and space, depending upon a range of factors, 
including prevailing social, cultural, ethical and religious values."540  The panel went on to note that 
Members, in applying this and othe r similar societal concepts, "should be given some scope to define 
and apply for themselves the concepts of 'public mo rals' ... in their respective territories, according to 
their own systems and scales of values."541  Since Article XX(a) uses the same concept as 
Article XIV(a), and since we see no reason to depa rt from the interpretation of "public morals" 
developed by the panel in US – Gambling , we adopt the same interpretation for purposes of our 
Article XX(a) analysis.    
7.760  Turning to the types of content which are pr ohibited under the aforementioned measures, we 
note that, for reading materials, they are set forth in Articles 26 and 27 of the Publications Regulation .  
Pursuant to Article 26, no publication may contain content that: 
"(1) Defies the basic principles specified in the Constitution; 
(2) jeopardizes the solidarity, sovereignty an d territorial integrity of the nation; 
(3) divulges national secrets, jeopardizes na tional security or injures the national 
glory and interests; 
(4) incites hatred or discrimination of the nationalities, undermines the solidarity 
of the nationalities or infringes upon customs and habits of the nationalities; 
(5) propagates evil cults or superstition; (6) disturbs public order or destroys social stability; (7) propagates obscenity, gambling or violence, or instigates crimes; (8) insults or defames others, or infringes upon legitimate interests of others; 
(9) jeopardizes social morality or fine cultural traditions of the nationalities; 
(10) otherwise prohibited by laws, admini strative regulations and provisions of the 
State." 
7.761  Article 27 of the Publications Regulation  provides: 
"Publications catering to minors shall not contain any content enticing minors to 
imitate acts that violate public ethics or acts that are illegal or criminal, nor shall they 
contain horror and cruelty which harm the physical and mental health of minors." 
                                                                                                                                                                    
 
note, as indicated, that we need to focus more specifically on the types of content that is actually prohibited 
under China's relevant measures.     
539 Panel Report on US – Gambling , para. 6.465; Appellate Body Report on US – Gambling , para. 299. 
540 Panel Report on US – Gambling , para. 6.461. 
541 Ibid., para. 6.461.  WT/DS363/R 
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  7.762  In response to questions from the Panel as to whether all of the contents listed as prohibited 
could have a negative impact on public morals, China st ated that, if disseminated within China, all of 
these types of prohibited content could have a negative impact on public morals in China.542  China 
stated that all of the listed items reflect standards of right and wrong conduct specific to China.  The 
United States does not specifically contest China' s assertion that reading materials and finished 
audiovisual products containing the types of cont ent prohibited by China could have a negative 
impact on public morals in China.  Thus, our situa tion is different from that faced by the panel in US – 
Gambling, where Antigua and Barbuda disputed whether Internet gambling was actually contrary to 
public morals in the United States, given the view of Antigua and Barbuda that the United States was 
a significant consumer of gambling and betting services.543   
7.763  In considering China's lists of prohibited cont ent, we recall that the United States has not 
specifically contested that if content defined by  China as prohibited were imported as part of a 
physical product, this could have a negative impact on public morals in China.  We further recall that 
the content and scope of the concept of "public morals" can vary from Member to Member, as they 
are influenced by each Members' prevailing social, cultural, ethical and relig ious values.  We note, 
finally, our ultimate conclusion on the "necessity" of the measures at issue to protect public morals in 
China.544  In the light of these elements, we will proceed  with our analysis on the assumption that each 
of the prohibited types of content listed in China's measures is such that, if it were brought into China 
as part of a physical product, it could have a nega tive impact on "public morals" in China within the 
meaning of Article XX(a) of the GATT 1994. 
7.764  In addition to specifying the types of prohib ited content, the measures in question also 
prescribe that the content of reading materials and finished audiovisual products to be imported into 
China must be reviewed prior to importation.  To  recall, for reading materials, Article 44 of the 
Publications Regulation  provides that publication import entitie s are responsible for examining the 
content of the publications they wish to import.  For finished audiovisual products, Article 28 of the 
2001 Audiovisual Products Regulation  provides that import entities are to submit finished audiovisual 
products to be imported to the MOC for a review of their content.  The Audiovisual Products 
Importation Rule  contains a corresponding provision in its Article 11. 
7.765  We also recall that in accordance with the Publications Regulation , import entities make final 
content review decisions for reading materials (s ubject to intervention by the GAPP in accordance 
with Article 44 and 45 of the Publications Regulation ), whereas, in accordance with the 2001 
Audiovisual Products Regulation , the competent Chinese authority makes final content review 
decisions for finished audiovisual products.545  China also pointed out, however, that for finished 
audiovisual products, the import entities selected by China conduct a preliminary content review, by 
submitting review reports to the authorities as part of their application for a final content review.546  
China further notes that as a result of their own eval uation of content, import entities may also refrain 
from submitting manifestly inappropriate content to the competent authorities.  China contends that 
for these products, the import entities "greatly facilitate " the final content review decisions to be made 
by the competent authorities.547   
                                                      
542 China's responses to question Nos. 42 and 184. 
543 Panel Report on US – Gambling , para. 6.444. 
544 See infra , para 7.911. 
545 China's responses to question Nos. 185, 191 and 196. 
546 China has submitted an actual example of an ap plication for content review concerning finished 
audiovisual products.  It supports China's contention th at review reports are to be submitted by applicants 
(Exhibit CN-25).  China has also provided an example where an import entity's preliminary content review has led it not to submit an application (Exhibits CN-31 and CN-32). 
547 China's first written submission, para. 207. WT/DS363/R 
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  7.766  It is clear to us that the above-mentioned Ch inese requirements that the content of reading 
materials and finished audiovisual products must be  examined prior to importation, and that such 
products cannot be imported if they contain prohibite d content, are measures to protect public morals 
in China.     
7.767  We further note that in the case of the Publications Regulation  there is a very close link 
between import entities and the content review which is  designed to protect public morals in China.  
This is because under that Regulation entities importi ng reading materials have final responsibility for 
content review.  In the case of the 2001 Audiovisual Products Regulation  and the Audiovisual 
Products Importation Rule , the link to content review is somewhat less close.  To recall, under these 
measures final responsibility for content review decisions lies with the competent authorities.  
Nevertheless, a link exists, for the record indi cates that entities importing finished audiovisual 
products must not only submit applications for c ontent review, but are required to provide review 
reports to the competent authorities.  Their prel iminary evaluation also results in manifestly 
inappropriate content not being submitted for review.    
7.768  We shall examine further below whether, and if so , to what extent, the restrictions of the right 
to import contained in the Publications Regulation , the 2001 Audiovisual Products Regulation  and the 
Audiovisual Products Importation Rule  contribute to the protection of pub lic morals in China.  At this 
point, we merely note China's contention that its rest rictions of the right to import not only contribute 
to, but are essential for, achieving its objective of protecting public morals by preventing the importation into China of relevant pr oducts with inappropriate content. 
7.769  We now turn to consider the remaining measures – the Catalogue , the Foreign Investment 
Regulation , the Several Opinions  and the Audiovisual (Sub-)Distribution Rule .  We recall that these 
measures do not contain any provisions prohibiting relevant products from carrying certain contents, 
nor do they require that the content of such produc ts must be reviewed before they are imported into 
China.   
7.770  We commence our analysis with the Catalogue  and the Foreign Investment Regulation .  In 
response to a question from the Panel, China said that while its system for selecting import entities 
undertaking content review in respect of relevant pr oducts is set out in other measures, measures such 
as the Foreign Investment Regulation  and the Catalogue  are not "isolated measures".
548  Referring to 
the Catalogue , China observes that it is a summary of fo reign investment policy in various sectors, 
and that it therefore inevitably includes a provisi on excluding foreign-invested enterprises from 
engaging in the import of relevant products.  China submits, however, that this exclusion is the result 
of its system of selecting import entities.549  
7.771  We note that Article 1 of the Foreign Investment Regulation  states that the Regulation has 
been drawn up to guide the orientation of foreign i nvestment so that it fits with the national economic 
and social development plan of China, and to help pr otect the lawful rights and interests of investors.  
Regarding the Catalogue , we recall that Article 3 of the Foreign Investment Regulation  states that it 
serves as the basis for the examination and appr oval of foreign-invested projects and policies 
applicable to foreign-invested ente rprises.  We also note that the Catalogue  covers a wide variety of 
sectors, not just the cultural sector.  
7.772  Thus, considered by themselves, the Catalogue  and the Foreign Investment Regulation  do not 
suggest that Articles X.2 and X.3, in conjunction with Articles 3 and 4, are connected to the content review mechanism for the relevant products.  We agree with China, however, that these provisions 
                                                     
 
548 China's response to question No. 182. 
549 Ibid.  WT/DS363/R 
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  must be considered in context, i.e., that they must  be considered in the light of, and together with, 
other applicable rules and regulations.   
7.773  In this regard, China has confirmed that as a r esult of other measures establishing, or referring 
to, the content review mechanism for th e relevant products, which include the Publications 
Regulation , only wholly state-owned enterprises are permitted to import the relevant products.550  This 
necessarily implies that foreign-inv ested enterprises in China cannot im port relevant products.  It is 
therefore possible, as argued by Chin a, that Articles X.2 and X.3 of the Catalogue  are intended to 
reflect this, by including the relevant industry in th e prohibited category of foreign-invested projects.  
While it is conceivable that China would prohibit foreign investors from investing in import entities 
importing the relevant products for different reasons (e.g., to prevent foreign control), on balance, we 
find China's argument more plausible in the li ght of the information on the record.    
7.774  We therefore consider that the mere fact that the Catalogue  and the Foreign Investment 
Regulation  are not explicitly linked to the content revi ew mechanism for the relevant products does 
not demonstrate that Articles X.2 and X.3 of the Catalogue , in conjunction with Articles 3 and 4 of 
the Foreign Investment Regulation , make no contribution to the protection of public morals in China.  
Whether they do is an issue we shall examine in the next subsection.   
7.775  Regarding the Several Opinions , we note that according to its preamble it has been issued in 
order to standardise the work of  bringing foreign capita l into the cultural sector, improve the quality 
and level of the utilization of foreign capital, protect  the safety of the State's culture, and promote the 
healthy and orderly development of the cultural industry.  Thus, there is no indication in the Several 
Opinions  itself that it is linked to the content revi ew mechanism for the relevant products.   
7.776  It is conceivable that Article 4 of the Several Opinions  prohibits foreign investors from setting 
up and operating import entities importing the relevant products for reasons that are unrelated to the 
fact that the content of these products is to be reviewed.  On balance, however, we find it more 
plausible that Article 4 is intended to reflect the f act that other measures which establish, or refer to, 
the content review mechanism (e.g., the Publications Regulation  or the Imported Cultural Products 
Rule) stipulate that only wholly state-owned enterpri ses are permitted to import the relevant products.  
Since the Several Opinions  is about the introduction of foreign capital into the cultural industry, it 
does not seem unusual that it would also speak to whether foreign investors can invest in import 
entities importing the relevant products.   
7.777  We therefore consider that the mere fact that the Several Opinions  is not explicitly linked to 
the content review mechanism for the relevant prod ucts does not demonstrate that Article 4 makes no 
contribution to the protection of public morals in Ch ina.  Whether it does is an issue we shall examine 
in the next subsection.   
7.778  Turning, finally, to the Audiovisual (Sub-)Distribution Rule , we note that its Article 1 
indicates that the Rule has been drawn up in orde r to expand Chinese-foreign cultural exchange and 
economic cooperation and reinforce the administrati on of Chinese-foreign contractual joint ventures 
for the sub-distribution of audiovisual products.551  Article 1 further indicates that the Rule is based, 
inter alia , on the 2001 Audiovisual Products Regulation .  We recall that Article 28 of the 2001 
                                                      
550 China's response to question No. 46( a).  See, e.g., Article 42 of the Publications Regulation .  For 
finished audiovisual products, this is confirmed by, e.g., Article 4 of the Imported Cultural Products Rule . 
551 China has provided a somewhat different transla tion of Article 1 which notably does not use the 
term "sub-distribution".  According to China's translatio n, Article 1 states that th e measure was "formulated … 
for the purpose of enlarging foreign cultural exchanges and economic cooperation as well as strengthening administration of Sino-foreign distribution contractual joint ventures of audiovisual products".  Regarding the 
translation of the term Fen Xiao , see infra , para. 7.931. WT/DS363/R 
Page 284  
 
  Audiovisual Products Regulation  imposes a content review requirement on imports of finished 
audiovisual products.  Article 20 of the Audiovisual (Sub-)Distribution Rule  provides that Chinese-
foreign contractual joint ventures may not deal in audiovisual products whose import has not been approved by the MOC.  Article 21 – the provision  at issue – makes clea r that Chinese-foreign 
contractual joint ventures may not themselves e ngage in the import of audiovisual products.  
Accordingly, the Audiovisual (Sub-)Distribution Rule  does not itself indicate a link between 
Article 21 and the content review mechanism for finished audiovisual products, although Article 20 
does make clear that imports of finished audiovi sual products are subject to content review.   
7.779  While it is conceivable that Article 21 prohib its Chinese-foreign contractual joint ventures 
from engaging in the import of finished audiovisual pr oducts for reasons that are unrelated to the fact 
that the content of these products is to be review ed, we note China's argument that measures like the 
Audiovisual (Sub-)Distribution Rule  are not isolated measures and are the result of its system of 
selecting importers with the content review mechanis m in mind.  In this regard, we recall that the 
2001 Audiovisual Products Regulation  does not stipulate that only state-owned enterprises can be 
designated as import entities.  However, there was apparently only one designated importing entity for 
finished audiovisual products – the w holly state-owned CNPIEC – when the 2001 Audiovisual 
Products Regulation  was promulgated, and no additional entity has been designated since.
552  W e  
think it is possible that Article 21 is intended to refl ect the fact that, for reasons related to the content 
review requirement, only a wholly state-owne d enterprise was permitted to import finished 
audiovisual products.  On balance, we find the la tter view more plausible, in the light of the 
information on the record, than the aforementioned alternative view.   
7.780  We therefore consider that the mere fact that the Audiovisual (Sub-)Distribution Rule  is not 
explicitly linked to the content review mechanism for finished audiovisual products does not demonstrate that Article 21 makes no contribution to  the protection of public morals in China.  
Whether it does is an issue we shall examine in the next subsection.   
7.781  With the foregoing in mind, we now turn to exam ine whether China's restrictions of the right 
to import relevant products are "necessary" to protect public morals.   
"Necessity" of the measures at issue to protect public morals
 
7.782  The Panel  begins its "necessity" analysis by reca lling relevant guidance from the Appellate 
Body.  In Korea – Various  Measures on Beef , the Appellate Body indicated that "the word 
"necessary" is not limited to th at which is 'indispensable'".553  It further clarified that it is through "a 
process of weighing and balancing a series of factors" that it must be determined whether a measure is 
"necessary" within the meaning of Article XX.554   
7.783  In US – Gambling  – a case which concerned the equivalent of Article XX in the GATS, i.e., 
Article XIV of the GATS – the Appellate Body elabor ated on the factors to be weighed and balanced: 
"The process begins with an assessment of the 'relative importance' of the interests or 
values furthered by the challenged measure.  Having ascertained the importance of 
the particular interests at stake, a panel shoul d then turn to the other factors that are to 
be 'weighed and balanced'.  The Appellate Body has pointed to two factors that, in 
                                                      
552 See Article 1 of the Circular on Uniform Anti-Fake Logo for Audiovisual Products .  We note in this 
context that China indicated that its policy of not allowing the importation of cultural goods with content that 
could have a negative impact on public morals was alrea dy in effect during its accession negotations.  See also 
Article 5 of the Imported Cultural Products Rule . 
553 Appellate Body Report on Korea – Various Measures on Beef , para. 161. 
554 Ibid., para. 164.  WT/DS363/R 
 Page 285 
 
 
  most cases, will be relevant to a panel's determination of the 'necessity' of a measure, 
although not necessarily exhaustive of factors th at might be considered.  One factor is 
the contribution of the measure to the realization of the ends pursued by it;  the other factor is the restrictive impact of the measure on international commerce."
555   
7.784  The Appellate Body also indicated, however, that possible alternatives to the challenged 
measures may also need to be considered: 
"A comparison between the challenged meas ure and possible alternatives should then 
be undertaken, and the results of such comparison should be considered in the light of the importance of the interests at issue.  It is on the basis of this 'weighing and balancing' and comparison of measures, taki ng into account the interests or values at 
stake, that a panel determines whether a measure is 'necessary' or, alternatively, 
whether another, WTO-consistent me asure is 'reasonably available'."
556 
7.785  Regarding who has to demonstrate that the challenged measures is "necessary" or that a 
reasonably available alternative exists , the Appellate Body stated that:  
"[T]he responding party must show that its measure is 'necessary' to achieve 
objectives relating to public morals or public order.  In our view, however, it is not 
the responding party's burden to show, in the first instance, that there are no reasonably available alternatives to achieve its objectives.  In particular, a responding 
party need not identify the universe of less trade-restrictive alternative measures and 
then show that none of those measures achieves the desired objective.  The WTO agreements do not contemplate such an impracticable and, indeed, often impossible 
burden.   
Rather, it is for a responding party to make  a prima facie case that its measure is 
'necessary' by putting forward evidence a nd arguments that enable a panel to assess 
the challenged measure in the light of th e relevant factors to be 'weighed and 
balanced' in a given case.  The responding party may, in so doing, point out why 
alternative measures would not achieve  the same objectives as the challenged 
measure, but it is under no obligation to do so in order to establish, in the first instance, that its measure is 'necessary'.  If the panel concludes that the respondent has 
made a  prima facie  case that the challenged measure is 'necessary'—that is, "significantly closer to the pole of 'indispen sable' than to the oppo site pole of simply 
'making a contribution to''—then a pane l should find that challenged measure 
'necessary' within the terms of  Article XIV(a) of the GATS."
557   
7.786  Finally, in a recent case, Brazil – Retreaded Tyres , the Appellate Body summed up the entire 
analysis in the following terms:  
"[I]n order to determine whether a measure is 'necessary' within the meaning of 
Article XX(b) of the GATT 1994, a panel mu st consider the relevant factors, 
particularly the importance of the interest s or values at stake, the extent of the 
contribution to the achievement of the measure's objective, and its trade restrictiveness.  If this analysis yields a preliminary conclusion that the measure is 
necessary, this result must be confirmed by comparing the measure with possible alternatives, which may be less trade restrictive while providing an equivalent 
                                                     
 
555 Appellate Body Report on US – Gambling , para. 306 (footnotes omitted). 
556 Ibid., para. 307. 
557 Ibid., paras. 309-310 (footnote omitted). WT/DS363/R 
Page 286  
 
  contribution to the achievement of the objective.  This comparison should be carried 
out in the light of the importance of the interests or values at stake."
558 
7.787  As pointed out above, the Appellate Body in US – Gambling  observed that for the purposes of 
determining whether a measure is "necessary", the cont ribution of that measure to the realization of 
the ends pursued by it and the restrictive impact  of the measure on international commerce are "two 
factors that, in most cases, will be relevant to a panel's determination of the 'necessity' of a measure, 
although not necessarily exhaustive of factors that might be considered".559  In the case before us, we 
consider that both factors are rele vant.  Regarding the restrictive im pact on international trade, we 
note that restrictions of the right to import may have  an adverse impact on imports.  For instance, if no 
enterprise or individual were granted the right to im port a particular product, imports of the particular 
product would obviously be adversely affected.   
7.788  We recall that we have agreed to proceed on the assumption that Article XX is available as a 
direct defence for measures that are inconsistent with China's trading rights commitments under the 
Accession Protocol.  Therefore, and consistently with the statement by the Appellate Body in US – 
Gambling , we think that in the case before us, an a dditional factor should be taken into account.  
Specifically, we think that we should weigh not only the restrictive impact the measures at issue have 
on imports of relevant products, but also the restrictiv e effect they have on those wishing to engage in 
importing, in particular on their right to trade.  In  our view, if Article XX is assumed to be a direct 
defence for measures in breach of trading rights co mmitments, it makes sense to consider how much 
these measures restrict the right to import.  This wo uld appear to parallel a situation where a Member 
imposes a WTO-inconsistent ban on imports of pr oducts and where an Article XX defence requires 
examination of how much the ban rest ricts imports of those same products.560  Accordingly, we find it 
appropriate to consider two different typ es of restrictive impact in this case.   
7.789  A further preliminary observation is in order, in relation to the measures that are at issue in a 
"necessity" analysis.  It is well-established that it is  the WTO-inconsistent measure that a responding 
party seeks to justify which must be "necessary".561  Therefore, in the case at hand, the measures, the 
necessity of which China must establish, are the provisi ons that restrict the right to import contrary to 
China's trading rights commitments under the Accession Protocol.  The separate provisions 
prescribing that the competent Ch inese authorities and/or import entities review the content of 
imported finished audiovisual produc ts and reading materials, and that such products may not be 
imported if they carry prohibited content, are not at  issue.  We understand that both parties take the 
same view.562   
7.790  China has stated that it is n ecessary for China to review the content of all imports of the 
aforementioned products in order to avoid the importa tion of products with content that could have a 
negative impact on public morals in China, and to achieve its high level of protection of public 
morals.  As previously pointed out, the United St ates has not questioned China's right to perform 
content reviews in respect of imports of reading ma terials and finished audiovisual products.  Nor has 
it questioned China's right to prohibit the importation of such products if they carry content prohibited 
in China.  For the purposes of our "necessity" analys is, we will, therefore, proceed on the presumption 
that the provisions prescribing content reviews and prohibiting imports of prod ucts with inappropriate 
content are WTO-consistent.    
                                                      
558 Appellate Body Report on Brazil – Retreaded Tyres , para. 178. 
559 Appellate Body Report on US - Gambling , para. 306. 
560 The Panel in Brazil – Retreaded Tyres  observed in this regard that the import ban before it was "by 
design as trade-restrictive as can be" (Panel Report on Brazil – Retreaded Tyres , para. 7.211). 
561 E.g., Appellate Body Report on US – Gasoline , DSR 1996:I, 3, at 20. 
562 Parties' responses to question No. 55; China's response to question No. 181.  WT/DS363/R 
 Page 287 
 
 
  7.791  In respect of the measures at issue, China argu es that the various restrictions of the right to 
import are necessary to ensure that the content re view can be performed in respect of relevant 
imported products in a manner which achieves the high level of protection China seeks to achieve.  
Thus, China's own argument suggests that, by them selves, the measures at issue – the provisions 
restricting the right to import relevant products – would not achieve the objective of protecting public 
morals.  For this to be possible, the above-mentioned separate provisions prescribing the content 
review in respect of imports of the relevant  products need, also, to be in place.   
7.792  In response to a question from the Panel, both pa rties expressed the view that a measure can 
be characterized as "necessary" within the meani ng of Article XX even if it does not achieve the 
desired objective all by itself.563  We see no need to take a position on whether this would be correct 
in all circumstances.  In the speci fic circumstances facing us, however, we are able to agree with the 
parties.  More particularly, we consider that if China can demonstrate that, having adopted the other, 
unchallenged, provisions pursuant to  which importers are to make fi nal content review decisions or 
are to assist the competent Chinese authorities to  make content review decisions, the various 
restrictions of the right to import are "necessary" to  achieve its objective of protecting public morals 
in China, those restrictions would be provisiona lly justified under Article XX(a), unless there are 
WTO-consistent alternative measures that are reasonably available to China.  
7.793  With the foregoing in mind, we now proceed to examine whether China has made a prima 
facie case that the measures at issue are "necessar y" within the meaning of Article XX(a).  If 
appropriate, we will subsequently examine whet her reasonably available and WTO-consistent 
alternatives have been identified. 
Analysis of the measures at issue 
7.794  As indicated,  China  argues that the selection of impor t entities is "necessary" to protect 
public morals within China within the meaning of Ar ticle XX(a) of the GATT 1994.  In relation to the 
importance of the value pursued by the measures at issue, China notes that public morality is a value 
of vital importance for China.  According to Chin a, there are few values of such importance.  The 
preservation of public morals is a crucial policy issue in virtually all States and forms a central 
element of social cohesion and the ability of communities to live together.  
7.795  China further points out that it pursues a high leve l of protection of public morals within its 
territory.  China seeks to prevent the importation of reading materials or finished audiovisual products 
with content that could have a ne gative impact on public morals in China.  China notes that this is 
illustrated by the dissuasive sanctions which may be imposed in case of infringements of relevant 
Chinese regulations governing the content review. 
7.796  Regarding the contribution the measures at is sue make to the achievement of China's 
objective, China contends that its mechanisms fo r selecting import entities not only contribute to, but 
are essential for, achieving the objective of avoiding the importation of reading materials and finished 
audiovisual products with inappropriate content into  China.  In China's view, the selection of import 
entities is a decisive element of an effective a nd efficient content review mechanism for imported 
products.  China notes that it selects import entities based on essentially four criteria which contribute to the efficient implementation of the content review mechanism and to the fulfilment of its objective.  
They are that import entities must: (i) have an appropria te organizational structure, (ii) have a reliable, 
competent and capable personnel, (iii) be limited, ove rall, in their number, and (iv) have appropriate 
geographical coverage within China's customs territory. 
                                                     
 
563 Parties' responses to question No. 200. WT/DS363/R 
Page 288  
 
  7.797  Regarding the first two selection criteria, China recalls that the content review mechanism is 
the expression of a public policy ac tivity. According to China, it is , therefore, necessary that the 
administrative authority be certain that the selected  entity to whom such a public activity has been 
attributed will act in accordance with all the require ments of Chinese laws and regulations that apply 
to such a public activity.  In China's view, the or ganizational structure of the selected import entities 
must, therefore, be such that there is enough confid ence on the part of the administrative authority that 
the content review will be conducted both efficiently and effectively. 
7.798  China submits that content review is also a complex public policy activity.  According to 
China, in order to implement the content review effi ciently and up to the standard defined by China, it 
is important that the import entities correctly unde rstand the meaning, purpose, scope and manner of 
implementing the content review in accordance w ith the requirements of the relevant laws and 
regulations and maintain sufficient and regular exchanges with the administrative authorities.  
7.799  China further submits that, generally, most of the preparatory work necessary for the content 
review is carried out by the import entities, and that their work most of the time is just validated by 
the relevant administrative authority.  According to  China, this illustrates the perfect understanding by 
the import entities of the content review mechanism and its purpose and the capacity of these entities 
to carry out the content review in an effective and efficient manner. 
7.800  China considers that carrying out the content review in an efficient and effective manner 
requires an appropriate internal structure.  China notes the example of CNPIEC which has implemented a three-level review and decision-making procedure.  According to China, the material 
capacity of the entities, i.e., whether the entities di spose of sufficient technical equipment and know-
how in order to ensure an efficient and timely re view of the contents (e.g. computers, software, 
display devices, etc.) is an additional el ement to take into consideration.   
7.801  China further argues that it is also crucial that  the professionals involved in the content review 
be specifically and appropriately qualified and ha ve sufficient experience and training in, and 
knowledge of, the sector in question,  especially in re lation to content review matters.  China notes in 
this respect that content review is a complex proce dure in which every product must be reviewed in its 
entirety.
564  In China's view, it is equally important th at these professionals be familiar with Chinese 
values and public morals, and capable of effici ently communicating with, and understanding, the 
administrative authorities.  China contends that  the professionals' linguistic capacities are also 
relevant.  China notes that those engaged in the c ontent review should generally master a wide range 
of foreign languages in order to ensure appropriate  understanding of the imported contents and their 
proper alignment with the review principles.  
7.802  Regarding the criterion that the number of import entities should be limited, China points out 
that the rules and regulations at issue provide  for the limitation of the total number of entities 
approved for engaging in the importation of cultural goods.565  China submits that limiting the number 
of entities authorized to engage in the importation of  cultural goods is an important factor contributing 
to the prevention of any breaking of the rules relati ng to prohibited content and to circulation within 
China of content that has a negative impact on the public morals.  
7.803  China argues that limiting the number of importation entities enables the administrative 
authorities to have efficient control over whether t hose entities comply with the rules and procedures 
on content review.  In China's view, it is obvious th at the workload for the administrative authorities 
would be much heavier if they had to review the reports submitted by a large number of entities and to 
                                                      
564 China notes that the CNPIEC, fo r example, employs more than 70 highly qualified and trained 
censors. 
565 China cites as an example Article 42 of the Publications Regulation .  WT/DS363/R 
 Page 289 
 
 
  carry out annual inspections of that large number of entities.  China further argues that limiting the 
number of entities also allows for enhanced and mo re effective cooperation between these entities and 
the relevant State authorities.  This is essential in or der to ensure the consistency of the content review 
operated on the cultural goods imported into the territory of China.566 
7.804  As indicated, according to China, another cr iterion for selecting import entities is the import 
entities' geographical presence within China, a nd whether this corresponds to the development 
prescribed by the State's plans.  China explains that  this concerns, in particular whether the entities, 
through branches, have premises in a large number of  customs areas, so that no entry gate into the 
Chinese market is overlooked.  According to China,  the objective is to have a small number of 
companies with extensive geographical coverage.  China considers that in order to meet the 
requirement of prohibiting cultural goods with in appropriate content it is essential that entities 
participating in the content review be located close to the entry points of the goods into the Chinese 
territory.  China argues that this  also serves the purpose of preventing any risk of dissemination of 
unauthorized and inappropriate contents within China.  
7.805  Regarding the impact of the measures at issue on trade, China submits that its system for the 
selection of import entities has a limited impact.  Acco rding to China, the fact that the import entities 
correctly understand the meaning, scope and ma nner of implementing the content review in 
accordance with the requirements of the relevant re gulations allows them to carry out the content 
review in a smooth manner.  This avoids unaccep table delays which might have been caused by 
multiple exchanges between the administra tive authority and the import entities.   
7.806  China argues that unnecessary trade-distorting effects can also be avoided because import 
entities are selected on the basis of their organizational structure and the qualifications of their 
personnel. China notes that the CNPIEC, for example,  implements internal processes ensuring that it 
can finish the review of a publication within 30 minutes after receiving it, including during weekends 
and national holidays.  In China's view, the fact that there is a limited number of selected import entities with premises at the border and in a large number of customs areas similarly minimize 
customs congestion or the need fo r transportation within China. 
7.807  China further submits that the overall increase of  titles imported into China indicates that the 
selection system does not have a nega tive impact on trade.  China point s out that statistical data show, 
for example, that while 586 newspaper titles wh ere imported in China in 2002, 767 different 
newspapers were imported in 2006.  For periodical s, China says, 36,032 titles were imported in 2002 
and 45,178 in 2006. For audiovisual products, Ch ina notes that 11,464 titles were imported in 2002 
and 31,123 in 2006.
567 
7.808  The United States  points out at the outset that it is not challenging China's right to determine 
its desired level of protection.  The United Stat es is challenging the mean s China has chosen to 
achieve those ends.  The United States is of the view that the means Ch ina has selected are not 
"necessary".  More particularly, the United States cons iders that China has failed to demonstrate that 
the measures at issue are "necessary" within the meaning of Article XX(a).    
7.809  The United States contends that China has to establish a nexus between prohibiting all foreign 
importers and all privately owned Chinese importers from importing the products at issue and achieving its content review goals.  The United States argues in this respect that while China asserts 
that its selected importers play a critical role in content review, it has never explained why the entities 
                                                     
 
566 China notes that the GAPP and the MOC regularl y hold meetings with the import entities' review 
staff in order to provide information and guidance for the content review. 
567 China refers to statistical information containe d in Exhibits CN-33, CN-34, CN-35, CN-36 and 
CN-37. WT/DS363/R 
Page 290  
 
  involved in content review need to monopolize the importation process.  According to the United 
States, content review is independent of importati on and can be performed by individuals or entities 
unrelated to the importation process at any time befo re, during or after that process.  In the United 
States' view, there is no nexus between the challenge d measures and the protection of public morals.  
The United States submits, therefore, that China's me asures denying trading rights lie far too distant 
from the pole of indispensability to qualify as "n ecessary" within the meaning of Article XX.   
7.810  More specifically, the United States argues that China's own system de-links content review 
from importation.  The United States points out in this regard that the Chinese Government itself 
reviews the content of all foreign films before any su ch film is permitted to be imported into China.  
Also, importers are not integral to the content revi ew process for all relevant products.  Furthermore, 
the United States notes that for, e.g., audiovisual pro ducts and films for theatrical release, the Chinese 
Government is the only entity performing the conten t review.  According to the United States, this 
demonstrates that it is not necessary for importers to perform content review in order to achieve China's objective. 
7.811  The United States also does not believe that it is necessary to reserve importation to wholly 
state-owned enterprises, since, as indicated, Chin a's own agencies are capable of handling content 
review and state-owned enterprises are not needed to  play the role of forced middleman.  In the 
United States' view, China is, therefore, able to main tain its level of protection even when state-owned 
enterprises are not serving as intermediaries betwee n producers and the Chinese Government.     
7.812  Regarding the number of content review entities the United States does not consider that it 
needs to be drastically limited, as China suggests.  The United States submits that China's own system 
for content review confirms this.  The United States  points out, for example, that in 2007 there were 
806 domestic book and electronic publication publishe rs in China conducting "in-house" content 
review, compared with only 42 state-owned publica tion import entities.  The United States considers, 
therefore, that China's assertion that it cannot sup port an increased number of importers participating 
in content review is not credible.    
7.813  The United States further argues that the Appe llate Body has not found a measure to be 
necessary where there is a reasonably available WTO- consistent alternative.  As indicated further 
below, the United States asserts in this regard th at China has numerous alternatives to achieve its 
content review objectives that do not restrict the right to import.    
7.814  The Panel  notes that some of the specific provi sions it needs to examine present certain 
similarities.  For the purposes of its analysis, the Panel will group similar provisions and examine 
them together.  The first group of provisions whic h the Panel will address (hereafter referred to as the 
"criteria" provision) comprises two conditi ons stipulated in Article 42 of the Publications Regulation .  
The second group of similar provisions (hereafter the "discretion" provisions) comprises:  (i) Article 41 of the Publications Regulation , (ii) Article 27 of the 2001 Audiovisual Products 
Regulation  and (iii) Article 8 of the Audiovisual Products Importation Rule .  The last group (hereafter 
the "exclusion" provisions) comprises: (i) a further condition set out in Article 42 of the Publications 
Regulation , (ii) Articles X.2 and X.3 of the Catalogue  and Articles 3 and 4 of the Foreign Investment 
Regulation , (iii) Article 4 of the Several Opinions;  and (iv) Article 21 of the Audiovisual 
(Sub-)Distribution Rule
.  
7.815  In respect of the first factor to be considered as part of our "necessity" analysis – the 
importance of the particular interests or values furt hered by the provisions at issue – there is no need 
to analyse each of the above-menti oned groups separately.  We thus address this factor at the outset.   
7.816  We note in this regard China's statement that public morality is a value of vital importance for 
China.  According to China, the preservation of publ ic morals is a crucial policy objective in virtually  WT/DS363/R 
 Page 291 
 
 
  all States and forms "a central element of soci al cohesion and the capacity of communities to live 
together".568  The United States has not indicated any di sagreement with China's assessment of the 
importance of public morals as a value or interest pursued by Members.  
7.817  In our view, it is undoubtedly the case that th e protection of public morals ranks among the 
most important values or interests pursued by Members as a matter of public policy.  We do not 
consider it simply accident that the exception re lating to "public morals" is the first exception 
identified in the ten sub-paragraphs  of Article XX.  We therefore concur that the protection of public 
morals is a highly important value or interest.         
7.818  Consistently with the importance of the value or  interest furthered by its measures, China has 
stated that it pursues a high level of protection of pub lic morals within its territory.  China has stated 
that, through the measures at issue, it seeks to prevent the importation of reading materials and 
finished audiovisual products with content that c ould have a negative impact  on public morals within 
its territory.  According to China, its high level of protection is illustrated by the fact that its 
prohibition on the importation of reading materials and finished audiovisual products with prohibited 
content is complemented by dissuasive sanctions (e .g., fines, revocation of operating licences or, in 
serious cases, criminal sanctions).  China indicated  that such sanctions may be imposed in case the 
applicable rules on content review are not correctly followed.  
7.819  We note that it is up to each Member to determin e what level of protection is appropriate in a 
given situation.569  We have previously indicated that several of the measures at issue contain 
provisions which prohibit relevant  products (reading materials and finished audiovisual products) 
from carrying certain content, and which require that the content of such products must be reviewed 
before they can be imported into China.  In ou r view, these provisions are consistent with China's 
contention that it seeks to achieve a high level of prot ection of public morals in respect of the relevant 
products.  Therefore, in reviewing the necessity of the provisions at issue, we will bear in mind the high level of protection of public mo rals China has determined to be appropriate for its territory in 
respect of the relevant products.    
7.820  With these considerations in mind, we now tu rn to examine the "criteria" provisions.  
"Criteria" provisions   
7.821  We note that the relevant provision – Article 42 of the Publications Regulation  – sets forth 
different types of approval criteria to be met by publication import entities.  Specifically, the criteria 
in question are that publication import entities need  to have a suitable organization and qualified 
personnel, and that applications to  establish publication import entities n eed to meet the State plan for 
the number, structure and distribution of import entities.  We will address the two criteria in turn.   
Suitable organization and qualified personnel 
 
7.822  Article 42 of the Publications Regulation  requires that publication import entities must have a 
suitable organization and personne l which satisfies qualification requirements determined by the 
State.  We have determined that this condition in Article 42, in conjunction w ith Article 41, results in 
China acting inconsistently with paragraph 5.1 of the Accession Prot ocol as well as paragraphs 83(d) 
and 84(a) of the Working Party Report and, hen ce, paragraph 1.2 of the Accession Protocol.  We 
                                                     
 
568 China's first written submission, para. 186. 
569 Appellate Body Reports on Brazil – Retreaded Tyres , para. 210; EC – Asbestos , para. 168; Korea – 
Various Measures on Beef , para. 176. WT/DS363/R 
Page 292  
 
  noted that enterprises in China that  do not satisfy this condition cannot obtain the right to import the 
relevant products. 
7.823  We begin our analysis by considering the cont ribution this condition makes to the realization 
of the objective pursued by it, i.e., the protection of public morals in China.  As an initial matter, we 
note that we agree with China that content review is  a public policy function.  We therefore also agree 
that if the responsibility for the conduct of content review is conferred on im porters of the relevant 
products, as is the case under the Publications Regulation
570, China needs to have adequate 
confidence that the importers that will carry out the content review are capable of doing so in a way 
that ensures that no products with prohibited content are imported into China.  
7.824  Regarding, more specifically, the condition that  publication import entities need to have a 
suitable organization, we understand that this me ans, e.g., an organizationally separate review 
structure, a hierarchical system to allo w for multi-level reviews in non-routine cases571, a clear 
allocation of responsibilities for final content review  decisions, and adequate material resources to 
support the review function.  Thus understood, it s eems to us that having a suitable organization is 
likely to contribute materially to the protection of  public morals in China, in that it would help 
minimize review errors and create the right incenti ves (e.g., so as to avoid potential conflicts of 
interest).  
7.825  The other condition in Article 42 is that publica tion import entities have pe rsonnel that satisfy 
qualification requirements established by the State.572  Relevant qualifications appear to include the 
ability to read and understand the language of th e content to be imported as well as a thorough 
understanding of, and familiarity with, the applicable  legal review standards and their interpretation 
and application.  In our view, there is no question that requiring adequately qualified review personnel 
contributes materially to the protection of public mo rals in China.  Without such personnel, there 
would be a substantial risk that import entities would not carry out content review properly.  
7.826  The next factor to be analysed is the rest rictive impact of the condition in question.  
Regarding the restrictive impact on imports, we agr ee with China that the fact of having a suitable 
organization and qualified pers onnel would allow publication im port entities to conduct content 
review in a prompt and efficient manner that would minimize any delays in importing that are caused 
by the need to conduct such a review.  This is pa rticularly so in the case of publications that appear 
daily, such as newspapers.  We further note China' s argument that the number of titles of newspapers 
and publications imported into China has gone up be tween 2002 and 2006.  In our view, this does not 
necessarily indicate that the condition in question has not had any trade-restrictive effects.  The 
statistics do not indicate what might have been if  the condition had not been imposed, although they 
do seem to confirm that the condition is comp atible with an increase in imports.    
7.827  Regarding the restrictive impact on those wishing to engage in importing, we observe that the 
condition in question restricts the right to import of enterprises in China that do not satisfy the 
condition.  Significantly, however, it does not a priori  exclude particular types of enterprise in China 
from the right to engage in importing.    
7.828  Having addressed the relevant factors separately, it remains for us to weigh and balance them 
with a view to coming to a conclusion whether, overall, the condition that publication import entities 
have a suitable organization a nd qualified personnel is "necessary" within the meaning of 
Article XX(a).  Specifically, we must weigh the f act that the condition in question makes a material 
                                                      
570 See Article 44 of the Publications Regulation . 
571 Evidence submitted by China indicat es that a three-level review system is required of publication 
import entities (Exhibit CN-22). 
572 We note that relevant requirements have not been submitted to the Panel.  WT/DS363/R 
 Page 293 
 
 
  contribution to the protection of public morals against the fact that the condition does not a priori  
exclude particular types of enterprise in China from the right to engage in importing and is likely to 
minimize unnecessary delays in importing.  At the same time, we also need to take account of the fact 
that the protection of public morals is a highly im portant governmental interest and that China has 
adopted a high level of protection of public morals within its territory.  Weighing these factors, we 
reach the conclusion that, in the absence of reasona bly available alternatives, the condition in question 
is "necessary" to protect public morals in China.       
State plan for the number, structure and distribution of import entities 
 
7.829  There is, as indicated, another provision setti ng forth an approval criterion which we which 
we need to consider.  Article 42 requires that the GAPP may only approve publication import entities 
if they are in conformity with the State plan for the number, structure and distribution [geographical coverage] of publication import entities.   We have determined that this  requirement in Article 42, in 
conjunction with Article 41, results in China acting in consistently with paragraph 5.1 of the Accession 
Protocol as well as paragraphs 83(d) and 84(a) of th e Working Party Report and, hence, paragraph 1.2 
of the Accession Protocol.  We noted that enterprise s in China that do not fit in with the State plan 
cannot obtain the right to import the relevant products. 
7.830  We first consider whether this requirement makes a contribution to the realization of the 
objective pursued by China, i.e., the protection of p ublic morals in China.  We recall that under the 
Publications Regulation , the publication import entity is res ponsible for the conduct of content 
review.   
7.831  We understand China to contend that the require ment that approvals must be granted in 
accordance with its State plans for the number, structure and distribution of import entities is designed 
to ensure essentially two things: first, that only a limited number of import entities are approved, and, secondly, that each approved import entity has extens ive geographical presence (distribution), through 
branches, in a large number of customs areas, and with branches located close to the entry points of 
imports into China.   
7.832  With these introductory remarks in mind, we tu rn to consider the contribution made by the 
State plan requirement to the pr otection of public morals in Ch ina.  Since in the case of the 
Publications Regulation  the publication import entities are responsible for content review, we can see 
that limiting the number of import entities can make a material contribution.  It would appear that 
with a limited number of publication import entities, it is easier for the GAPP to  interact with these 
entities with a view to ensuring, and enhancing, the consistency of the review work of these entities.  
Similarly, a limited number of entities allows the GAPP to devote more time to conduct careful ex 
post controls of compliance with applicable cont ent review requirements, e.g., through the annual 
inspections.  
7.833  We are not persuaded that a wide geographical  distribution of the branches of import entities 
in itself makes a significant contribution to the protection of public morals.
573  However, there appears 
to be a close link between the desired wide geogra phical distribution of the branches and the desired 
limitation on the number of import entities.  Absent a sufficiently wide distribution of branches, the limitation on the number of import entities could r esult in delayed importation or more costly 
                                                     
 
573 China's response to question No. 43.  It is wort h noting that the CNPIEC, for instance, operates a 
system of centralized content review by the parent company.  The local branches do not appear to be involved in 
the substantive review (Exhibit CN-26, p. 5).   WT/DS363/R 
Page 294  
 
  importation, in that it might otherwise not be possible to use convenient points of entry.
574  W e  
therefore think that the number and distribution el ements can and should be viewed as complementary 
and as forming a single whole.   
7.834  We next turn to analyse the restrictive impact of the requirement in question.  Regarding the 
restrictive impact on imports, we note China's argum ent that even though China limits the number of 
import entities pursuant to the State plan, it approves only entities with branches in a large number of 
customs areas and in proximity to the border.  Ac cording to China, this guarantees that there are no 
unnecessary delays in importing due to customs cong estion or due to the need for long distance 
transport within China.  We note that evidence submitted by China indicates that the CNPIEC, which 
imports books, newspapers, periodicals and electronic publications and has 22 branches in China, tries 
to make sure that any imported publications arrive  at the nearest point of entry and that they are 
delivered through the local branches.575  We also recall that statistical information submitted by China 
shows that the number of book, newspaper and periodical titles has increased between 2002 and 2006, 
although the number for electronic publications has decreased during the same period.  The statistics do not demonstrate that the limited number of importe rs, which limits the choi ce of business partners 
that foreign producers can use, has not had any trade-r estrictive effects.  Nevertheless, in the light of 
the geographical distribution criterion, it would seem that limiting the number of import entities does 
not necessarily have a major adverse impact  on imports of relevant products.    
7.835  Regarding the restrictive impact on those wishing to engage in importing, we note that the 
requirement in question restricts the right to import of  enterprises in China that do not fit in with the 
State plan.  The geographical distribution criterion is likely to be more difficult for enterprises to 
satisfy than, e.g., the previously discussed require ment to have an appropriate organization and 
qualified personnel.  Nevertheless, as explained, the requirements do not a priori  exclude particular 
types of enterprise in China from est ablishing an import entity.    
7.836  Based on the above examination of the relevant  factors, we can now come to a conclusion 
whether, overall, the relevant requirement concerning  conformity with the State plan for the number, 
structure and distribution of such entities is "necess ary" within the meaning of Article XX(a).  In 
weighing and balancing the relevant fa ctors, we take account, first of all,  of the fact that the protection 
of public morals is a highly important governmental  interest and that China has adopted a high level 
of protection of public morals within its territory.  We  must take account, in addition, of the fact that 
the requirement of conformity with the State plan  is apt to make a material contribution to the 
protection of public morals; that it is unclear to what extent, if any, it limits overall imports of relevant 
products, but that it is nonetheless likely to minimize unnecessary delays in importing; and that it does 
not a priori  exclude particular types of enterprise in  China from establishing an import entity.  
Weighing these factors, we conclude that, in the ab sence of reasonably available alternatives, the State 
plan requirement in Article 42 of the Publications Regulation  can be characterized as "necessary" to 
protect public morals in China.   
"Discretion" provisions 
7.837  We now address the second group of relevant pr ovisions, the "discretion" provisions.  The 
first of these provisions is Article 41 of the Publications Regulation , which stipulates that no entity or 
individual shall engage in the business of im porting newspapers or periodicals without being 
designated.  China has confirmed, however, th at the GAPP can only designate publication import 
entities for newspapers or periodicals that have b een approved by the GAPP under Article 42.  We 
have determined that in respect of foreign-invest ed enterprises in China Ar ticle 41 results in China 
                                                     
 
574 In response to question No. 43, China remarked that a wide geographical coverage helps ensure that 
content review minimizes adverse effects on imports. 
575 Exhibit CN-26.  WT/DS363/R 
 Page 295 
 
 
  acting inconsistently with paragraph 84(b) (discr etion) of the Working Party Report and, hence, 
paragraph 1.2 of the Accession Protocol.  
7.838  The second relevant provision is Article 27 of the 2001 Audiovisual Products Regulation , 
which provides that entities or individuals which have not been designated by the MOC may not 
engage in the import of finished audiovisual produc ts, and that the import of these products must be 
handled by designated finished audiovisual product import entities.  We have determined that in 
respect of foreign-invested enterprises in China Artic le 27 results in China acting inconsistently with 
paragraph 84(b) (discretion) and, hence, paragraph 1.2. 
7.839  The remaining provision is Article 8 of the Audiovisual Products Importation Rule .  It mirrors 
the provisions of Article 27 of the 2001 Audiovisual Products Regulation .576  As a consequence, it 
results in the same inconsistencies as Article 27.   
7.840  We first examine whether the above-mentioned designation requirements make a contribution 
to the realization of the objective pur sued by China, i.e., the protection of public morals in China.  We 
recall at the outset that designations under the a bove-mentioned requirements occur exclusively at the 
initiative of the relevant administra tive authority and that there is no application process.  The relevant 
authority enjoys discretion as to  which entity to designate. 
7.841  In response to questions from the Panel, Chin a has provided an explanation of why it uses 
different processes for the selection of import entities fo r different products.  China recalled that in the 
books and electronic publications sectors, it uses an approval system, whereas in the periodicals, newspaper and finished audiovisual products sector s, it uses a designation system.  According to 
China, compared with books and electronic public ations, the content review of newspapers and 
periodicals requires a higher quality of content revi ew personnel and a more st ringent organization to 
ensure greater efficiency and to avoid unnecessary dela ys to normal trade flows.  In relation to the 
content review of finished audiovisual products, Ch ina contends that it requires more technical and 
facility support than is required for other products.
577   
7.842  Regarding Article 41 of the Publications Regulation , we are not convinced, based on China's 
explanation, that the designation requirement app licable in the newspaper and periodicals sectors 
makes an independent contribution to the protection of  public morals in China.  As stated by China, 
the designation requirement is imposed to ensure  that newspapers and periodicals are reviewed 
efficiently and with a view to avoiding unnecessary de lays, which is important notably in the case of 
publications that appear daily.  This efficiency aspect  appears to relate to the effect on trade of the 
content review carried out by publication import entiti es, not to how effective their content review is 
in protecting public morals.   
7.843  Turning to the other designation requirements at issue, i.e., those set forth in Article 27 of the 
2001 Audiovisual Products Regulation  and Article 8 of the Audiovisual Products Importation Rule , 
we note that they are different, in that they do not complement an approval system, but are used in 
lieu of an approval system.578  We note that China has indicated  that for both types of selection 
processes, the principles guiding the selection of im port entities are fundamentally the same.  China 
recalled that they include that import entities would only be selected if they have a suitable organization and qualified personnel,  and that the overall number of import entities would remain 
limited.
579   
                                                      
576 China's response to question No. 182 
577 China's responses to question Nos. 40 and 172. 
578 China's response to question No. 25(b). 
579 China's first written submission, paras. 155-156. WT/DS363/R 
Page 296  
 
  7.844  It is clear that giving the MOC the discretion to designate finished audiovisual product import 
entities allows the MOC to select import entities in accordance with the aforementioned guiding 
principles.  To recall, in the case of finished audiovisual products, the MOC makes final content 
review decisions, while the designated finished audiovisual product import entities carry out a preliminary review.  We can see that as a result of designating entities with a suitable organization 
and qualified personnel, the MOC might receive he lpful review reports, and the entities concerned 
might submit fewer products for review, because they would filter out those that are not suitable for 
importation.  This might allow the MOC to be more  effective in reviewing the content of finished 
audiovisual products to be imported, as a consequence of  a more efficient use of its resources.  In this 
way, the designation requirement would appear to  make an indirect, albeit not insignificant, 
contribution to the protection of public morals in  China.  We are not persuaded, however, that 
restricting the right to import finished audiovisual  products in a discretionary way makes a greater 
contribution than would be the case under an approval system similar to the one applied by China for books and electronic publications.  
7.845  The next factor to be addressed is the restrictive impact of the "discretion" provisions.  We 
begin with the restrictive impact on im ports.  Regarding Article 41 of the Publications Regulation , we 
accept that the discretion to designate import entities that meet particularly strict organizational and personnel requirements allows China to select entities that can carry out content review in a prompt 
and efficient manner and that can keep to a minimu m any delays in importing which are caused by the 
need to conduct such a review.  Regarding Article 27 of the 2001 Audiovisual Products Regulation  
and Article 8 of the Audiovisual Products Importation Rule , we similarly accept that the discretion to 
designate import entities that have sufficient techni cal and facility support gives China the possibility 
to select entities which can keep to a minimum any delays in importing associated with content review.   
7.846  China has also indicated, however, that the d esignation system would result in a limited 
number of import entities.  We recall in this respec t that statistical information submitted by China 
shows that the number of newspaper, periodicals and audiovisual product titles has increased between 
2002 and 2006.  This seems to indicate that the d esignation system is compatible with an increase in 
imports.  However, it does not necessarily indicate that the fact that the designation system results in a 
limited number of importers, and thus in a limite d choice of business partners for foreign producers, 
has not had any trade-restrictive effects.   
7.847  Regarding the restrictive impact on those wishing to engage in importing, we observe that the 
designation requirements in question restrict the right to import of foreign-invested enterprises in 
China that are not designated as import entities.  We r ecall in this regard China's statement that these 
requirements would result in a limited number of im port entities.  Also, we recall that there is no 
process for submitting applications and the competent authorities enjoy discretion as to whom to designate.  In contrast, under the approval require ment set out, e.g., in Articles 41 and 42 of the 
Publication Regulation, applications can be submit ted and the criteria that must be satisfied are 
specified.  In this sense, the designation requirements in question would appear to interfere more with 
the right to trade than the approval requirement set out, e.g., in Articles 41 and 42 of the Publications 
Regulation .  Indeed, we think it can be plausibly assume d that most enterprises seeking to obtain the 
right to trade would prefer the approval requirement to the designation requirements.     
7.848  Based on the above examination of the relevant  factors, we must now determine whether, 
overall, the designation requirements are "necessary" within the meaning of Article XX(a).  In 
weighing and balancing the relevant factors, we must  take account, first of all, of the fact that the 
protection of public morals is a highly important gove rnmental interest and that China has adopted a 
high level of protection of public morals within its  territory.  In respect of Article 41 of the 
Publications Regulation , we must take account, in addition, of the fact that it is not apparent to us that 
the designation requirement contained in Article  41 makes an independent contribution to the  WT/DS363/R 
 Page 297 
 
 
  protection of public morals in China; that it is uncl ear to what extent, if any, it limits overall imports 
of relevant products, but that it allows China to  select entities that do not cause unnecessary delays in 
importing; and that it interferes more with the right  to trade than would an approval requirement like 
the one that China already appli es, pursuant to Article 42 of the Publications Regulation , to entities 
wishing to import newspapers or periodicals.  Cons idering that the requirement in question does not 
appear to make an independent contribution to pr otecting public morals in China and that it has a 
significant restrictive impact on those wishing to engage in importing – more so than would an 
approval requirement – it cannot, in our view, be characterized as a "necessary" restriction of the right 
to trade, even though the protection of public morals  is a highly important interest and its restrictive 
impact on trade may seem limited.  We therefore conc lude that China has not demonstrated that the 
designation requirement in Article 41 of the Publications Regulation  is "necessary" to protect public 
morals in China.        
7.849  In respect of Article 27 of the 2001 Audiovisual Products Regulation  and Article 8 of the 
Audiovisual Products Importation Rule , other than the importance of the interest and China's level of 
protection, the factors to be weighed are the fact that the designation requirements contained in these 
provisions make an indirect, albeit not insignificant, contribution to the protec tion of public morals in 
China, although that contribution appears to be no more significant than would be the case under an 
approval requirement like the one that China already applies, e.g., for books and electronic publications; that it is unclear to what extent, if any, they limit overall imports of relevant products, 
but that they allow China to select entities that do not cause unnecessary delays in importing; and that they are more restrictive of the right to trade than  would be an approval requirement.  When weighing 
the fact that the designation requirements make an indirect contribution to the protection of public 
morals (which an approval requirement would appear  equally capable of making) against the fact that 
they have a more significant restrictive impact on those wishing to engage in importing than would an 
approval requirement, it is difficult to see how these designation requirements could be characterized as "necessary" restrictions of the right to trade, even  accepting that the protection of public morals is a 
highly important interest and that their restrictiv e impact on trade may seem limited.  We therefore 
conclude that China has not demonstrated that the designation requirements in Article 27 of the 2001 
Audiovisual Products Regulation  and Article 8 of the Audiovisual Products Importation Rule  are 
"necessary" to protect public morals in China.     
"Exclusion" provisions 
7.850  The final group of provisions we need to examine encompasses various "exclusion" 
provisions.  They include Article 42 of the Publications Regulation , and specifically the condition that 
publication import entities must be wholly state-owne d enterprises.  We have determined that by 
imposing this condition, Article 42, in conjunc tion with Article 41, results in China acting 
inconsistently with paragraph 5.1 as well as paragraphs 83(d) and 84( a) and, hence, paragraph 1.2.  
The condition excludes enterprises in  China other than wholly state-owned ones, including foreign-
invested enterprises, from being granted the right to import relevant products.
580    
7.851  In addition, the group of "exclusion" provisions  is made up of Articles X.2 and X.3 of the 
Catalogue  and Articles 3 and 4 of the Foreign Investment Regulation ; Article 4 of the Several 
Opinions ; and Article 21 of the Audiovisual (Sub-)Distribution Rule .  We have discussed these 
provisions earlier in our Article XX analysis.  We  have determined that these additional provisions 
result in China acting inconsistently with paragr aph 5.1 as well as paragraphs 83(d) and 84(a) and, 
hence, paragraph 1.2, in that they exclude forei gn-invested enterprises from being granted the right to 
import relevant products.   
                                                      
580 We include the state ownership condition among the "exclusion" provisions rather than the "criteria" 
provisions because unlike the "criteria" provisions the condition in question a priori excludes certain types of 
enterprise from the right to engage in importing.    WT/DS363/R 
Page 298  
 
  State ownership condition 
7.852  We commence our analysis with Article 42 of the Publications Regulation .  We first consider 
whether the state ownership condition makes a contri bution to the realization of the objective pursued 
by China, i.e., the protection of public morals in China.   
7.853  We recall that under the Publications Regulation  the publication import entity is responsible 
for the conduct of content review.  In response to  questions from the Panel, China stated that the 
reason behind the state ownership condition is that th e cost incurred by publication import entities as a 
result of their obligation to conduc t content review is substantial.
581  China has indicated that the 
content review costs consist of the labour and tr aining cost, the cost of material resources and the 
losses incurred in case publications ordered by cust omers fail to pass the content review and the 
customers must be compensated.  China also recalls that content review is a public policy function.  
Therefore, China maintains, the Government cannot  require privately owned enterprises in China to 
bear the substantial cost.  Chin a suggests that the situation is different for wholly state-owned 
enterprises, inasmuch as in the case of these enterp rises the State owns all equity.  China asserts, in 
addition, that wholly state-owned enterprises are curr ently considered to be th e only entities that fulfil 
the above-discussed technical and organizati onal requirements set out in Article 42.582    
7.854  In considering China's arguments, we note th at China does not contend that publication 
import entities need to be wholly state-owned becau se they perform a public po licy function.  Rather, 
China contends that they need to be wholly  state-owned because content review is costly.583  I n  
China's view, privately-owned enterprises cannot be expected to pay for performing a public interest 
function.  Accordingly, what we need to examine is  the latter contention.  We nonetheless note that, in 
our understanding, the state-owned publication import entities are profit-making enterprises.584  As a 
result, they would seem to face essentially the same incentive structure as privately owned enterprises 
would if they were allowed to be importers.  In ot her words, it is not apparent  that wholly state-
owned enterprises would be inherently more careful  in conducting content review than privately 
owned ones.  We also recall that China enforces  the prohibition of importi ng inappropriate content 
through external "dissuasive sanctions".585  In the light of these elements, there does not appear to be 
any reason to think that privately owned enterprises would be less likely to comply with the content 
review requirements than wholly state-owned ones.   As noted, however, China has in any event not 
advanced any such arguments.    
7.855  Returning to China's argument about the cost of content review, we note that we have asked 
China to provide an estimate of the cost involved for import entities.  China replied that it was unable 
to do so.586  Nevertheless, evidence submitted by Chin a indicates that the CNPIEC, a wholly state-
owned publication import entity, spends RMB 3 million per year for its review staff, as labour and training costs.  It seems that the CNPIEC incurre d an additional cost of RMB 4 million in 2006 as a 
consequence of "the seizure of publication by the screen of content review".
587  While these are 
substantial amounts, they must be compared with th e size of CNPIEC's operations and its revenues.  
The evidence in question does not provide information on CNPIEC's re venues or its profitability.  It 
                                                      
581 China's responses to question Nos. 46(a), 185 and 188(b).   
582 China's second written submission, para. 104. 
583 Ibid. 
584 In response to question No. 195, China indicated that "the importer enjoys the financial benefit of 
distributing publications that pass the content review" and that it can, therefore, be expected to bear the cost of 
content review. 
585 China's first written submission, para. 141;  China's response to question No. 188(a). 
586 China's response to question No. 185. 
587 Exhibit CN-26, p. 6.  WT/DS363/R 
 Page 299 
 
 
  nonetheless indicates that in 2006 CNPIEC impor ted books, newspapers, periodicals, electronic 
publications and audiovisual produc ts worth more than USD 127 million.588   
7.856  Based on the – very limited – evidence before us, we are not convinced that the cost 
associated with content review is so high that it would dissuade all privately owned enterprises in 
China from seeking to enter the business of importing publications.589  In other words, China in our 
view has not demonstrated that it would be unreasonabl e, or futile, to try to impose the cost of content 
review on such enterprises.590  In fact, as already pointed out, even wholly state-owned enterprises 
apparently need to finance the cost, and any lo sses, associated with content review through their 
business activities.591  Even assuming that wholly state-owned enterprises had access to capital on 
more favourable terms than privately owned ones,  or content themselves with lower profits, the 
evidence before us still does not indicate that th ere would be no privately owned enterprises that 
would be interested in entering the business of importing publications.  
7.857  Therefore, China has not persuaded us that re quiring publication import entities to be wholly 
state-owned contributes to the protection of publ ic morals in China b ecause they are the only 
enterprises in China that are able, or should be exp ected, to bear the cost associated with content 
review. 
7.858  We note that China advances an additional ar gument in support of the state ownership 
condition – that only wholly state-owned enterprise s are currently capable of satisfying the condition 
that publication import entities need to have a su itable organization and qua lified personnel.  China 
appears to suggest that this is because of  the cost involved in satisfying the condition.592  A s  s e e n  
above, the evidence before us shows that the CNPI EC spends a substantial amount of money to pay 
for, and train, its review staff.  As we have al so pointed out, however, based on the evidence before 
us, we are not convinced that the cost associated with the need to have qualified personnel and a 
suitable organization is so high as to make it impossibl e, or not worthwhile, to fulfil this condition.  
We further note that publication import entities and Chinese publishing entities employ staff capable of understanding and applying content review sta ndards.  We are therefore not convinced that 
privately owned enterprises would be unable to attr act qualified personnel, or that they would be 
unable to obtain the organizational know-how n eeded to conduct content review properly.  
7.859  Therefore, we are unable to accept China's a dditional argument that requiring publication 
import entities to be wholly state-owned contributes to the protection of public morals in China 
because, for the time being, they are the only enterpri ses in China that are able to satisfy the condition 
that publication import entities have a suita ble organization and qualified personnel. 
7.860  Regarding the first factor, we thus conclude that the arguments and evidence put forward by 
China do not support the view that the state-owners hip requirement makes a material contribution to 
the protection of public morals in China.  
                                                     
 
588 Exhibit CN-26, p. 2 
589 Privately-owned enterprises could be dissuaded, for instance, by the prospect of insufficient profits 
due to the cost associated with content review or the risk of losses linked to content review. 
590 We note that privately-owned enterprises need to comply with numerous regulatory requirements 
that are imposed for public policy r easons (e.g., environmental protection,  workplace safety, etc.) and that 
impose costs on these enterprises.  Similarly, privately-owned enterprises need to pay corporate taxes to the government.  This indicates that the me re fact that certain costs, or taxes,  are imposed on enterprises for public 
policy reasons does not imply that only wholly state-owned enterprises are able, or should be expected, to bear 
these costs. 
591 China's response to question No. 195. 
592 China's response to question No. 46(b). WT/DS363/R 
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  7.861  We next turn to analyse the restrictive impact  of the state-ownership requirement.  Regarding 
the restrictive impact on imports, we note China's argument that the number of titles of newspapers 
and publications imported into China has gone up be tween 2002 and 2006.  In our view, this does not 
necessarily indicate that the requirement in question has not had any trade-restrictive effects.  The 
statistics do not indicate what might have been had no state-ownership requirement been imposed, 
although they do seem to confirm that the requirement  is compatible with an increase in imports.  
China further contends, although without elaborati on, that the fact that only wholly state-owned 
entities may import reading materials does not, in itself, adversely affect imports.
593  To us, it is not 
self-evident, however, that denying foreign producers of reading materials the opportunity to enter the 
Chinese market through privately owned importers of their choice, including ones in which they 
might have invested themselves, has no impact on imports.   
7.862  Regarding the restrictive impact on those wishing to engage in importing, we observe that the 
state-ownership requirement completely denies the ri ght to import to enterprises in China that are not 
wholly state-owned, including foreign-i nvested enterprises.  In other words, it a priori  excludes such 
enterprises from the right to engage in importing the relevant products.  
7.863  Based on the above examination of the relevant  factors, we can now come to a conclusion 
whether, overall, the requirement that publica tion import entities must be wholly state-owned 
enterprises is "necessary" within the meaning of Article XX(a).  In weighing and balancing the 
relevant factors, we note, first of all, that th e protection of public morals is a highly important 
governmental interest and that China has adopted a hi gh level of protection of public morals within its 
territory.  This said, as explained above, we have not  been persuaded that the requirement in question 
makes a material contribution to the protection of public morals. Also, while it is unclear from the 
evidence on record to what extent, if any, the re quirement in question limits imports of relevant 
products, it is clear that it completely excludes partic ular types of enterprise in China from the right to 
engage in importing.  Weighing these factors, we reach the conclusion that China has not demonstrated that the requirement in question is "n ecessary" to protect public morals in China.     
Exclusions relating to foreign-invested enterprises 
7.864  We now turn to consider the above-mentioned provisions of the Catalogue , the Several 
Opinions  and the Audiovisual (Sub-)Distribution Rule , which exclude foreign-invested enterprises.  
We begin our analysis by considering whether th ese provisions make a contribution to the protection 
of public morals in China.   
7.865  As we have explained earlier, we find it plausi ble that these provisions are intended to reflect 
the fact that other measures stipulate that only w holly state-owned enterprises are permitted to import 
the relevant products.  As we have also explained, however, Chin a has not convinced us that requiring 
publication import entities to be wholly state-owned contributes to the protection of public morals in 
China because they are the only ente rprises in China that are able, or should be expected, to bear the 
cost associated with content revi ew.  The same holds true for electronic publication import entities 
and finished audiovisual product import entities.
594  By necessary implication, then, we are also not 
persuaded that Articles X.2 and X.3 of the Catalogue , in conjunction with Articles 3 and 4 of the 
Foreign Investment Regulation ; Article 4 of the Several Opinions ; or Article 21 of the Audiovisual 
(Sub-)Distribution Rule  contribute to the protection of public morals in China by excluding foreign-
invested enterprises from being approved or designated import entities.   
                                                      
593 China's response to question No. 186. 
594 In fact, China's argument is even less convincing for these types of entities since they do not make 
final content review decisions.  WT/DS363/R 
 Page 301 
 
 
  7.866  The next factor to be addressed is the restri ctive impact of the provisions in question.  
Regarding the restrictive impact on imports, we not e China's argument that the number of titles of 
newspapers, publications and audi ovisual products imported into China has gone up between 2002 
and 2006.  In our view, this does not necessarily i ndicate that the "exclusion" provisions do not have 
any trade-restrictive effects.  Although the sta tistics seem to confirm that imports have increased 
despite these exclusions, they do not  indicate what might have been if the relevant exclusions had not 
been imposed.  For example, it is not evident to us that denying foreign producers of relevant products 
the opportunity to use importers of their choice,  such as foreign-invest ed enterprises in China 
(including ones in which they might have invested themselves), or to act as their own importers, has 
no impact on imports.     
7.867  Regarding the restrictive impact on those wishing to engage in importing, we observe that the 
"exclusion" provisions completely deny the right to import to foreign-invested enterprises in China.  
In other words, they a priori  exclude such enterprises from the ri ght to engage in importing relevant 
products.   
7.868  Based on the above examination of the relevant factors, we must now come to a conclusion 
whether, overall, Articles X.2 and X.3 of the Catalogue , in conjunction with Articles 3 and 4 of the 
Foreign Investment Regulation ; Article 4 of the Several Opinions ; and Article 21 of the Audiovisual 
(Sub-)Distribution Rule  are "necessary" within the meaning of Article XX(a).  In weighing and 
balancing the relevant factors, we first recall the fact that the prot ection of public morals is a highly 
important governmental interest and that China has adopted a high level of protection of public morals 
within its territory.  We must take account, in additi on, of the fact that we are not persuaded that these 
requirements, which exclude foreign-invested ente rprises, contribute to the protection of public 
morals; that it is unclear to what extent, if any,  they limit overall imports of  relevant products; and 
that they completely exclude particular types of  enterprise in China from the right to engage in 
importing.  Considering that it is  not apparent to us that the requirements in question make a 
contribution to protecting public morals and that they  completely deny the right to import to relevant 
enterprises in China, they cannot, in our view, be ch aracterized as "necessary" restrictions of the right 
to trade, even though the protection of public morals  is a highly important interest and their restrictive 
impact on trade may seem limited.  We therefore conclude that China has not demonstrated that 
Articles X.2 and X.3 of the Catalogue , in conjunction with Articles 3 and 4 of the Foreign Investment 
Regulation ; Article 4 of the Several Opinions ; or Article 21 of the Audiovisual (Sub-)Distribution 
Rule are "necessary" to protect public morals in China.        
Analysis of alternatives proposed by the United States  
7.869  The Panel  has found above that, absent reasonably av ailable alternatives, Article 42 of the 
Publications Regulation  is "necessary", in part, within the meaning of Article XX(a).  More 
specifically, the Panel has found that two of the a pproval criteria set forth in Article 42 – the condition 
concerning suitable organization a nd qualified personnel as well as th e condition concerning the State 
plan for the number, structure and distribution of import entities – can be characterized as 
"necessary".  The Panel recalls in this respect the A ppellate Body's statement that if a panel reaches 
the preliminary conclusion that a challenged measure  is necessary, this result must be confirmed by 
comparing the measure with possible alternatives, wh ich may be less trade restrictive while providing 
an equivalent contribution to the achievement of th e objective.  The Appellate Body also stated that 
this comparison should be carried out in the light of  the importance of the interests or values at stake. 
7.870  Relevant Appellate Body jurisprudence on Artic le XIV(a) of the GATS further indicates that 
it is up to the complaining party to raise WTO-cons istent alternatives.  Specifically, the Appellate 
Body observed that: WT/DS363/R 
Page 302  
 
  "If … the complaining party raises a WTO-consistent alternative measure that, in its 
view, the responding party shoul d have taken, the responding party will be required to 
demonstrate why its challenged measure nevertheless remains 'necessary' in the light of that alternative or, in other words, w hy the proposed alternative is not, in fact, 
'reasonably available'.  If a responding part y demonstrates that the alternative is not 
'reasonably available', in the light of th e interests or values being pursued and the 
party's desired level of protection, it follo ws that the challenged measure must be 
'necessary' within the terms of  Article XIV(a) of the GATS."
595 
7.871  In Brazil – Retreaded Tyres , the Appellate Body further stated that: 
"If the complaining Member has put forw ard a possible alternative measure, the 
responding Member may seek to show that the proposed measure does not allow it to 
achieve the level of protection it has cho sen and, therefore, is not a genuine 
alternative.  The responding Member may al so seek to demonstrate that the proposed 
alternative is not, in fact, 'reasonably availa ble'.  As the Appellate Body indicated in 
US – Gambling , '[a]n alternative measure may be found not to be 'reasonably 
available' ... where it is merely theoreti cal in nature, for instance, where the 
responding Member is not capable of taking it, or where the measure imposes an undue burden on that Member, such as prohibitive costs or substantial technical difficulties.'  If the responding Member dem onstrates that the measure proposed by 
the complaining Member is not a genuine a lternative or is not 'reasonably available', 
taking into account the interests or values being pursued and the responding 
Member's desired level of protection, it follows that the measure at issue is 
necessary."
596 
7.872  With the Appellate Body's guidance in mind, we now proceed to examine the United States' 
contention that there are WTO-consistent a lternatives reasonably available to China.  
7.873  The United States  argues that China has numerous WTO- consistent alternatives to achieve 
its content review objectives that do not restrict the right to import.  The United States submits that 
content review can be conducted be fore, during or after importation by any number of entities, with 
no need to give China's state-owned enterprises a monopoly on importing.  The United States points out that China's "in-house" content review re gime for domestic producers offers a fully WTO-
consistent alternative to China's measures.  In the United States' view, the existence of this regime by 
itself demonstrates that China's measures are not necessary.   
7.874  The United States considers that foreign-inv ested and privately held enterprises could, 
themselves, conduct the content review of the pro ducts they import, by training or hiring content 
review experts.  The United States notes that su ch enterprises could follow the approach currently 
taken by the CNPIEC and conduct the content review  prior to engaging in the importation process.  
The United States considers that the importing ente rprise could likewise perform that review during 
the time that importation is under way or once th e importation is complete, but before the good is 
released into commerce into China.   
7.875  Alternatively, the United States proposes that  the Chinese Government could conduct the 
review of products imported by foreign-invested a nd privately held importers.  Or, the United States 
submits, foreign-invested and privately held impor ters in China could hire domestic Chinese entities 
with the appropriate expertise to perform the nece ssary review.  Such entities could, in the United 
States' view, conduct the content review before, during or after importation.  The United States 
                                                     
 
595 Appellate Body Report on US – Gambling , para. 311. 
596 Appellate Body Report on Brazil – Retreaded Tyres , para. 156 (footnotes omitted).  WT/DS363/R 
 Page 303 
 
 
  observes that in all cases, content review would o ccur before the product enters the stream of 
commerce in China. 
7.876  China  responds that what the United States has pr oposed are no more than mere suggestions 
or speculations rather than "reasonably availabl e" alternative measures.  In China's view,  no WTO-
consistent alternatives are reasonably available beca use there is no evidence th at such alternatives 
would allow China to guarantee the level of prot ection it seeks.  China argues that the level of 
protection of public morals China seeks to en force cannot accommodate dissociation between the 
importation business and the performance of the conten t review.  China contends  that having different 
entities to conduct importation and content review would have a significant negative effect on the 
efficiency of both the content review and the im portation, resulting in unacceptable delays in the 
importation process. 
7.877   China further argues that the content review must be carried out at the importation stage, 
before any cultural product is imported into Chin a's territory.  China considers that any proposed 
alternative under which the content review would be carried out after im portation cannot meet the 
level of protection required to prevent any disse mination of imported cultural goods with prohibited 
content.   
7.878  Regarding the proposal that foreign-invested and privately held enterprises in China could 
conduct the content review, China argues that follo wing the United States' proposal would mean that 
an unlimited number of foreign-invested entities could hire or develop different  levels of expertise 
depending on the type of cultural product imported.  China submits, however, that the right to import 
cannot be granted to each applicant, as it would be  impossible for the Chinese Government to review 
and control the capacity of each importer registered  in China to conduct the content review.  China 
considers that making an unlimited number of entities subject to such review and control would lead 
to an unbearable administrative burden and costs for the Chinese authorities.  Ch ina further notes that 
there would be considerable concern that the cont ent review would not be performed in a harmonized 
manner that would allow China to guarant ee an adequate level of protection.   
7.879  With regard to the proposal that Chinese comp anies could be hired to  perform the content 
review, China argues that this does not appear to be a practicable solution.  China considers that 
having a different entity to conduct the importation and the content review respectively would result 
in undue delays in trade and/or lowering the effici ency and effectiveness of the content review. China 
recalls that conducting the content review is a ssociated with significan t responsibility and severe 
punishment in case of violation.  China observes in this respect that it is not aware of any entity 
capable of conducting the content review which would be willing to  be hired to perform content 
review on behalf of other entities. 
7.880  Furthermore, China submits that foreign indi viduals and foreign enterprises (exporters or 
publishers) not in China could not carry out the content review.  China argues that the burden of examining and supervising the huge number of foreign individuals and entities would cause 
unacceptable costs and substantial technical difficulti es.  China further points out that its laws and 
regulations do not have the required extraterrito rial jurisdiction to enfo rce compliance with the 
content review requirements in a way which can be  examined by the Chinese authorities.  China notes 
that because foreign entities are not registered in China according to  China's laws and regulations, 
they cannot be held liable for any failure to pr event cultural goods with prohibited content to be 
imported into China.  In addition,  China submit s that foreign entities may not fully understand the 
concept of public morals as understood by China sin ce the content of this concept is specific to each 
WTO Member.   
7.881  In China's view, in addition to being imprac ticable, the alternatives proposed by the United 
States would present an increased risk of the c ontent review not being performed in a manner WT/DS363/R 
Page 304  
 
  allowing the achievement of the high level of prot ection sought by China, i.e., a complete ban on any 
prohibited content.  For China, it follows that th e United States' proposals are merely theoretical and 
cannot, therefore, be viewed as "reasonably availabl e" alternatives to the cu rrent Chinese measures.  
7.882  The United States  disagrees that content review cannot be disassociated from importation, 
arguing that China's own system de-links these unrel ated activities.  The United States points out that 
the CNPIEC, which is among the largest Chinese whol ly state-owned importers of reading materials 
in China, reviews the content of reading mate rials independently from, and in advance of, 
importation.  The United States further argues th at the GAPP reviews the catalogues of reading 
materials submitted by importers prior to impor tation and may prevent the importation of any 
products with prohibited content.  The United St ates also points out that the Chinese Government 
itself reviews the content of all foreign films before  any such film is permitted to be imported into 
China.  In the United States' view, this effectivel y demonstrates that achieving China's desired level of 
enforcement – i.e., preventing the dissemination of products with prohibited content into China – does 
not require content review to occur in association with importation activities.  The United States also contends that the Chinese Government, not the st ate-owned importer, undertakes final content review 
for audiovisual products, and that for reading materi als, the state-owned importers take part in the 
content review process, but the Chinese G overnment plays the central role.    
7.883  The United States further argues that China's con cerns regarding cost of content review are 
addressed under the US proposals.  The United States  submits that two of the US proposals – either 
having the foreign importers and privately held im porters in China conduct content review after 
obtaining the necessary expertise, or having these importers hire domestic entities with the 
appropriate expertise to conduct c ontent review – would require minimal additional costs.  These 
proposals essentially involve substituting foreign importers and privately held importers in China into 
the roles currently played by the state-owned impor ters.  The United States considers that its third 
proposal – having the Chinese Government conduct a ll content review – would also require minimal 
additional costs, as much of the content review of  imported products is already performed by the 
Chinese Government, and the Chinese Government is already bearing the costs of these activities.  
The United States submits that, if necessary, China c ould also take advantage of provisions already in 
its law that authorize charging fees for the review of content.
597 
7.884  The United States also rejects China's arguments regarding alleged problems associated with 
the examination and supervision of reviewers.  In the United States' view, the content review system 
applicable to domestic products demonstrates Ch ina's ability and willingness to oversee hundreds of 
domestic content review entities.  The United States  notes that, e.g. in 2007, there were 363 domestic 
audiovisual publishers licensed in China and author ized to conduct content review of their products 
"in-house".598  Similarly, according to the United States, in 2007, there were 806 domestic book and 
electronic publication publishers in China conducting "in-house" review.599  The United States further 
argues that a system in which government officials re view the content of products imported by foreign 
importers and privately held importers would im pose no additional structural burden, because these 
reviewers are already in place and are being examined  and supervised in the context of the content 
review of imported products. 
                                                      
597 The United States refers to Article 44 of the Publications Regulation . 
598 The United States refers to "Bulletin of Statistics", General Administration of Press and Publication 
webpage, available at: http://www .gapp.gov.cn/cms/cms/website/zhrmg hgxwcbzsww/layout3/xxml33.jsp? 
channelId=1392&siteId=21&infoId=459130. 
599 The United States refers to "Bulletin of Statistics", General Administration of Press and Publication 
webpage, available at: http://www .gapp.gov.cn/cms/cms/website/zhrmg hgxwcbzsww/layout3/xxml33.jsp? 
channelId=1392&siteId=21&infoId=459130.  WT/DS363/R 
 Page 305 
 
 
  7.885  Finally, the United States considers that Chin a's objections regarding its alleged inability to 
assert jurisdiction under the US proposals are also unavailing.  The United States notes that under the 
US proposals in which the Chinese Government or enterprises in China are conducting content 
review, China's ability to assert jurisdiction is clear .  Regarding China's assertion that no entity would 
be willing to conduct content re view on behalf of other entities because the responsibility and 
penalties involved are too great, the United States s ubmits that this ignores China's own arguments 
that state-owned enterprises are the only entities capab le of reviewing products manufactured by other 
producers.     
7.886  The Panel  notes that the United States has proposed  several alternatives that it considers 
would be reasonably available to China.  There is  no need to examine each of the alternatives put 
forward by the United States, provided that the Panel is  satisfied that at least one of them constitutes a 
genuine alternative and is reasona bly available, taking into account the interest being pursued and 
China's desired level of protection.    
7.887  We begin our analysis with the US proposal that the Chinese Government could conduct the 
review of relevant produc ts imported into China.  We understa nd that under this proposal the Chinese 
Government could make final content review deci sions before they are cleared through customs, 
which China says is important to prevent prohi bited content from being disseminated in China.600  We 
also understand that this proposal would involve no r estriction of the right to import, and thus there 
would be no need for selecting importers, in that im porters would neither make preliminary nor final 
content review decisions.   
7.888  We first consider the contribution made by the US proposal to the realization of the objective 
pursued by China, i.e., the protection of public mora ls in China.  More specifically, we consider 
whether a requirement that relevant products mu st be submitted to the Chinese Government for 
content review before they may be imported into China would make an equivalent contribution to the 
one made by the relevant provisions.  In this respect,  it is clear to us that such a requirement would 
make a material contribution to the protection of pub lic morals in China.  By requiring that products 
to be imported must be submitted to the Chinese Go vernment for review, and specifically to qualified 
governmental content reviewers, China could have adequate confidence that the content review is 
carried out in accordance with the applicable rules.  The Government could also easily ensure the 
consistent application of the rules on content re view.  Thus, if the Chinese Government had sole 
responsibility for content review, this would, in ou r view, ensure that no products with prohibited 
content are imported into China.  It is therefore not  apparent that this particular US proposal would 
not allow China to achieve its desired level of protec tion of public morals.  In other words, we are not 
convinced that the US proposal does not constitute a "genuine alternative", in the sense that it is an 
alternative which China could not reasonably be ex pected to employ, taking into account China's 
desired level of protection.  
7.889  Another factor we must consider is the restrictive impact of the US proposal.  We begin by 
considering the restrictive impact on imports.  In response to a question from the Panel, China stated 
that requiring the government to be solely r esponsible for conducting the content review may 
adversely affect the efficiency of the content review and trade flows.  China points in this respect to 
the large quantities of reading materials imported into  China, the time constraints for newspapers and 
periodicals and the numerous customs entry points  through which reading materials are being 
imported.601     
7.890  In considering China's response, we note, first of  all, that China appears to assume that the 
Chinese Government would conduct the content review  in one central location.  It is arguable, 
                                                      
600 China's responses to question Nos. 188(a) and 189. 
601 China's response to question No. 195. WT/DS363/R 
Page 306  
 
  however, that the Government could also maintain offices with qualified content reviewers in a large 
number of customs areas and close to the entry points.  In this way, it could achieve a geographical coverage comparable to that which China curren tly seeks to achieve through its State plans for the 
number and distribution of publication import entiti es.  In the absence of any indication to the 
contrary, we see no reason to reject this possibility from the outset. 
7.891  Furthermore, even if there were important reas ons for the content review  of relevant products 
to be done in one central location, it is not clear to us that implementing the US proposal would inevitably result in additional delays.  Time-sensitiv e publications to be imported, such as newspapers 
and periodicals, could be submitted electronically  to the Government for content review.  We 
recognize that we are concerned with imports of hard copies and that, theoretically, the electronic 
version submitted for content review could differ fr om the hard copy to be imported.  China has 
explained, however, that publication import en tities conduct content review "based upon samples and 
other information" of the books, ne wspapers and periodicals to be im ported and that their content is 
"double checked" when they reach customs.
602  In the light of this, we do not see why the content of 
time-sensitive publications could not, likewise, be  "double checked" when they reach customs, 
including by comparing the hard copies with the electronic copies submitted to China's Government 
for content review.  We are therefore not persuade d that if content review were conducted in one 
central location this would inevitably result in additi onal delays.  It should, moreover, be noted that 
unlike the provisions at issue, the US proposal would not result in any restriction of the right to import.  It would thus not produce any of the adve rse effects on imports which the restriction of the 
right to trade would produce.   
7.892  In respect of electronic publications and audi ovisual products, China has explained that under 
its current system samples are brought into Ch ina under temporary importation procedures.  The 
samples are submitted to the competent authorities fo r content review.  The authorities then either 
approve importation of the product or not.  Importers  are to present the approval documents to the 
customs authorities at the time of importation.
603  It does not appear to us that the US proposal, if 
implemented, would result in more serious delays than China's current measures. 
7.893  Regarding the restrictive impact of the US proposal on those wishing to engage in importing, 
we have already stated that the proposal would invo lve no restriction of the right to import relevant 
products.  The US proposal would therefore have no restrictive impact on those wishing to engage in 
importing the relevant products. 
7.894  Having made an initial assessment of the US pr oposal in its own right, we must now compare 
it with the "criteria" provision which we have foun d to be "necessary" in part.  Specifically, we found 
that two approval criteria set forth in Article 42 of the Publications Regulation  to be prima facie 
"necessary" (the organization and personnel criterion a nd the State plan criterion).  We first recall our 
view that the US proposal would allow China to ach ieve its desired high leve l of protection of public 
morals.  Furthermore, as explained, making the Ch inese Government solely responsible for the review 
of the content of the relevant products would, in our view, make a material contribution to the 
protection of public morals in China.  We have pr eviously determined that the relevant two approval 
criteria likewise make, or are apt to make, a materi al contribution to the realization of the same 
objective.  It is clear, therefore, that implementing the US proposal would make a contribution that is at least equivalent to that of the provision at issue.   
7.895  With regard to the restrictive impact on imports, we are not persuaded based on the 
information before us that implementing the US proposal would necessarily produce more delays in 
the importation of reading materials than application of the two approval criteria at issue.  In relation 
                                                     
 
602 China's response to question No. 191. 
603 Ibid.  WT/DS363/R 
 Page 307 
 
 
  to the two criteria, we recall that it is unclear to what extent, if any, their application limits overall 
imports of relevant products  by restricting the right to import to certain importers.  The US proposal 
would not result in any restriction of the right to import and thus would not produce any adverse trade 
effects resulting therefrom.   
7.896  As far as the restrictive impact on those wishing to engage in importing is  concerned, we have 
pointed out that the US proposal would have no restrictive impact on those wishing to engage in 
importing the relevant products.  The two a pproval criteria provisions do not result in a priori  
exclusions, but nonetheless have a restrictive impact  on certain enterprises who would wish to engage 
in importing.   
7.897  It can thus be said that the US proposal woul d be significantly less restrictive than the two 
approval criteria in terms of its impact on those wishi ng to engage in importing.  In terms of its impact 
on imports, the information on the record does not suggest  to us that the US proposal is likely to have 
a more serious adverse effect than the criteria at issue.   
7.898  It emerges from the above considerations th at implementing the US proposal would make a 
contribution that is at least equivalent to that of the relevant two approval criteria.  At the same time, 
the US proposal would have a significantly less restrictive impact on importers – in fact, it would 
have no such impact – without there being any indication that it would necessarily have a more 
restrictive impact on imports of relevant produc ts than the approval criteria at issue.   
7.899  This result of our comparison of the US proposal with the two approval criteria set forth in 
Article 42 must be considered in the light of the im portance of the interest at stake.  We therefore 
recall once more that the protection of public mora ls is a highly important governmental interest.  
Even taking account of the importance of public mora ls as a governmental interest, however, we note 
that the result of our comparison is quite clear.  Th e situation facing us is not one where the proposed 
alternative has a less restrictive impact but also makes a less significant contribution to the realization 
of the relevant objective.  In such a hypothetical  situation, consideration of the importance of the 
interest at stake could incline us toward the view that the proposed alternativ e would not be adequate.  
The situation facing us in the present case is one wh ere the proposed alternative makes an equivalent 
or better contribution to the realization of the objec tive of protecting public morals and does not just 
have a marginally less restrictive impact, but a si gnificantly less restrictive impact, specifically on 
those who wish to engage in importing.  In this situ ation, the mere fact that public morals are a highly 
important governmental interest is not sufficient, in our view, to justify the two approval criteria at 
issue.  
7.900  In the light of this, we consider that the US  proposal that the Chinese Government be given 
the sole responsibility for the conduct of the content review is an alternative which would support the 
conclusion that the approval criteria at issue are not, in fact, "necessary" within the meaning of 
Article XX(a), provided this  alternative is "reasonably available"  to China.  Before reaching a final 
conclusion, therefore, we must examin e whether this condition is met.   
7.901  In examining whether the alternative proposed by the United States is "reasonably available" 
to China, we first note that there is no concern th at the Chinese Government might not be capable of 
taking the alternative measure, such that the measure  would merely be a theoretical possibility.  As 
China itself has confirmed, the Chinese Government already makes the final content review decision 
in respect of electronic publications, audiovisual  products and films for theatrical release.604  China 
has not asserted that its Government would lack th e capacity to make content review decisions with 
regard to books, newspapers or periodicals.  In fact, the Publications Regulation  already provides that 
                                                      
604 China's responses to question Nos. 191 and 196. WT/DS363/R 
Page 308  
 
  China's Government can conduct a review of books, ne wspapers or periodicals at its own initiative or 
at the request of a publication import entity.
605 
7.902  China appears to consider that implementing the US proposal would impose an undue burden 
on it.  China has asserted that its administrative authorities are not in a position, due to limited 
resources, to carry out a comprehensive and thorou gh content review by themselves without creating 
undue delays.  China has pointed out that the content re view of books, newspapers  or periodicals to be 
imported would demand substantial resources considering the large quantities of imports involved and 
the time-sensitive nature of reading materials like newspapers and periodicals.606   
7.903  We recognize that implementing the US proposal might make it necessary for China to 
allocate additional human and financial resources to  the authorities tasked with performing content 
review.  At least this would seem a possible conse quence for the content review of books, newspapers 
or periodicals for which publication import entiti es are currently making final content review 
decisions.    
7.904  It is worth recalling in this context that only wholly state- owned enterprises are currently 
allowed to import relevant products.  China argues in this respect that th ese enterprises can be 
required to bear the cost of performing the content review because the State owns all equity.  China 
states that it is not in a position to require  private investors to bear this cost.607  Thus, it is currently  
the Chinese Government which has to  finance the content review activities of the import entities that 
make preliminary or final content review decisions.  To that extent, it is not apparent to us that the 
cost to the Chinese Government would be any high er if the US proposal were implemented.  To 
recall, the main difference would be that content review would be conducted, not by incorporated 
wholly state-owned enterprises, but by non-incorpor ated offices comprising the Government of China. 
7.905  In any event, we note that China has not provide d any data or estimate that would suggest that 
the cost to the Chinese Government would be unr easonably high or even pr ohibitive.  Moreover, 
when we asked China whether it coul d charge fees for the content review for all relevant products if 
the Chinese Government were to perform the conten t review, China merely stated that allowing the 
Government to perform the content re view was not only a matter of money.608  This response appears 
to suggest that China could, in principle, charge fees whenever it reviews th e content of a product to 
be imported.  In fact, as also pointed out by the United States, Article 44 of the Publications 
Regulation  already provides that when a publication import entity requests the competent authority to 
review the content of a product to be imported because the entity is  unable to determine whether the 
content is prohibited or not, the competent author ity may charge fees in accordance with standards 
approved by China's State Council.        
7.906  Based on the foregoing, we consider that Chin a has not demonstrated that the alternative 
proposed by the United States would impose on Ch ina an undue burden, whether financial or 
otherwise.  As explained, it would appear that Ch ina could in any event lessen any burden by charging 
appropriate fees. 
7.907  Accordingly, we consider that China has not demonstrated that the alternative proposed by 
the United States is not "reasonably av ailable" to it.  We also note in  this connection that China has 
not argued that the alternative proposed by the Un ited States would be WTO-inconsistent.  We see no 
reason to believe that the alternative in question would be inherently WTO-inconsistent or that it 
could not be implemented by China in a WTO-consistent manner.    
                                                      
605 China's response to question No. 196. 
606 China's response to question No. 185. 
607 China's responses to question Nos. 46(a) and 188(b). 
608 China's response to question No. 195.  WT/DS363/R 
 Page 309 
 
 
  7.908  We can now come to an overall conclusion rega rding the alternative proposed by the United 
States under which the Chinese Government would be given the sole responsibility for the conduct of 
the content review.  We conclude that China h as not demonstrated that, the proposed alternative 
notwithstanding, the relevant two approval criteria set forth in Ar ticle 42 are "necessary" because the 
proposed alternative is not a genuine altern ative or is not "reasonably available".   
7.909  Having thus found that there exists at least one  alternative in relation to which China has not 
demonstrated the "necessity" of the approval criteria at issue, we need not, and therefore do not, proceed to an analysis of the other alternatives pr oposed by the United States.  We merely note that 
the United States has also proposed an alternativ e which would not require the Chinese Government 
to conduct the content review.  Under that altern ative, approved Chinese entities with the necessary 
expertise could perform the content review, at the requ est of importers of releva nt products and before 
the products are allowed to be imported into Chin a.  Such domestic entities could be state- or 
privately-owned.  China has said that it is not aware of any Chinese entity which would be willing to 
be hired to perform content reviews at the request of  importers.  China recalls in this respect that it 
enforces its content review standa rds through external dissuasive sanctions.  China has not explained, 
however, why such entities could not charge fees fo r their services that would adequately compensate 
for the risk of being sanctioned and for other potential liabilities they might face. 
Conclusion  
7.910  As we have now completed all of the analyti cal steps involved in a "necessity" analysis, we 
are in a position to conclude this part of our examination of China's Article XX(a) defence. 
7.911  We have found that none of the provisions of Ch ina's measures which we have determined to 
be inconsistent with China's trading rights commi tments under the Accession Protocol is "necessary" 
within the meaning of Article XX(a).  In respect  of these provisions, China has either not made a 
prima facie case that they are "necessary", or Chin a has not demonstrated that an alternative put 
forward by the United States is not a genuine alternativ e or is not reasonably available to China, in the 
light of the interest being pursued and China's desired level of protection.   
(ii) Compliance with the requirements of the chapeau of Article XX 
7.912  The Panel  recalls its conclusion above that China has not established th at the measures at 
issue are "necessary" within the meaning of Article XX(a)  to protect public morals.  In the light of this 
conclusion, there is no need to go on to exam ine whether the relevant measures satisfy the 
requirements of the chapeau of Article XX, as Chin a claims.  Even if these measures satisfied the 
requirements of the chapeau, they would not be ju stified under Article XX.  As a result, the Panel 
refrains from making additional findi ngs based on the provisions of the chapeau of Article XX.  
(d) Conclusion 
7.913  Having regard to the Panel's finding that none of  the relevant measures has been demonstrated 
to be "necessary" within the meaning of Ar ticle XX(a) to protect public morals, the Panel  comes to 
the overall conclusion that these measures are not jus tified under the provisions of Article XX(a).   
7.914  
In view of our conclusion that China has in  any event not established that the measures at 
issue satisfy the requirements of Article XX(a), we need not, and hence do not, revert to the issue 
whether Article XX(a) is in fact applicable as a di rect defence to breaches of China's trading rights 
commitments.  We thus take no position on this issue.    WT/DS363/R 
Page 310  
 
  3. Overall conclusions 
7.915  The Panel  recalls that for the purposes of its analysis of whether the relevant Chinese 
restrictions of the right to trade are covered by Ch ina's "right to regulate trade" in a WTO-consistent 
manner, the Panel has assumed that these restrictions of the right to trade are incidental to regulation 
of the relevant products.  Since we have found that the relevant restrictions have not been established 
to be consistent with Article XX( a), and, hence, the WTO Agreement, we need not go on to examine 
whether the restrictions in question are, in fact, inci dental to regulation of the relevant products.  It is 
clear already at this stage in the analysis that China has not established its asserted defence.        
7.916  The Panel further recalls that, in view of Chin a's defence based on its right to regulate trade 
and Article XX(a), the Panel has described as tent ative its previous findings that the measures 
governing reading materials and finished audiovisual  products are inconsistent with China's trading 
rights commitments under the Accession Protocol.  As the Panel has not been persuaded of the merits 
of China's defence, the Panel can now  confirm its earlier conclusions.   
7.917  Thus, the Panel's earlier findings of inconsis tency in respect of the measures governing 
reading materials and finished audiovisual produ cts should be considered to constitute final 
conclusions in the same way as the Panel's fi ndings of inconsistency in respect of the Film Regulation  
and the Film Enterprise Rule , as well as the 2001 Audiovisual Products Regulation  and the 
Audiovisual Products Importation Rule  (insofar as they concern audiovisual products intended for 
publication).  The Panel recalls that a detailed summ ary of the conclusions of the Panel – which are 
now final conclusions in their entir ety – is provided above, at paragra ph 7.706, and so there is no need 
to set out these conclusions again. 
D. C
LAIMS UNDER THE GATS 
7.918  The Panel notes that the United States has ma de claims under the General Agreement on 
Trade in Services (GATS) with respect to the dist ribution of reading materials, audiovisual home 
entertainment (AVHE) products and sound recordings.  Its claims focus on violations of China's 
national treatment commitments (Article XVII), but ex tend also to violations of China's market access 
commitments (Article XVI).  The claims concer n exclusively the distribution within China by 
foreign-invested enterprises presen t in China – that is, they concern supply of distribution services 
through "commercial presence"  in China of these entities. 
7.919  China's GATS commitments on national treatme nt and market access, which were negotiated 
with other WTO Members prior to its accession in December 2001, are inscribed in its Schedule and 
attached to the GATS.   
7.920  The Panel notes that WTO Members, including China, employ a uniform format for their 
services schedules.  Each schedule consists of four  columns.  The heading of each column reads: 
(i) sectors or sub-sectors;  (ii) limitations on market access;  (iii) limitations on national treatment;  and (iv) additional commitments.  In the second and third columns, inscriptions are made for each of 
the four modes of supply: cross-border, consump tion abroad, commercial pr esence, and presence of 
natural persons, and may be take n in three forms: "Unbound", "None " and specified limitations, to 
indicate no, full and partial commitments.  As part of the schedule format, there is a separate section 
at the beginning of a schedule where a Member may inscribe market access and national treatment limitations that apply to all scheduled sectors, unless  otherwise specified.  Inscriptions in this section 
are called "horizontal commitments". 
7.921  This schedule structure gives each WTO Member  flexibility in defining the precise scope of 
its commitments.  Having chosen on which service sectors it wishes to commit, a Member may 
specify the exact extent to which these commitments are to apply by indicating full market access and  WT/DS363/R 
 Page 311 
 
 
  national treatment, or partial or no commitment with respect to the four modes of supply.  As stated, 
this case involves only the supply of distribution services through "commercial presence", also known as "mode 3".   In the case of making partial commitm ent, a Member may inscribe limitations in one of 
the two columns: either under "limitations on ma rket access" or under "limitations on national 
treatment".  If a limitation affects both market access and national treatment then, by a convention set 
out in Article XX:2 of the GATS (avoiding the need to  repeat an inscription), it is to be inscribed only 
in the market access column.   
7.922  We recognize that GATS schedules are an integral part of the GATS
609, and are thus legally 
part of the WTO Agreement.  Consistent with Artic le 3.2 of the DSU, we interpret commitments in 
schedules according to the "customary rules of in terpretation of public in ternational law" which 
include Articles 31 and 32 of the Vienna Convent ion.  For services commitments, this has been 
confirmed by the Appellate Body in US – Gambling , which stated that  
"[T]he task of identifying the meaning of  a concession in a GATS Schedule, like the 
task of interpreting any other treaty text, involves identifying the common intention  of 
Members. … we consider that the meaning of the United States' GATS Schedule 
must be determined according to the rules c odified in Article 31 and, to the extent 
appropriate, Article 32 of the Vienna Convention."610  
7.923  Apart from the WTO Agreement and its constituen t parts, various instruments have been 
recognized in previous dispute settlement cases as havi ng potential value in assisting the interpretation 
of GATS schedules.  These instruments include the 1991 United Nations Provisional Central Product 
Classification (hereafter "CPC") and the GATT Secretariat document "Services Sectoral 
Classification List" (MTN.GNS/W/120, hereafter "W/120" ), both of which deal with the classification 
of services.  The Appellate Body has identifie d document W/120 and the 1993 Guidelines for the 
Scheduling of Specific Commitments under the GA TS (hereafter the "1993 Scheduling Guidelines"), 
which are not binding on WTO Members, as suppl ementary means of interpretation within the 
meaning of Article 32 of the Vienna Convention.611 
7.924  We turn now to a detailed examination of the US claims with respect to the distribution of 
reading materials, AVHE products and sound recordings. 
1. Distribution of reading materials:  claims under Article XVII of the GATS 
7.925  The United States requests the Panel to find that specified Chinese measures affecting the 
distribution of "reading materials" (which it de fines as consisting of books , newspapers, periodicals 
and electronic publications) are inconsistent w ith China's national treat ment commitments under 
Article XVII of the GATS.  According to th e United States, these measures impose on foreign-
invested enterprises that are service suppliers in China: 
(a) A prohibition on the distribution  of imported reading materials; 
(b) A prohibition on the so-called master distribution  of reading materials (except 
electronic publications); 
(c) A prohibition on the so-called master wholesale and wholesale  of electronic 
publications;  and 
                                                      
609 Article XX:3 of the GATS provides: "Schedules of  specific commitments shall be annexed to this 
Agreement and shall form an  integral part thereof." 
610 Appellate Body Report on US – Gambling , para. 160. 
611 Appellate Body Report on US – Gambling , para. 196. WT/DS363/R 
Page 312  
 
  (d) Discriminatory  requirements  for the so-called sub-distribution of domestically 
published reading materials (except electronic publications). 
7.926  The United States claims that these measures a ffect the supply through commercial presence 
of "Wholesale Trade Services", as well as "Retailing Se rvices" with respect to master distribution, 
listed in Sector 4 of China's Services Schedule. 
7.927  For the purposes of these US claims, the parties agree that the term "electronic publications" 
refers to products as defined in relevant Chinese legislation.
612  This definition covers edited photo, 
text, audio and video information saved as digita l codes on media such as CDs, DVDs, and IC cards, 
but does not include what the United States refe rs to as AVHE products and sound recordings. 
7.928  As indicated in Section II, a number of transl ation issues have arisen during the course of the 
proceedings.  Some of these relate to the GATS claims on the distribution of reading materials.  In 
particular, the parties disagree on the translation of the terms Fa Xing , Zong Fa Xing , and Zong Pi Fa  
in the relevant Chinese measures.   China argues that each of th ese terms reflects a unique Chinese 
concept and cannot be translated into English.  The United States holds that the terms should be 
translated, respectively, as "distribution", "m aster distribution " and "master wholesale ". 
7.929  The Panel notes that the independent translator  has provided views, at our request, on the 
translation of the terms at issue.  With respect to Fa Xing , the independent translator indicates that 
there "would not seem to be any reason why 'distr ibution' should not be deemed an acceptable 
translation", "nor would there seem to be any comp elling reason for leaving the term in Chinese".  In 
the case of Zong Pi Fa , the independent translator notes that "there would seem to be no cogent 
reason not to translate" this term.  The translator  agrees with the use of "wholesale" but, instead of 
"master wholesale", considers that "wide-ranging whol esale" or "large-scale wholesale" would be the 
best translation.  With regard to Zong Fa Xing , the independent translator notes that the expression is 
composed of word elements found in the other two terms, namely Fa Xing  and Zong Pi Fa .  
Accordingly, the translator sees "large-scale  distribution" as the best translation for Zong Fa Xing . 
7.930  The Panel sees no reason to disag ree overall with the translations  provided by the independent 
translator in these matters.  As regards the terms Zong Fa Xing  and Zong Pi Fa , however, we note that 
the independent translator chooses the terms "large -scale distribution" and "large-scale wholesale" 
over the terms suggested by the United States, namely  "master distribution" and "master wholesale".  
Despite this indication by the independent translator , we prefer to use the terms suggested by the 
United States.   Our considerations for doing so ar e several.  First, the difference in wording between 
the versions of the United States and the independent  translator's translations ("master" vs. "large-
scale") is minor, and so has little substantive effect on the Panel's analysis of the relevant claims.  
Second, what matters for our legal analysis is whether the activities involved qualify as wholesale or 
retail services as claimed, not how they are named.  Third, we note further that the issue of the "scale" was not a concept raised or argued by the parties.  These considerations lead us to prefer, in English, 
to qualify the distribution and wholesale activities at issue by use of the term "master", rather than 
"large-scale".  We shall also use, when necessary,  the phonetic symbols of the original Chinese terms. 
7.931  In addition, the parties also disagree on the translation of the term Fen Xiao in the relevant 
Chinese measures.  While the United States submits th at it should be translated as "sub-distribution", 
China argues that "distribution" is a more accura te translation.  We note that the independent 
translator indicates that the term Fen Xiao  could be translated as either "distribution" or "retail sale".  
We also note in the relevant Chinese measures that Fen Xiao  is encompassed by Fa Xing
 and defined 
as consisting of wholesale and retail.  The parties do  not dispute this.  Again, what matters for our 
legal analysis are the service activities involved, not so much how they are named.  In addressing the 
                                                      
612 1997 Electronic Publications Regulation , Article 2 (Exhibit US-15).  WT/DS363/R 
 Page 313 
 
 
  measures which use the term Fen Xiao,  we therefore will specify the relevant activity or activities 
(e.g. "wholesale", "retail", or "wholesale and retail") in our assessment.  We shall also use, when necessary, the phonetic symbols of the original Chin ese terms.  With respect to the titles of certain 
measures which contain the term Fen Xiao , we will use, for the sake of convenience, the term 
"(sub-)distribution". 
7.932  We now turn to our assessment of the US clai ms under the GATS with respect to reading 
materials.  The first three of these claims concern prohibitions  on the supply of the service by foreign-
invested enterprises.  We will ex amine these claims first, and will then consider the US claim 
concerning discriminatory requirements imposed on foreign-invested enterprises. 
(a) Prohibitions on foreign-invested enterprises 
7.933  With respect to the distributio n of reading materials, the Un ited States makes three claims 
concerning the prohibitions on the supply of this type of services by foreign-invested enterprises, each 
concerning a specific category of distribution services and reading materials.  We deal with these in 
turn. 
(i) Prohibition on the wholesale of imported reading materials 
7.934  The United States  notes that Article 3 of the Imported Publications Subscription Rule  
distinguishes between two categories of distribution of imported reading materials: the "limited distribution category" and the "non-limited distri bution category".  The United States also notes that 
Article 3 requires all imported newspapers and periodicals, as well as imported books and electronic 
publications in the "limited distribution category" to be distributed "under subscription to subscribers", and imported books and electronic publications in the "non-limited distribution 
category" to be distributed "by sales through the market".   
7.935  The United States notes that pursuant to Article 4 of the Imported Publications Subscription 
Rule, only certain GAPP-designated publication impor ters are permitted to distribute imported 
newspapers and periodicals as we ll as imported books and electroni c publications in the "limited 
distribution category".  The United States argues that as Article 42 of the Publications Regulation  
provides that only wholly Chinese state-owned ente rprises are permitted to import reading materials, 
the effect of Article 4 of the Imported Publications Subscription Rule  is to reserve the distribution of 
imported newspapers and periodicals as well as imported books and electronic publications in the 
"limited distribution category" to Chinese wholly state-owned enterprises.  The United States further 
argues that as it excludes foreign-invested enterprises from distributing (including wholesaling and retailing) these imported reading materials in China, Article 4 of the Imported Publications 
Subscription Rule  affects wholesale trade services in a manner inconsistent with Article XVII of the 
GATS.  
7.936  With respect to imported books and electronic publications in the "non-limited distribution 
category", the United States notes that Article 39 of the Publications Regulation  states that GAPP is 
responsible for promulgating measures governing foreign-invested enterprises engaging in the 
distribution of books, newspapers, and periodicals.  The United States notes that Article 16 of the 
Publications Market Rule  specifies that the Publications (Sub-)Distribution Rule  governs foreign-
invested enterprises seeking to engage in the distri bution of books, newspapers  and periodicals.  The 
United States also notes that Article 2 of the Publications (Sub-)Distribution Rule  limits foreign-
invested enterprises to the distribution of books, ne wspapers and periodicals published in China.  The 
United States contends that as China has prom ulgated no additional m easures granting foreign-
invested enterprises the right to engage in the distribution of reading materials, the Publications 
(Sub-)Distribution Rule , particularly Article 2, prohibits fore ign-invested enterprises from engaging in 
the wholesaling of imported books and electronic publications in the "non-limited distribution WT/DS363/R 
Page 314  
 
  category" by limiting the distribution activities of fo reign-invested enterprises exclusively to the 
distribution of books, newspapers and peri odicals that are published in China.  
7.937  The United States submits that China has insc ribed no conditions or qualifications on its 
national treatment commitments with respect to the wholesaling of reading materials, through 
commercial presence, in its GATS Schedule.  The te rms, limitations, conditions, and qualifications 
scheduled in China's horizontal commitments do not , according to the United States, cover Chinese 
measures that prohibit foreign-invested enterprises from engaging in wholesaling of imported reading 
materials. 
7.938  The United States also submits that the measur es at issue affect the wholesaling of reading 
materials through commercial presence within the me aning of Article XVII of the GATS because they 
directly regulate the wholesale distribution of reading materials in China. 
7.939  The United States argues that because these measu res distinguish between foreign-invested 
wholesalers and wholly Chinese-owned wholesalers solely based on origin, foreign-invested 
wholesalers and wholly Chinese-owned wholesalers ar e "like service suppliers" for the purpose of 
Article XVII of the GATS.  
7.940  The United States further argues that foreign- invested wholesalers receive less favourable 
treatment than that accorded to domestic wholesaler s, since foreign-invested wholesalers do not have 
the right to wholesale imported reading materials.   The United States maintains that since this 
prohibition is not justified by any of the terms, li mitations, conditions or qu alifications on market 
access or national treatment inscribed by China in its Services Schedule, the measures that maintain 
this prohibition are therefore inconsistent with Ch ina's obligations under Article XVII of the GATS.  
7.941  China does not present specific argumentation rebutting the US claim. 
7.942  In the absence of specific arguments by China rebutting the US claim, the Panel  needs to 
consider only whether the United States has made a prima facie case of the inconsistency of the 
measures at issue with Article XVII of the GATS.  For this purpose, we will examine first whether 
China has made commitments on national treatment under the GATS with respect to the wholesale of 
imported reading materials supplied through comme rcial presence.  We will then assess whether the 
measures identified by the United States are inconsistent with any such commitments. 
Whether China has undertaken national treatment  commitments with respect to the wholesale 
of imported reading materials through commercial presence (mode 3)  
7.943  We begin by looking at the national treatment  provision in Article XVII of the GATS, which 
states: 
"1. In the sectors inscribed in its Schedule , and subject to any conditions and 
qualifications  set out therein, each Member shall accord to services and service 
suppliers of any other Member , in respect of all measures affecting  the supply of 
services, treatment no less favourable than that it accords to its own like services and 
service suppliers."  
2. A Member may meet the requirement of paragraph 1 by according to services 
and service suppliers of any other Member, either formally identical treatment or 
formally different treatment to that it accords to its own like services and service 
suppliers.  WT/DS363/R 
 Page 315 
 
 
  3. Formally identical or formally differe nt treatment shall be considered to be 
less favourable  if it modifies the conditions of competition in favour of services or 
service suppliers of the Member compared to like services or service suppliers of any other Member." (emphasis added) 
7.944  The wording of Article XVII indicates that we need to determine:  whether the services at 
issue, i.e. the wholesale services supplied thr ough commercial presence, are inscribed in China's 
Schedule; the extent of China's national treat ment commitments, including any conditions or 
qualifications, with respect to these services entered in its Schedule;  whether the measures at issue 
affect the supply of these services;  and whether these measures accord less favourable treatment to 
service suppliers of other Members, in co mparison with like domestic suppliers.   
7.945  We first determine whether China has in fact  "inscribed in its Schedule" the wholesale 
services supplied through commercial presence.  The relevant part of China's Services Schedule, 
relating to commitments currently in force, reads as follows: 
Sector or 
sub-sector Limitations on 
Market Access Limitations on 
National treatment Additional 
Commitments 
4. DISTRIBUTION 
SERVICES  
(as defined in Annex 2)    
... 
B. Wholesale Trade 
Services 
(excluding salt, tobacco) ... 
(3) None, within three years after 
accession, except 
for chemical fertilizers, processed oil and crude oil within 
five years after 
accession  ... 
(3) None  
Foreign-invested enterprises are 
permitted to distribute 
their products manufactured in China, including the products listed in the 
market access or 
sector or sub-sector column, and provide subordinate services as defined in Annex 2. 
 
Foreign service suppliers are permitted to  provide the full range of related subordinate services, 
including after sales 
services, as defined in Annex 2, for the products they distribute. 
 (Footnote omitted, emphasis added, the notation "(3)" indicates that the commitment relates to 
commercial presence) 
 
7.946  Examining the initial, sectoral column of China' s Schedule, we note that it contains a section 
entitled "4. Distribution Services", under which is  inscribed a section entitled "B. Wholesale Trade 
Services (excluding salt and tobacco)".  This entry indicates that China has i ndeed undertaken specific WT/DS363/R 
Page 316  
 
  commitments covering wholesale services, subject to  any "conditions and qualifications" that may be 
set out in its Schedule. 
7.947  We must now determine whether the commitm ent listed in China's Schedule as "Wholesale 
Trade Services" covers the wholesale services at issu e in this claim.  We note that "Wholesale Trade 
Services" appears in China's Schedule as part of S ector 4 "Distribution Services".  Under the heading 
of Sector 4 is a reference to Annex 2 of China' s Schedule which defines "Distribution Services".  
Annex 2 states that distribution services "are genera lly covered by CPC 61, 62, 63, and 8929".  We 
note that the CPC is frequently referenced by Members in drawing up their Schedules.  The CPC 
categories which China refers to cover the whole range of services involving the distribution of goods, 
including CPC 62262 on "wholesale trade services of boo ks, magazines, newspapers and stationary". 
7.948  Reinforcing this specific mention of CPC sector s covering the distribution of goods, Annex 2 
also specifies that "the principal services" in  each subsector of distribution services – including 
wholesaling – is "reselling merchandise ".  Wholesaling in Annex 2 is defined further as "the sale of 
goods/merchandise to retailers to industrial, commerc ial, institutional, or other professional business 
users, or to other wholesalers and related subordina ted services."   We note as well that China's 
commitments on wholesaling are intended to cover the wholesale of all goods, and therefore reading 
materials, regardless of whether they are of impor ted or domestic origin, since the exceptions listed 
include only "salt and tobacco".  We note finally that China does not contest the US assertion that its entry under Sector 4.B. "Wholesale Trade Services" c overs the services at issue in this claim.  We 
conclude therefore that China's Schedule covers the wholesale of reading materials, including all 
imported reading materials. 
7.949  Having determined that the services identified by the United States – wholesale of imported 
reading materials supplied through commercial presen ce – are within a sector that is covered by 
China's commitments, we proceed to the next step.  That is to determine whether, under the terms of 
Article XVII, China has inscribed any "conditions  and qualifications" to its national treatment 
commitments with respect to the services identified by the US in this claim. 
7.950  As noted above, a Member may limit the extent to which it grants market access or national 
treatment for the services listed in its Schedule,  by inscribing the "conditions and qualifications" 
(which we refer to more simply as "limitations")  mentioned in Article XVII either under "limitations 
on market access" or under "limitations on national tr eatment".  A Member's obligations on market 
access and/or national treatment are determined with re ference to any such limitations inscribed in its 
schedule.  Therefore, to determine the extent of China's national treatment commitments with respect 
to the services at issue, we need  to examine China's Schedule to see whether, with respect to supply 
through commercial presence, there are any lim itations inscribed (a) beside "Wholesale Trade 
Services", in the national treatment column or (b) in  the national treatment column of the horizontal 
section of China's Schedule, as those limitations  inscribed in the horizontal section apply to all the 
sectors in the Schedule unless otherwise specified.  In both cases, we must also examine the market 
access  column, as whenever a limitation affects both market access and national treatment, it is to be 
inscribed only in the market access column, in  accordance with Article XX:2 of the GATS. 
7.951  We now examine China's Schedule to determine the extent of commitments with respect to 
the service and mode of supply at issue.   We st art with the column entitled "Limitations on national 
treatment" and examine the entries with respect to  wholesale trade services supplied through mode 3 
(commercial presence).  We note that China has inscribed "None", meaning "no limitations" on 
national treatment.  We then look at the "Limitati ons on market access" column of China's Schedule 
with respect to the same service and mode of supply.  Here, Ch ina has entered a series of limitations 
with respect to certain products.  Each of these limitations, however, expressly specifies a date of 
expiry within, at most, five years from the date of  China's accession to the WTO.  As China entered 
the WTO on 11 December 2001, all limitations on market access limitations thus expired by              WT/DS363/R 
 Page 317 
 
 
  11 December 2006.  The only entry in the colu mn on "Limitations on market access" in China's 
Schedule for the service sector and mode of supply at issue that currently remains in force is therefore 
"None" – that is, "no limitations" on market access.   Apart from what may be contained in its 
"horizontal" section, which we examine next, China's Schedule therefore indicates that at present, for 
the supply of wholesale trade services through comme rcial presence for reading materials, China has 
undertaken  full market access and national treatment commitments.  
7.952  We proceed to examine the "horizontal" section of China's Schedule.  The relevant part, 
relating to limitations with respect to the suppl y of services through commercial presence, reads as 
follows: 
Sector or 
sub-sector Limitations on 
Market Access Limitations on 
National treatment 
I. HORIZONTAL 
COMMITMENTS  
 ALL SECTORS 
INCLUDED IN 
THIS SCHEDULE ... 
(3) In China, foreign invested enterprises include 
foreign capital enterprises (a lso referred to as wholly 
foreign-owned enterprises) and joint venture 
enterprises and there are two types of joint venture 
enterprises: equity joint ventures and contractual joint ventures. 
1 
 The proportion of foreign investment in an 
equity joint venture shall be no less than 25 per cent of the registered capital of the joint venture. 
 The establishment of branches by foreign 
enterprises is unbound, unless otherwise indicated in specific sub-sectors, as the laws and regulations on 
branches of foreign enterprises are under formulation. 
 Representative offices of foreign enterprises are permitted to be established in China, but they shall 
not engage in any profit-making activities except for 
the representative offices under CPC 861, 862, 863, 865 in the sectoral specific commitments. 
 The conditions of ownership, operation and 
scope of activities, as set out in the respective contractual or shareholder agreement or in a licence 
establishing or authorizing the operation or supply of 
services by an existing foreign service supplier, will not be made more restrictive than they exist as of the 
date of China's accession to the WTO. 
 The land in the People's Republic of China is 
State-owned. Use of land by enterprises and 
individuals is subject to the following maximum term limitations: 
(a) 70 years for residential purposes;  
(b) 50 years for industrial purposes; (c) 50 years for the purpose of education, 
science, culture, public health and physical education; 
(d) 40 years for commercial, tourist and recreational purposes; 
(e)  50 years for comprehensive utilization or 
other purposes. ... ... 
(3) Unbound for all the 
existing subsidies to 
domestic services suppliers 
in the sectors of audio-visual, 
aviation and medical services. 
 1 The terms of the contract, concluded in accordance with China's laws, regulations and other measures, 
establishing a "contractual joint venture" govern matters such as the manner of operation and management of the joint venture as well as the investment or other contri butions of the joint venture parties. Equity participation WT/DS363/R 
Page 318  
 
  by all parties to the contractual joint venture is not re quired, but is determined pursuant to the joint venture 
contract. 
 
7.953  Under the heading "All Sectors Included in this Schedule", China has inscribed several 
limitations on the supply of services through comme rcial presence, relating to national treatment and 
market access.  In the "Limitations on nationa l treatment" column, China has entered a single 
limitation, relating to subsidies to domestic suppliers  in audiovisual, aviation and medical services,  
but not, however, with respect to wholesale trade services.  In the "Limitations on market access" 
column, China has inscribed  several limitations that are applicab le to the supply of wholesale trade 
services.  Apart from that relating to land use, these market access limitations are expressed as giving formally different treatment to foreign service s uppliers, and thus under Artic le XX:2 also constitute 
limitations on national treatment in terms of Article XVII of the GATS. 
7.954  In sum, with respect to wholesale trade ser vices supplied through commercial presence, China 
has listed no limitations in the national treatment co lumn of its Schedule.  This national treatment 
commitment is only subject to the limitations listed in the market access column of China's Schedule, 
which were examined earlier.  These limitations, cont ained in the horizontal part of China's Schedule, 
cover the legal forms and manner of doing business of a foreign wholesaler.  They do not however 
restrict the types of materials that the foreign wh olesaler is entitled to distribute.  China has thus 
undertaken a national treatment commitment with r espect to the wholesale of reading materials, 
including imported reading materials. 
7.955  Having determined the scope and extent of Ch ina's national treatment commitments, we are 
now in a position to examine whether China, with respect to the measures challenged by the United 
States, "accord[s] to services and service suppliers of any other Member, in respect of all measures 
affecting the supply of services, treatment no less favourable than that it accords to its own like services and services suppliers", in terms of Article XVII:1 of the GATS.  
Whether the measures at issue are inconsistent  with China's national treatment commitments 
under Article XVII of the GATS  
7.956  The Panel  now examines whether the measures clai med by the United States to prohibit the 
wholesale of imported reading materials by foreign-i nvested enterprises are inc onsistent with China's 
national treatment commitments under Article XVII of  the GATS.  For this purpose, in accordance 
with Article XVII, we next need to determine wh ether the measures at issue affect the relevant 
services and whether these measure s accord less favourable treatment to service suppliers of other 
Members, in comparison to like domestic suppliers.   
7.957  We note that the US claim concerns two types of  imported reading materials, each distributed 
through its own channel.  First, a subscripti on channel covers reading materials subject to 
subscription, including all imported newspapers  and periodicals, as well as imported books and 
electronic publications in the "limited distribution cat egory".  Second, a "market sale" channel covers 
reading materials subject to sales through the market, namely imported books and electronic 
publications in the "non-limited distribution cate gory".  We will group the measures at issue under 
two headings, depending on which distribution channel they concern. 
Measures prohibiting foreign-invested en terprises from wholesaling imported reading 
materials that are required to be distributed through subscription  (imported 
newspapers and periodicals, and certain impor ted books and electronic publications ) 
7.958  The United States claims that China prohibits  foreign-invested enterprises from wholesaling 
all imported newspapers and periodicals, and imported books and electronic publications in the 
"limited distribution category", pursuant to Article 42 of the Publications Regulation and Article 4 of  WT/DS363/R 
 Page 319 
 
 
  the Imported Publications Subscription Rule .  The United States maintains that Article 42 of the 
Publications Regulation  provides that only Chinese wholly state-owned enterprises are permitted to 
import reading materials of any kind, and that Article 4 of the Imported Publications Subscription 
Rule then grants an approved sub-set of these who lly state-owned enterprises the exclusive right to 
distribute these particular reading materials through subscription.  The United States notes that China 
has defined "distribution" to include wholesale and retail services.  The United States thus asserts that 
foreign-invested enterprises are prohibited from engaging in the wholesale distribution of the 
imported reading materials subject to subscription and receive less favourable treatment than that accorded to like domestic wholesalers.  
7.959  The Panel notes that Article 3 of the Imported Publications Subscription Rule defines the 
reading materials which are subject to subscription: 
"The state manages the distribution of imported publications by categories.  In regard 
to imported newspapers and periodi cals, and imported books and electronic 
publications in the limited distribution category, they shall be distributed under subscription to subscribers, and supplied by categories." 
7.960  Article 4 of the Imported Publications Subscription Rule provides that subscriptions for 
reading materials in the limited distribution cate gory must be handled by a "publication import 
entity": 
"Subscriptions placed by subscribers for imported books and electronic publications 
in the limited distribution category shall be handled by publication import entities designated by the Administration of Press and Publication in compliance with their 
approved scope of business." 
7.961  Finally, Article 42 of the Publications Regulation provides that a "publication import entity" 
must be a wholly state-owned enterprise: 
"In order to establish a publication import entity, the applicant shall meet the 
following conditions: 
... 
(2) be a wholly state-owned enterprise and have a sponsoring entity under a superior 
agency recognized by the publication administration under the State Council." 
7.962  Reading these measures together, the Panel observes,  consistently with the US view, that:  (i) 
subscription is the only distribution channel availa ble to imported newspape rs and periodicals and 
imported books and electronic publications in the limite d distribution category;  (ii) foreign-invested 
enterprises in China are excluded from distributing these imported reading materials because only 
designated publication import entities which are w holly Chinese state-owned are permitted to handle 
the subscription.  We note that Chin a does not contest this interpretation. 
7.963  Since the service activity referred to in th ese measures is subscription, we must first 
determine whether China's commitments on "Wholesal e Trade Services" (Sector 4.B.) cover this 
activity in order to determine the consistency of these measures with Article XVII of the GATS.   We 
then need to determine whether these measures affect the supply of the services at issue in a manner 
which accords "less favourable treatment" with respect to like service suppliers of other Members.       
7.964  Turning to China's Schedule, we recall our findi ng in paragraph 7.946 that China has listed in 
its Schedule wholesale trade services.  Annex 2 of  China's Schedule defines distribution and its WT/DS363/R 
Page 320  
 
  component services, indicating that the core characteristic of distribution services (including 
wholesaling) is "reselling merchandise".  Wholesaling is specifically defined in Annex 2 as "the sale 
of goods/merchandise to retailers to industrial, commercial, institutional, or other professional 
business users , or to other wholesalers and related subordinated services" (emphasis added).
613  I n  
examining the language of the definition, we w ould understand the term "professional business users" 
to refer to either entities or individuals.  We also note that Annex 2 defines retail services as "the sale 
of goods/merchandise for personal or household cons umption either from a fixed location (e.g. store, 
kiosk, etc) or away from a fixed location and rela ted subordinated services".  It appears that wholesale 
as defined in Annex 2 covers not only the sale to in stitutional users, but also the sale to individuals 
who are professional business users.   
7.965  We further note that the term "subscription" mentioned in the Imported Publications 
Subscription Rule  refers to the subscription placed by sub scribers with publication import entities for 
imported publications to satisfy the reading need s of entities or individuals.  This shows that 
subscribers can be entities or individuals and that the subscription is made through publication import 
entities.  However, the measure does not specifically de fine the term "subscription".  We note that the 
dictionary meaning of "subscription", in the context of book trade, refers to "a method of bringing out 
a book, by which the publisher or author undertakes to supply copies of the book at a certain rate to those who agree to take copies before publication".
614  This definition shows that subscription is a 
common form of selling publications, i.e. selling based on a specific order.  Since the measure at issue 
does not specifically define the term "subscription", it appears that the common meaning of this term 
is applicable here.   
7.966  We note the explanation given by the GAPP official with respect to the Imported Publications 
Subscription Rule , in evidence submitted by the United States.615  According to the GAPP official, 
subscription is a way to distribute those imported pub lications that are not allowed to enter the retail 
market, including imported newspapers and periodicals and imported books and electronic 
publications in the limited distribution category.  The GAPP official further explained that this 
subscription system: 
"[I]s to ensure that the distribution and sales of imported publications, after they are 
imported [into China], are all controlled by the state-owned Publication Import 
Operation Entities, and thus to prevent ot her companies, domestic or foreign, from 
meddling in this business." 616  
7.967  This statement supports the understanding that under the measure at issue, the designated 
publication import entities sell publications they import to  those particular consumers, i.e. subscribers, 
who have made a specific order.  This service activ ity at issue, i.e. subscription, thus involves 
reselling and consumers therein can be either entities or individuals.  We also note that China does not contest the evidence advanced by th e United States under this claim. 
7.968  Therefore, to the extent that subscribers are en tities, i.e. commercial, industrial or institutional 
users, or other professional business users, includi ng individuals whose purchase of reading materials 
                                                     
 
613 We note that the definition of "wholesaling" in Annex 2 of China's Schedule appears to be 
inadvertently missing a comma after the word "retailers".  The definition should read:  "… retailers, to industrial …" and not "... retailers to industrial  ...".  Since the definition of retailing se rvices limits this activity to the sale 
of goods/merchandise "for personal or household consumption" the omission of a comma after "retailers" in the 
phrase "retailers to industrial, commercial or professional business users" would lead to an absurd result.  China 
acknowledges in its response to Panel question No. 101 that  a wholesaler may sell directly to certain end-users. 
614 Oxford English DictionaryOnline , available at http://dictionary.oed.com./entrance.dtl 
615 Answers to the Media Inquiry by the Person in Charge of the GAPP Over the Implementation of 
Imported Publications Subscription Rule  (Exhibit US-31). 
616 Ibid.  WT/DS363/R 
 Page 321 
 
 
  is not for personal or household consumption, th e distribution of reading materials through this 
"subscription" model falls within the meaning of wholesale trade services, since in terms of China's 
definition in Annex 2, it involves "reselling" of merchandise to " industrial, commercial, institutional, 
or other professional business users".  In this respect, we reca ll the principle enunciated by the 
Appellate Body in US – Gambling , whereby a commitment in a service sector applies to all services 
within that sector, including sub sectors, unless otherwise specified.617   
7.969  We therefore conclude that China's commitm ent on "Wholesale Trade Services" (Sector 4.B 
in China's Schedule) covers the sub scription activity referred to in the Imported Publications 
Subscription Rule , to the extent that subscribers are "indus trial, commercial, institutional, or other 
professional business users". 
7.970  With respect to whether the measures at issue "a ffecting" the supply of the services at issue, 
we recall that the Appellate Body in EC – Bananas III  opined:  
"[T]he term of 'affecting' reflects the intent of the drafters to give a broad reach of the 
GATS.  The ordinary meaning of the word "affecting" implies a measure that has "an 
effect on", which indicates a broad scope of application.  This interpretation is further 
reinforced by the conclusions of previous pane ls that the term 'affecting' in the context 
of Article III of the GATT is wider in scope than such terms as 'regulating' or 'governing'."
 618 
7.971  We note that it is not in dispute that the measu res at issue regulate or govern the distribution 
of imported reading materials.  Since the term "aff ecting" is wider in scope than "regulating" or 
"governing", we therefore consider that these measur es are "affecting" the supply of reading materials 
distribution services for the purpose of Article XVII.  
7.972  We next examine the US argument that th ese measures accord to foreign-invested 
wholesalers treatment less favourable than that accorded to domestic wholesalers in the sense of 
Article XVII.  For this purpose, we need to  determine whether, under these measures, foreign-
invested enterprises prohibited from engaging in the wholesale the imported reading materials at issue 
are "like" Chinese enterprises permitted to engage in the supply of this service. 
7.973  Our first step must be to determine whether foreign-invested enterprises prohibited under the 
measures at issue from establishing as wholesalers are "service suppliers of another Member" within the meaning of Article XVII.  Applying the releva nt definitions set out in Article XXVIII of the 
GATS, we observe that a service supplier of  another Member, supplying a service through 
commercial presence, can be any entity "owned" or  "controlled" by persons  of another Member.
619   
                                                      
617 Appellate Body Report on US – Gambling , para. 180. 
618 Appellate Body Report on EC – Bananas III , para. 220. 
619 Article XXVIII(g) of the GATS defines "service su pplier" as "any person that supplies a service".  
"Person" is defined as "either a natural person or a juridical person" in Article XXVIII(j).  Article XXVIII(m) 
defines "juridical person of another Member" as "(i) constituted or otherwise organized under the law of that 
other Member, and is engaged in substantive business operations in the territory of that Member or any other Member; or (ii) in the case of supply of a service through commercial presence, owned or controlled by: 1. 
natural persons of that Member; or 2. juridical persons of that other Member identified under subparagraph (i)".  
Article XXVIII(l) of the GATS prov ides: "'juridical person' means any legal entity duly constituted or 
otherwise, and whether privately-owned or governmentally-owned, including any corporation, trust, partnership, 
joint venture, sole proprietorship or association."  Artic le XXVIII(n) further provides that a juridical person is: 
"(i) 'owned' by persons of a Member if more than 50 per cent of the equity interest in it is beneficially owned by persons of that Member; (ii) 'controlled' by persons of a Member is such persons have the power to name a 
majority of its directors or otherwise to legally direct its actions; (iii)  'affiliated' with another person when it WT/DS363/R 
Page 322  
 
  We note that China has indicated in the horizontal commitments of its Services Schedule that, with 
respect to the supply of a service through commercial presence, there are three permissible forms of foreign-invested enterprises in China: wholly fo reign-owned enterprises, e quity joint ventures and 
contractual joint ventures.  In light of the relevant  definitions of the GATS, and in the absence of any 
contrary evidence before us, we can conclude that th ere are, or can be, foreign-invested enterprises in 
China that are owned or controlled by persons of another Member, and thus qualify as "service 
suppliers of another Member".   
7.974  We also note that Article XVII of the GATS applies to "all measures affecting the supply of 
services", which include those measures affecting the establishment of commercial presence by "service suppliers of another Member". Article  XXVIII (d) of the GATS defines "commercial 
presence" as "any type of business or profession al establishment, including through: (i) the 
constitution , acquisition or maintenance of a juridical person, or (ii) the creation  or maintenance of a 
branch or a representative office, within the territo ry of a Member for the purpose of supplying a 
service." (emphasis added) Therefore for the purpo se of Article XVII, and depending on the measures 
at issue, the term "service suppliers of anot her Member" supplying a service through commercial 
presence includes entities that have established a commercial presence in the host Member and/or 
entities that seek to establish in the host Member.   
7.975  We note that the measures at issue (examined in detail below) are alleged by the United States 
to prohibit foreign-invested enterprises from engagi ng in the wholesale of imported reading materials 
while permitting wholly Chinese-owned enterprises to engage in the supply of this service, subject to 
approval.  The measures at issue distinguish between suppliers that may be pe rmitted to engage in the 
wholesale of imported reading materials and supplie rs that are prohibited from engaging in this 
service, based exclusively on the suppliers' origin.  When origin is the only factor on which a measure 
bases a difference of treatment between domestic se rvice suppliers and foreign suppliers, the "like 
service suppliers" requirement is met, provided there will, or can, be domestic  and foreign suppliers 
that under the measure are the same  in all material respects except for origin.  We note that similar 
conclusions have been reac hed by previous panels.
620  We observe that in cases where a difference of 
treatment is not exclusively linked to the origin of  service suppliers, but to other factors, a more 
detailed analysis would probably be required to determine whether servi ce suppliers on either side of 
the dividing line are, or are not, "like". 
7.976  Therefore, to the extent that, under the measur e at issue, a differen ce of treatment between 
foreign-invested enterprises that would, if not proh ibited, engage in the w holesale of imported reading 
materials and wholly Chinese-owned enterprises that are permitted to supply this service is based 
exclusively on the origin of servi ce suppliers, the "like" service suppliers requirement in Article XVII 
is met, as long as there will, or can, be domestic and foreign suppliers that under the measure are the 
same  in all material respects except fo r origin.  In our view, there is no doubt that under the measure 
at issue, there will, or can, be foreign-invest ed enterprises prohibited from engaging in the wholesale 
of imported reading materials that are the same in  all material respects as wholly Chinese-owned 
enterprises permitted to supply this service, except for th eir origin.  We also note that the parties do 
not dispute the likeness of the service suppliers under the measures at issue.  We thus consider that, 
for the measure at issue, the "like" service supp liers requirement in Article XVII is met.    
7.977  As observed above, under Article 4 of the Imported Publications Subscription Rule and 
Article 42 of the Publications Regulation, only wholly Chinese-owned enterprises are permitted to 
                                                                                                                                                                     
controls, or is controlled by, that other person; or when it and the other person are both controlled by the same 
person". 
620 E.g, Panel Report on Canada – Wheat Exports and Grain Imports , paras 6.164-6.167, and Panel 
Report on Argentina – Hides and Leather ,  paras. 11.168-11.169.  Although these cases concern trade in goods, 
we consider that the same reasoning applies here.    WT/DS363/R 
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  distribute those imported reading materials that are required to be distributed through subscription.  
As a result, foreign-invested enterprises are prohi bited from wholesaling these reading materials.  We 
must now examine whether the formal prohibition on the supply of certain services by a foreign service supplier that a like domestic supplier may undertake, constitutes "no less favourable" 
treatment in terms of Article XVII.   
7.978  This treatment is to be assessed in terms of the "conditions of competition" between like 
services and services suppliers, as specified in Article XVII:3 of the GATS: 
"Formally identical or formally different treatment shall be considered to be less 
favourable if it modified the conditions of competition in favour of services or service 
suppliers of the Member compared to like services or service suppliers of any other 
Member." 
7.979  In our view, a measure that prohibits fore ign service suppliers from supplying a range of 
services that may, subject to satisfying certain c onditions, be supplied by th e like domestic supplier 
cannot constitute treatment "no less favourable", since it deprives the foreign service supplier of any 
opportunity to compete with like domestic suppliers.  In terms of paragraph 3 of Article XVII, such 
treatment modifies conditions of competition in the most radical way, by eliminating all competition 
by the foreign service supplier with r espect to the service at issue.   
7.980  We recall that China's national treatment co mmitments on wholesaling through commercial 
presence are only subject to the limitations listed in the market access column of its Schedule.   We 
note that nothing in China's Schedule appears to justify a measure prohibiting foreign-invested enterprises, including those that qualify as service suppliers of other Members, from engaging in the 
wholesale of imported reading materials. 
7.981  The Panel concludes therefore that Article 4 of the Imported Publications Subscription Rule 
and Article 42 of the Publications Regulation are together inconsistent with China's national treatment 
commitments under Article XVII of the GATS. 
Measures prohibiting foreign-invested en terprises from wholesaling imported reading 
materials that are distributed by "sales through the market"
 (certain imported books 
and electronic publications)  
7.982  The Panel turns now to the US claim with  respect to imported books and electronic 
publications in the "non-limited distribution category" .  These reading materials are to be distributed 
by "sales through the market", pursuant to Article 3 of the Imported Publications Subscription Rule . 
7.983  The United States claims that China also pr ohibits foreign-invested enterprises from 
wholesaling imported reading materials that are dist ributed by sales through the market and thus treats 
foreign-invested wholesalers less favourably than wholly Chinese-owned wholesalers.  According to 
the United States, since the Publications (Sub-)Distribution Rule is the only measure that governs 
foreign-invested enterprises seeking to engage  in the distribution of books, newspapers and 
periodicals in China pursuant to Article 39 of the Publications Regulation  and Article 16 of the 
Publications Market Rule , the Publications (Sub-)Distribution Rule , particularly Article 2, prohibits 
foreign-invested enterprises from engaging in th e wholesaling of any impor ted books, newspapers and 
periodicals by limiting the distribution activities of fo reign-invested enterprises exclusively to the 
distribution of books, newspapers and peri odicals that are published in China.  
7.984  We begin our assessment by observing that Article 2 of the Publications (Sub-)Distribution 
Rule states: WT/DS363/R 
Page 324  
 
  "This Rule is applicable to foreign-invest ed enterprises inside China engaged in the 
distribution of books, newspapers and periodicals.   
Books, newspapers and periodicals as men tioned in this Rule refer to books, 
newspapers and periodicals  published by a publishing entity approved by the 
publishing administration under the State Council. 
Distribution as mentioned in this Rule refers to the wholesale and retail of books, 
newspapers and periodicals."  
7.985  We note that, contrary to what the United States claims, Article 2 of the Publications 
(Sub-)Distribution Rule  does not itself prohibit foreign-invested enterprises from engaging in 
wholesaling of any imported books, ne wspapers and periodicals.  Rather, Article 2 establishes the 
scope of the Publications (Sub-)Distribution Rule .  It makes clear that the Rule applies to foreign-
invested enterprises engaging in the distribution of books, newspapers a nd periodicals published in 
China.  It says nothing about whether foreign-invest ed enterprises may engage in the wholesaling of 
imported books, newspapers a nd periodicals.  Therefore, we consider that Article 2 cannot, by itself, 
give rise to an inconsiste ncy with WTO obligations. 
7.986  We note that in accordance with Article 39 of the Publications Regulation , the establishment 
of foreign-invested enterprises engaging in the dist ribution of books, newspape rs and periodicals is 
permitted.  This provision further states: 
"The specific measures and procedures for implementation shall be stipulated by the 
publication administration under the State C ouncil jointly with its department in 
charge of foreign and economic cooperation in compliance with relevant provisions." 
7.987  We further note that the  Article 16 of the Publications Market Rule , which was drawn up on 
the basis of the Publications Regulation , provides: 
"To set up a book, newspaper and periodical distribution enterprise, a Chinese-foreign 
equity joint venture, contractual joint venture, or a foreign capital enterprise shall follow the Publication (Sub-)Distribution Rule  jointly drawn up by the GAPP and the 
Ministry of Foreign Trade and Economic Cooperation". 
7.988  The Publications (Sub-)Distribution Rule  was issued based on, inter alia , the Publications 
Market Rule.  The requirements with respect to the estab lishment of foreign-invested enterprises 
engaging in the wholesale and retail of reading materi als are respectively contained in Articles 7 and 8 
of the  Publications (Sub-)Distribution Rule . 
7.989  We observe the US assertion that no Chinese measures other than the  Publications 
(Sub-)Distribution Rule  authorize foreign-invested enterprises to  engage in the distribution of reading 
materials.  We also note that China does not contest  the US assertion and that the evidence on record 
does not suggest otherwise.    
7.990  The Publications (Sub-)Distribution Rule  therefore appears to be the sole regulation 
governing the establishment of foreign-invested en terprises engaging in the distribution of reading 
materials.  Since its application is limited to b ooks, newspapers and period icals published in China, 
there is no possibility, in view of Article 16 of the Publications Market Rule , for foreign-invested 
wholesalers to engage in the wholesaling of any imported books, newspapers  and periodicals.  We 
note that China does not contest this observation.  We  also note that in answer to a Panel question,  WT/DS363/R 
 Page 325 
 
 
  China confirms that, by virtue of Article 2 of the  Publications (Sub-)Distribution Rule , foreign-
invested enterprises are prevented from wholesaling imported reading materials.621   
7.991  We note that the United States submits in its first written submission that the distribution of 
all imported reading materials is closed to fore ign-invested enterprises but open to like wholly 
Chinese-owned competitors.  We also note that Ch ina does not contest the latter US assertion.   
7.992  We note further that Article 8 of the Publications Market Rule  sets out the requirements with 
respect to the establishment of a wholesaler of re ading materials.  Article 16 of the same measure, 
cited above, suggests that these requirements only apply to the establishment of a wholly Chinese-
owned wholesaler.  Article 2 of this measure indicates that the publications that wholly Chinese-owned enterprises may wholesale include books, news papers, periodicals and electronic publications, 
regardless of whether these publications are domestica lly published or imported.   It follows that the 
Publications Market Rule  permits wholly Chinese-owned enterprises to wholesale imported reading 
materials.    
7.993  Consequently, for the category of imported read ing materials that is not required to be 
distributed through subscription, the  Publications (Sub-)Distribution Rule , specifically Article 2, in 
conjunction with Article 16 of the Publications Market Rule , has the effect of prohibiting foreign-
invested enterprises from supplying wholesaling services for a category of products that wholly Chinese-owned enterprises are permitted to supply.   
7.994  As noted above, China's national treatment commitment with respect to wholesale trade 
services implies a commitment to all services comprised in that sector, including the wholesale of 
imported reading materials, with the sole excepti on of the wholesale of salt and tobacco.  As well, 
foreign-invested enterprises in China qualify as " service suppliers of another Member" as long as the 
entity is owned or controlled by persons of another Member.  Also, as noted above, when origin is the 
only factor on which a measure bases a difference of  treatment between domestic and foreign service 
suppliers, the "like" service suppliers requirement in  Article XVII is met, as long as there will, or can, 
be domestic and foreign service suppliers that under the measure are the same  in all material respects 
except for origin.  In our view, there is no doubt that  under the measure at issue, there will, or can, be 
foreign-invested enterprises prohibited from engagi ng in the wholesale of imported reading materials 
that are the same in all material respects as who lly Chinese-owned enterprises permitted to supply this 
service, except for their origin. We also note that th e parties do not dispute the likeness of the service 
suppliers under the measure at issue.  We thus co nsider that, for the measure  at issue, the "like" 
service suppliers requirement in Article XVII is met. 
7.995  For the measures at issue, it is not in dispute that they regulate or govern the distribution of 
imported reading materials.  We therefore consider  that these measures are "affecting" the supply of 
the services at issue for the purpose of Article XVII.   
7.996  Since the measures at issue have the effect  of prohibiting foreign service suppliers from 
wholesaling imported reading materials, while lik e Chinese suppliers are permitted to do so, these 
measures clearly modifies the conditions of comp etition to the detriment of the foreign service 
supplier and thus constitutes "less favourable treatment" in terms of Article XVII.   
7.997  We thus conclude that the Publications (Sub-)Distribution Rule , specifically Article 2, in 
conjunction with Article 16 of the Publications Market Rule , is inconsistent with China's national 
treatment commitments under Article XVII of the GATS 
                                                     
 
621 China's response to question No. 78. WT/DS363/R 
Page 326  
 
  Conclusion
 
7.998  The Panel finds that Article 4 of the Imported Publications Subscription Rule and Article 42 
of the Publications Regulation  are together inconsistent with Ch ina's national treatment commitments 
under Article XVII of the GATS as they prohibit foreign-invested enterprises, including service 
suppliers of other Members, from engaging in the wholesale of imported reading materials subject to 
subscription, while like domestic service suppliers are not similarly prohibited. 
7.999  The Panel also finds that the Publications (Sub-)Distribution Rule , specifically Article 2, in 
conjunction with Article 16 of the Publications Market Rule , is inconsistent with China's national 
treatment commitments under Article XVII of the GA TS as it prohibits foreign-invested enterprises, 
including service suppliers of other Members, from engaging in the wholesale of imported reading 
materials subject to sales through the market, while  like domestic service suppliers are not similarly 
prohibited. 
(ii) Prohibition on the "master distribution" (Zong Fa Xing) of books, newspapers and 
periodicals 
7.1000  The United States  submits that China prohibits foreig n-invested enterprises from engaging in 
the master distribution of books, newspapers a nd periodicals through three measures, namely the 
Catalogue , the Foreign Investment Regulation  and the Several Opinions .  The United States alleges 
that these measures are discriminatory and inconsis tent with China's national treatment commitments 
on wholesale trade services and retailing services supplied through commercial presence in its 
Schedule. 
7.1001  China  rejects the claim on wholesaling, contending that Zong Fa Xing  (expressed as "master 
distribution" by the United States) of reading materials is not committed under wholesale trade 
services (Sector 4.B.) of China's Schedule.  While  acknowledging that the operation of one type of 
Zong Fa Xing entity corresponds to retailing, China does not respond to the US claim on the 
inconsistency of the measures at issue with Ch ina's GATS commitments with respect to retail 
services.   
7.1002  The Panel  will examine in turn the US claim with  respect to wholesale trade services and 
retail services.  
Claim with respect to wholesale trade services  
7.1003  In addressing the claim with respect to w holesale trade services, we will examine first 
whether China's commitments on wholesale trade se rvices cover the master distribution of books, 
newspapers and periodical.   We will then assess whet her the measures at issue are inconsistent with 
China's national treatment obligations  under Article XVII of the GATS. 
Whether China's commitments on whol esale trade services cover the master 
distribution of books, newspapers and periodicals 
7.1004  The United States  claims that the master distribution of books, newspapers and periodicals is 
covered by China's specific commitments with resp ect to wholesale trade services.  According to the 
United States, master distribution is a form of dist ribution as defined in Annex 2 of China's Schedule.  
The United States notes that when master distribution is operated by  entities other than publishers, it 
involves reselling reading materials purchased from publishers.  The United States submits that the 
activity of master distribution also encompasses retailing as admitted by China.  The United States 
argues that if indeed it were China's intention to  exclude master distribution from its distribution  WT/DS363/R 
 Page 327 
 
 
  services commitments in Sector 4 of its Services Sche dule, it should have done so with a limitation to 
that effect.   
7.1005  The United States submits that master dist ribution involves services that qualify as 
wholesaling as defined in Annex 2 of China's Sche dule, namely the sale of reading materials to 
industrial, commercial, institutional an d other professional business users.   
7.1006  The United States further submits that several  Chinese legal instruments and other sources 
confirm that master distribution is known as "first-l evel wholesale".  The United States notes that this 
is the right to organize the distribution of a particul ar reading material, including the right to designate 
which "second-level wholesalers" may distribute the publication in a certain region in China.  According to the United States, the Master Distribution Rule  and the Books Market  Opinions are two 
of the measures that define master distribution as "first-level wholesale", and provide that master 
distribution involves the responsibility for the distribution of a particular title or class of books. 
7.1007  China  argues that there are two different distribution channels for reading materials in China:  
Zong Fa Xing  (referred to by the United States as "master distribution") and Fen Xiao  (referred to by 
the United States as "sub-distribution") which both are "autonomous", "top to  bottom" channels.  
China further argues that its legislation clearly distinguishes the two separate distribution channels, 
and the products subject to one channel are not dist ributed in the other.  According to China, while 
Fen Xiao  corresponds to traditional distribution activities, Zong Fa Xing  is a separate and unique 
concept, corresponding to a separate activity subject to a distinct disci pline. China points out that the 
distinction of the two distribution channels alr eady existed in 1999 when China concluded its GATS 
accession negotiations. 
7.1008  China contends that only wholesale and retail, the two aspects of Fen Xiao , are specified in 
China's GATS commitments and that it never intended to include Zong Fa Xing .  According to China, 
if its commitments included Zong Fa Xing , it would have specified it explicitly in Annex 2 of its 
Services Schedule.  In its answer to a Panel ques tion, China further argues that Sector 4 of its 
Schedule, which is defined in Annex 2 thereof, is  not intended to cover all distribution services and 
that Zong Fa Xing  does not fall within the scope of Annex 2 of  its Schedule, but would appear to fall 
under Sector 4.E., entitled "Other", of document W/120.
622  
7.1009  More specifically, China submits that Zong Fa Xing  does not correspond to wholesaling as 
defined in Annex 2 of its Services Schedule.  According to China, Zong Fa Xing  can be operated by 
two types of operators, either by the pu blisher for its own publications, or by a Zong Fa Xing  entity  
commissioned by the publisher.  China states that in both cases, Zong Fa Xing  is operated by a single 
exclusive distributor, which directly sells readi ng materials to end consumers without relying on 
intermediaries.  "Distribution Trade Services", of  which wholesaling is a sub-sector, is defined in 
Annex 2 of China's Schedule as "being characterized as reselling merchandise accompanied by a variety of related subordinated services".  China contends that since distribution services as defined in Annex 2 of China's Schedule, including wholesaling, do not cover the initial sale from the producer to 
the first intermediary of the distribution channel,  distribution must involve the resale of goods.  
According to China, in case s where the publisher operates Zong Fa Xing  and sells its own 
publications directly to the end-consumer, the activity involved is not a distribution service as defined in Annex 2 of China's Schedule because it do es not involve reselling;  in cases where Zong Fa Xing  is 
operated by a Zong Fa Xing  entity, the operation corresponds to retailing services, since the entity 
purchases publications from the publisher and then r esell them to end-consumers without relying on 
any intermediary.  Therefore, Zong Fa Xing  is not covered by China's commitments on wholesale 
trade services under Sector 4.B of its Schedule. 
                                                     
 
622 China's response to question No. 98. WT/DS363/R 
Page 328  
 
  7.1010  With respect to the two legal instruments re ferred to by the United States, which describe 
master distribution as "first-level wholesale", China ar gues that this concept is not applicable after the 
adoption in 1999 of the Interim Provisions on the Administration of the Publications Market .  
7.1011  The Panel recalls at the outset that the parties do not agree on the translation of the Chinese 
term Zong Fa Xing , referring to the service activity subject to the claim.  The parties do not however 
dispute its function as defined in Chinese legislation.  In fact, both parties refer to Article 2 of the 
Publications Market Rule  when defining the term.   In our view, the translation of Zong Fa Xing  is not 
a key issue under this claim, since the parties agr ee that the term refers to the exclusive sale of 
publications by a Zong Fa Xing  entity in accordance with the Publications Market Rule .  As noted at 
the beginning of this section, we prefer to use "mast er distribution" to refer to the service activity at 
issue. We shall also use the phonetic symbol of th e original Chinese term when necessary.  We note 
that the main issue under the claim is whether th e master distribution of books, newspapers and 
periodicals is covered by China's GATS commitments on wholesale trade services under Sector 4.B of its Schedule.   
7.1012  We have already determined in paragraph 7.948 that the wholesaling  of books, newspapers 
and periodicals is covered by China's commitments under "Wholesale Trade Services" (Sector 4.B).  
We now need to determine whether the master distri bution of such materials falls within the scope of 
wholesaling as defined in Annex 2 of China's Schedule.   
7.1013  We begin by noting that our interpretation of  China's commitment on wholesale trade services 
must begin with the ordinary meaning of the words, in their context, contained in that commitment, in 
accordance with Article 31 of the Vienna Convention.   A first observation is that the term master 
distribution, or Zong Fa Xing , does not appear anywhere in Chin a's Schedule.  Accordingly, any 
distinction drawn in Chinese law between master distribution and other forms of distribution cannot, 
contrary to what China argues, be determinative for the interpretation of the scope of China's GATS 
commitment.  The interpretation of China's commitm ents must be based on the meaning of the words 
contained in those commitments.  
7.1014  With respect to the wording of China's co mmitments on distribution services, China argues 
that if it had meant to make a commitment with resp ect to master distribution it would have inscribed 
words to this effect in Annex 2 of its Schedule.  We cannot agree with this view.  A description of a 
service sector in a GATS schedule does not need to enumerate every activity that is included within 
the scope of that service, and is not meant to do so.  Article XXVIII(e) of the GATS defines "sector" generally as "the whole of that service sector, incl uding all of its subsectors".  A service sector or 
subsector in a GATS schedule thus includes not onl y every service activity specifically named within 
it, but also any service activity that falls within the scope of the definition of that sector or subsector 
referred to in the schedule. 
7.1015  Therefore, in our view, the fact that Chin a's Schedule does not mention the term master 
distribution does not automatically mean that the ac tivities described by that term are not covered by 
its Schedule.   In order to determine whether mast er distribution is the subject of commitments in 
China's Schedule, we need to examine the main  elements of China's wholesale trade services 
commitment, and then determine whether these elemen ts include the activities comprised in the term 
"master distribution". 
7.1016
 We begin by revisiting Annex 2 of China's Schedule, which defines "distribution services" 
under Sector 4.  Annex 2 provides: 
"The principal services rendered in each subsector can be characterized as reselling 
merchandise , accompanied by  a variety of related subordinated services, including 
inventory management; assembly, sorting and grading of bulk lots; breaking bulk lots  WT/DS363/R 
 Page 329 
 
 
  and redistributing into smaller lots; deliv ery services; refrigeration, storage, 
warehousing and garage services; sales pr omotion, marketing and advertising, 
installation and after sales services incl uding maintenance and repair and training 
services." (emphasis added) 
7.1017  Annex 2 points to the core characteristic of "d istribution services" as defined by China in its 
Schedule – reselling merchandise.  In addition to characterizing distribution services (which include 
wholesale trade services), the definition provides a lengthy and open list of "subordinated" service 
activities, which in isolation do not constitute  "reselling merchandise" but may represent activities 
that are commercially significant for a distributor to undertake in connection with "reselling merchandise".  This open list of subordinated services is similar to the list of services contained in the 
CPC Headnote for Section 6 discussed by the Appellate Body in EC – Bananas III.   In that case, the 
Appellate Body emphasized the importance of servi ces auxiliary to wholesaling, supporting our view 
that the range of wholesale trade services inscribed in  China's Schedule is broad.  The Appellate Body 
said: 
"[T]he CPC Headnote characterizes the ' principal  services' rendered by wholesalers 
as 'reselling merchandise'.  This means that 'reselling merchandise' is not necessarily 
the only service provided by wholesalers. The CPC Headnote also refers to 'a variety 
of related, subordinated services' that may accompany the 'principal service' of 'reselling merchandise'. It is difficult to c onceive how a wholesaler could engage in 
the 'principal service' of "reselling" a produc t if it could not also purchase or, in some 
cases, import the product. Obviously, a wholesaler must obtain the goods by some 
means in order to resell them. ..." 
623 
7.1018  Having examined the notion of "distribution ser vices" in Annex 2 of China's Schedule, we 
continue our interpretation of the Annex by exam ining the definition of "wholesaling".  Wholesaling 
is defined in Annex 2 as "the sale of goods/merchandise to retailers to industrial, commercial, 
institutional, or other professional business users , or to other wholesalers and related subordinated 
services". (emphasis added)  Retailing services, by comparison, are defined as "the sale of 
goods/merchandise for personal or household consumption  either from a fixed location (e.g., store, 
kiosk, etc.) or away from a fixed location and related subordinated servi ces".  (emphasis added) 
7.1019  Based on the language in Anne x 2, we conclude that the definition of "wholesaling" 
applicable to China's Schedule involves "reselling merchandise", but does not require that a wholesaler sell to an intermediary.  Instead, a whol esaler may sell directly to "industrial, commercial, 
institutional, or other professional business users", as well as, in the terms of Annex 2, to other 
wholesalers and to retailers.  
7.1020  With this understanding of the definition of wh olesaling in China's Schedule, the Panel is now 
in a position to examine the types of activities comprised in master distribution, and to determine 
thereby whether these activities are included within  China's commitments on wholesale trade services. 
7.1021  At the outset, both parties take the view that master distribution by a publisher  is not at issue 
in the claim with respect to wholesaling.  The ar guments of the parties focus on master distribution 
involving a "master distribution entity" that purchases material from a publisher for resale. 
7.1022  In attempting to show the nature of "master distribution", the United States points to the  
Master Distribution Rule  and the Books Market  Opinions , both issued by the GAPP, China's 
competent authority responsible for publication an d distribution of reading materials.  They are 
designed to provide administrative guidance on th e distribution of books, and both describe master 
                                                     
 
623 Appellate Body Report on EC – Bananas III , para. 226. WT/DS363/R 
Page 330  
 
  distribution as "first-level wholesale".  The Master Distribution Rule  is binding on administrative 
agencies. 
7.1023  China explains that the concept of "first-level wholesale" is not applicable after the adoption 
in 1999 of the Interim Provisions on the Administration of the Publications Market .  However, China 
provides no evidence to support this assertion.  Nor does China present to the Panel the text of this 
regulation to show that the concept of "first-level wholesale" was abolished.  In particular, China does 
not demonstrate that the measures cited by the United States have been formally repealed or have no 
legal effect.  We therefore proceed on the basis that  these two measures remain in force, and that their 
description of master distribution should be taken into account. 
7.1024  We note that Article 2 of the Master Distribution Rule provides that 
"[T]he master distribution of books (namely, 'master wholesale' or 'master sales on 
commission') refers to such distribution matters: once the printing and production of a 
book are completed, the general responsibility in respect of the distribution of that book is unified to be assumed by an indivi dual publishing or distributing entity, the 
latter accordingly organizes the first-level wholesale ." 
7.1025  This provision suggests that there is a dist ribution process for the books subject to master 
distribution.  In this process, once a book is produ ced, first, all the copies move from the publisher to 
a "master distribution" entity, and th en the latter distribute the book further downstream.  We note that 
China confirms that a "master distribution" entity is  not an agent of the publisher, but an exclusive 
seller.
624  This implies that a "master distribution" entity purchases books from a publisher for resale.  
The notion of "first-level wholesale" implies that  there exists, at least, a second-level wholesale. 
Otherwise there would be no need for this notion.  When a master distribution entity sells books to 
other wholesalers, its activity appears to constitute  first-level wholesale and the wholesale by other 
wholesalers appears to be second-level wholesale.  Th e activity of the master distribution entity thus 
involves reselling and it falls within the definition of "wholesale" contained in Annex 2 of China's 
Schedule. 
7.1026  Further, in its reply to a question from the Pa nel, China accepts that a master distribution 
entity can sell publications to industrial, commerc ial, institutional, or other professional business 
users, as long as they are end users.625  We therefore find that, when operated by entities other than 
publishers, master distribution may involve service s that qualify as wholesaling as defined in Annex 2 
of China's Schedule – namely the sale of reading ma terials to industrial, commercial, institutional and 
other professional business users. 
7.1027  Based on the considerations above, the Panel concludes that, when operated by entities other 
than publishers, the principal characteristics of mast er distribution may involve wholesaling within the 
meaning of Annex 2 of China's Schedule, because fo r publications subject to master distribution, the 
master distribution entity purchases them from publishers  and then may sell them either directly to 
industrial, commercial, institutional, or other pr ofessional business users, or to other wholesalers or 
retailers.   
7.1028  Having established that the master distributio n of books, newspapers and periodicals is 
covered by China's GATS commitments on wholesale trade services, we must now determine whether the measures at issue are inconsistent with China' s national treatment commitments in this sector as 
claimed by the United States. 
                                                     
 
624 China's response to question No. 93. 
625 China's response to question No. 101.  WT/DS363/R 
 Page 331 
 
 
  Whether the measures at issue are inconsistent with China's national treatment 
commitments under Article XVII of the GATS 
7.1029  The United States  alleges that China prohibits foreign-invested enterprises from engaging in 
the master distribution of books, newspapers  and periodicals in three measures:  the Catalogue , the 
Foreign Investment Regulation  and the Several Opinions .  The Catalogue , which is incorporated by 
reference into the Foreign Investment Regulation , explicitly states that there can be no foreign 
investment in the master distribution of books, newspapers and periodicals.  Article 4 of the Several 
Opinions  prohibits foreign-invested enterprises from e ngaging in the master distribution of reading 
materials.  
7.1030  The United States submits that these three measures affect the wholesaling of reading 
materials supplied through commercial presence with in the meaning of Article XVII because they 
directly regulate the wholesale distribution of readin g materials in China.  The United States further 
argues that because these measures distinguish betw een foreign-invested and wholly Chinese-owned 
service suppliers solely based on origin, the forei gn-invested suppliers and wholly Chinese-owned 
suppliers are "like" suppliers for the purpose of Article XVII of the GATS.  
7.1031  The United States finally argues that by prohib iting foreign-invested wholesalers of reading 
material from engaging in these services through comm ercial presence, China has radically modified 
the conditions of competition in favour of whol ly Chinese-owned reading material wholesalers.  
Consequently, the measures are incons istent with Article XVII of GATS. 
7.1032  China  does not provide a specific re buttal to the US arguments. 
7.1033  The Panel  notes that, having already examined an d established China's commitments with 
respect to the master distribution of books, news papers and periodicals, we must now determine 
whether the United States has demonstrated  that the measures it challenges – the Catalogue , the 
Foreign Investment Regulation , and the Several Opinions – are inconsistent with Article XVII of the 
GATS.   
7.1034  As noted above in paragragh 7.198, although Ch ina has asked the Panel not to examine the 
Several Opinions , we have determined that it is a "measure " taken by another Member which can be 
the subject of dispute settlement and we will therefor e proceed with an analysis of the US claim with 
respect to that measure as well as the Catalogue  and the Foreign Investment Regulation  which China 
does not argue the Panel should refrain from examining. 
7.1035  We begin by looking at the terms of the Foreign Investment Regulation.  Article 3 of this 
measure provides that the Catalogue  is the basis for the examination and approval of foreign-invested 
projects and policies applicable to foreign-invest ed enterprises, and Article 4 requires that the 
encouraged, restricted and prohibited foreign-invested projects be listed in the Catalogue .  Article 3 
states in relevant part: 
"The Catalogue  of Industries for Guiding Foreign Investment and the Catalogue  of 
Priority Industries Available for Foreign I nvestment in the Mid-West Region are the 
basis for the examination and approval of  foreign-invested projects and foreign-
invested enterprises policies." 
7.1036  Article 4 categorizes foreign-invested projects as follows: 
"Foreign-invested projects are divided in to four categories: those encouraged, 
permitted, restricted, and prohibited. WT/DS363/R 
Page 332  
 
  The encouraged, restricted and prohibited categories of foreign-invested projects are 
listed in the Catalogue  of Industries for Guiding Foreign Investment." 
7.1037  We note that the Foreign Investment Regulation  does not expressly prohibit foreign 
investment in the master distribution of books, news papers, and periodicals.  As indicated in this 
measure, its purpose is to guide the orie ntation of foreign investment in China.
626  While it sets out 
those areas where foreign investment is encouraged, restricted, or prohibited,627 those areas are 
generic, only representing the orientation.  It incorporates by reference, however, the Catalogue .  In 
the Catalogue,  the specific industries or activities where fo reign investment is prohibited are listed, 
including the master distribution of books, newspapers and periodicals. 
7.1038  Turning to the Catalogue , we note that it consists of three sub- Catalogue s: a Catalogue  of 
industries encouraged for foreign investment; a Catalogue  of industries with restricted foreign 
investment; and a Catalogue  of prohibited foreign investment industries.  Under the heading 
"Catalogue  of Prohibited Foreign Investment Industries", Article X:2 refers to "Publication, master 
distribution, and import operations of books, newspapers and periodicals".   
7.1039  When read together, we find that Article X:2 of the Catalogue  of Prohibited Foreign 
Investment Industries, in conjunction with Articles 3 and 4 of the Foreign Investment Regulation , 
prohibits foreign investment in the master dist ribution of books, newspapers and periodicals.   
7.1040  Finally, turning to the Several Opinions , we note that Article 4 provides that: 
"Foreign investors are prohibited from engaging in the publication, master 
distribution and import of books, ne wspapers and periodicals, ..." 
7.1041  It is evident that Article 4 of the Several Opinions on its face prohibits foreign investment in 
the master distribution of books, newspapers and periodicals.   
7.1042  This prohibition is admitted by China which, in answer to a Panel question, accepts that 
foreign-owned companies are prevented from a pplying for a licence for master distribution.628  I n  
accordance with Article 2 of the Foreign Investment Regulation , foreign investment refers to the 
establishment of Chinese-foreign equity joint vent ures, Chinese-foreign contractual joint ventures, 
and foreign-capital enterprises and other forms of foreign-invested enterprise.629  Therefore, the 
prohibition on foreign investment in master distri bution prevents foreign-invested enterprises from 
engaging in the supply of master distribution services in China. 
7.1043  Since these measures directly regulate the wholes ale of reading materials, they affect the 
supply of the relevant services through commercial pr esence within the meaning of Article XVII.   
7.1044  According to the United States, wholly Chinese-ow ned enterprises are permitted to engage in 
the master distribution of reading materials.  We  note that China does not contest the US assertion.  
We also note that there is nothing on the record to suggest that wholly Chinese-owned enterprises are 
subject to any restrictions.  As noted above, there ar e, or can be, foreign-invested enterprises in China 
that are owned or controlled by persons of anothe r Member, and thus qualify as "service suppliers of 
another Member".  Recalling the requirements of  Article XVII of the GATS, we now examine 
                                                      
626 Articles 1 and 3 of the Foreign Investment Regulation (Exhibit US-9) . 
627 Articles 5, 6 and 7 of the Foreign Investment Regulation (Exhibit US-9) . 
628 China's response to question No. 100. 
629 Article 2 of the Foreign Investment Regulation  states that the Regulation applies to "investment 
projects in China which establish Chinese-foreign equi ty joint ventures, Chinese-foreign contractual joint 
ventures, and foreign-capital enterprises and other forms of  foreign-invested enterprise projects" (Exhibit US-9).  WT/DS363/R 
 Page 333 
 
 
  whether the foreign-invested enterprises prohibite d from supplying "master distribution" services in 
China are "like" wholly Chinese-owned enterp rises to which no such prohibition applies.  
7.1045  We note that the prohibition on foreign investment in master distribution contained in the 
measures at issue is solely based on the origin of th e investor.  In other words, the distinction between 
those who are permitted to supply the "master distribution" services and those who are prohibited 
from engaging in the service is made based exclusivel y on the origin of the service supplier.   No 
criterion other than the origin of the service supplier is indicated in the measures.  As noted above, to 
the extent that, under the measure at issue, a di fference of treatment between foreign-invested 
enterprises that would, if not prohibited, engage in the master distribution of reading materials and 
wholly Chinese-owned enterprises that are permitted to supply this service is based exclusively on the 
origin of service suppliers, the "like" service supplie rs requirement in Article XVII is met, as long as 
there will, or can, be domestic and foreign suppliers that under the measure are the same  in all 
material respects except for origin.  In our view, th ere is no doubt that there will, or can, be foreign-
invested enterprises prohibited from engaging in the master distribution of reading materials that are 
the same in all material respects as wholly Chin ese-owned enterprises permitted to supply this service, 
except for their origin.  We also note that th e parties do not dispute the likeness of the service 
suppliers under the measures at issue.  We thus co nsider that, for the measures at issue, the "like" 
service suppliers requirement in Article XVII is met. 
7.1046  The Panel must now examine whether, by reason of the prohibition, "less favourable" 
treatment is accorded to the foreign service supplier.  
7.1047  As noted above, the measures at issue prohibit foreign-invested enterprises, including those 
that qualify as service suppliers of other Members, fr om engaging in the master distribution of reading 
materials while like wholly Chinese-owned enterprises ar e not similarly prohibited.  As a result of this 
prohibition, service suppliers of other Members have  no access whatsoever to the Chinese market for 
"master distribution".  The Chinese measures thus deprive service suppliers of other Members of any 
opportunity to compete with like Chinese service supp liers in supplying master distribution services.  
As noted above, we consider that the removal of any opportunity to compete is an extreme form of 
"less favourable" treatment within the meaning of Article XVII. 
Conclusion 
7.1048  We recall our previous findings that the "m aster distribution" of books, newspapers and 
periodicals is covered by China's commitments on wholesale trade services, and that China has undertaken national treatment commitments on these services supplied through commercial presence.  
We recall further our finding that none of the limitations on national treatment that China has 
inscribed in its Schedule can justify the prohibition on the "master distribution" of books, newspapers 
and periodicals by foreign-invested enterprises in Chin a in respect of wholesale.   We note that this 
prohibition is contained in Article X:2 of the Catalogue  of Prohibited Foreign Investment Industries 
of the Catalogue  which is incorporated by reference in the Foreign Investment Regulation,  and 
Article 4 of the Several Opinions .  The Panel therefore finds that in the cases where master 
distribution involves wholesale, Article X:2 of the Catalogue  of Prohibited Foreign Investment 
Industries of the Catalogue,  in conjunction with Articles 3 and 4 of the Foreign Investment 
Regulation,  is inconsistent with China's national tr eatment obligations under Article XVII of the 
GATS.  The Panel also finds that Article 4 of the Several Opinions is inconsistent with Article XVII. 
Claim with respect to retail services  
7.1049  The Panel notes that the United States also claims an inconsistency of the measures at issue 
with China's national treatment commitments for Retailing Services (Sector 4.C), supplied through 
commercial presence, within the meaning of Article XVII of the GATS.  While the panel request is WT/DS363/R 
Page 334  
 
  not limited to Sector 4.B (Wholesale Trade Services ), but covers all of China's commitments under 
Sector 4, including retailing, the claim with r espect to retailing was brought up only in the United 
States' second written submission.   
7.1050  We note in this respect the Appellate Body's view, expressed in EC – Bananas III , that 
nothing in the DSU or GATT practice suggests that all claims be set out in a complaining party's first 
written submission.
630  Thus, a complaining party may, in princi ple, set out a claim for the first time in 
its second written submission.  We recall that th e second substantive meeting took place some four 
weeks after the parties had presented their second wr itten submissions.  Therefore, when the United 
States included in its second written submission the cl aim with respect to the inconsistency of the 
measures at issue with China's national treatment  commitments for Retailing Services (Sector 4.C), 
there was still the possibility for China, the defending pa rty, to provide a rebuttal to the US claim.  We 
note that China has chosen not to do so. 
7.1051  We note that the United States has put forward this claim based on a statement by China to 
the Panel.  In its first written submission, China explains: 
"In cases where an entrusted Publication Zong Fa Xing entity  operates Zong Fa Xing  
of reading materials, it will itself sell th e reading materials to the end-consumer 
without relying on further interm ediaries. Such an operation of Zong Fa Xing , in fact 
corresponds to retailing services, which have  been defined in Annex 2 of China's 
Schedule to the GATS as '[...] the sale of goods/merchandise for personal or 
household consumption either from a fixed location (e.g. store, kiosk, etc.) or away 
from affixed location and related subordinated services .'"631 (emphasis added) 
7.1052  Moreover, in response to a question from the Pane l, China confirmed that publications subject 
to Zong Fa Xing  can be sold through the Zong Fa Xing  entity's own retail shops.632  In doing so, China 
refers to Article 2 of the Publications Market Rule , noting that " Zong Fa Xing  is an exclusive sale".633 
7.1053  In considering the US claim concerning retailing,  we observe that the United States asserts as 
a fact that master distribution may also involve re tail services.  China has admitted this fact in the 
context of the present panel proceedings.  As in dicated above, China did so in a formal written 
submission to the Panel and subse quently confirmed its statement in  a written response to a question 
from the Panel.  We consider that in these partic ular circumstances the United States need not adduce 
further evidence to make out a prima facie case th at master distribution can also involve retail 
services. 
7.1054  We note that China has made market access and national treatment commitments on retail 
services (Sector 4.C.) in its Services Schedule.  The relevant part of China' s Schedule, relating to 
commitments currently in force on the supply of re tail services through commerc ial presence, reads as 
follows: 
                                                      
630 The Appellate Body in EC – Bananas III  stated: "There is no requirement in the DSU or in GATT 
practice for arguments on all claims relating to the matter referred to the DSB to be set out in a complaining 
party's first written submission to the panel.  It is the panel's terms of reference, governed by Article 7 of the DSU, which set out the claims of the complaining partie s relating to the matter referred to the DSB." (Appellate 
Body Report on EC – Bananas III, para. 145.) 
631 China's first written submission, para. 283. 
632 China's response to question No. 104. 
633 Ibid.  WT/DS363/R 
 Page 335 
 
 
  Sector or 
sub-sector Limitations on 
Market Access Limitations on 
National treatment Additional 
Commitments 
4. DISTRIBUTION 
SERVICES  
(as defined in Annex 2)    
... 
C. Retailing Services 
(excluding tobacco) ... 
(3) Foreign service 
suppliers may supply 
services only in forms of 
joint ventures in five Special Economic Zones 
(Shenzhen, Zhuhai, 
Shantou, Xiamen and Hainan) and six cities 
(Beijing, Shanghai, 
Tianjin, Guangzhou, Dalian and Qingdao). In 
Beijing and Shanghai, a 
total of no more than four joint venture retailing 
enterprises are permitted 
respectively. In each of the other cities, no more 
than two joint venture 
retailing enterprises will be permitted. Two joint 
venture retailing 
enterprises among the 
four to be established in 
Beijing may set up their branches in the same city 
(i.e. Beijing).     ... 
None, within three years after accession, except 
for: retailing of  chemical 
fertilizers, within five years after accession; 
and- those chain 
stores which sell products of different types and 
brands from multiple 
suppliers with more than 30 outlets. For such 
chains stores with more 
than 30 outlets, foreign majority ownership will 
not be permitted if those 
chain stores distribute 
any of the following 
products: motor vehicles (for a period of five years 
after accession at which 
time the equity limitation will have been 
eliminated), and products 
listed above and in ... 
(3) None  
Foreign-invested 
enterprises are permitted 
to distribute their 
products manufactured in China, including the 
products listed in the 
market access or sector or sub-sector column, and 
provide subordinate 
services as defined in Annex 2. 
 
Foreign service suppliers are permitted to  provide 
the full range of related 
subordinate services, including after sales 
services, as defined in 
Annex 2, for the products they distribute. WT/DS363/R 
Page 336  
 
  Sector or 
sub-sector Limitations on 
Market Access Limitations on 
National treatment Additional 
Commitments 
Annex 2a of the Protocol 
of China's WTO 
Accession.  The foreign chain store operators will 
have the freedom of 
choice of any partner, 
legally established in 
China according to China's laws and 
regulations. 
  
7.1055  As we have done in the context of our analysis  in paragraphs 7.946 to 7.948 with respect to 
China's commitments on wholesaling, we observe that China's commitments on retail services are 
intended to cover the retail of all goods (except tobacco which China speci fically excluded), and 
therefore including reading materials.  Accordingly, to the extent that the master distribution of books, 
newspapers and periodicals involves retail services, it is covered by China's commitments on retail 
services contained in Sector 4.C. of its Schedule. 
7.1056  We now apply the approach used in paragra phs 7.950 to 7.954 to determine the extent of 
China's national treatment commitments on retail se rvices.  We note that China has inscribed no 
limitation (i.e. "none") in the national treatment co lumn for retail services.  China's national treatment 
commitments on retail services are therefore only subject  to relevant limitations listed in the market 
access column of its Schedule, in both Sector 4.C. and the horizontal section.  We further note that none of these limitations could justify a total prohibition on the supply of retail services of reading materials by foreign service suppliers through commercial presence.  
7.1057  We recall our previous findings: the measures at issue, namely the Catalogue , the Foreign 
Investment Regulation and the Several Opinions  are measures affecting the supply of services within 
the meaning of Article XVII of the GATS; under these measures, foreign- invested enterprises 
(including service suppliers of other Members) pr ohibited from engaging in the services at issue and 
wholly Chinese-owned enterprises supplying such services are like service suppliers under Article XVII of the GATS; and the prohibition on foreign-invested enterprises from supplying master 
distribution services constitutes "less favourable treatment" within the meaning of Article XVII.     
7.1058  We also recall our previous findings that the pr ohibition on the "master distribution" of books, 
newspapers and periodicals by foreign-invested enterp rises in China is contained in Article X:2 of the 
Catalogue  of Prohibited Foreign Investment Industries of the Catalogue  which is incorporated by 
reference in the Foreign Investment Regulation,  and in Article 4 of the Several Opinions .  The Panel 
therefore finds that in the cases where master dist ribution involves retail services, Article X:2 of the 
Catalogue  of Prohibited Foreign Investment Industries of the Catalogue,  in conjunction with 
Articles 3 and 4 of the Foreign Investment Regulation,  is inconsistent with China's national treatment 
commitments under Article XVII of the GATS.  The Panel also finds that Article 4 of the Several 
Opinions is inconsistent with Article XVII. 
(iii) Prohibition on the "master wholesale" (Zong Pi Fa) and wholesale of electronic publications 
7.1059  The United States  claims that China prohibits forei gn-invested enterprises from engaging in 
the master wholesale and wholesale of electronic publications in a manner inconsistent with Article XVII of the GATS.  Under this claim, the United States first challenges the 1997 Electronic 
Publications Regulation . The United States submits that Article 62 of the 1997 Electronic 
Publications Regulation  prohibits foreign-invested enterprises from engaging in the master wholesale  WT/DS363/R 
 Page 337 
 
 
  and wholesale of any electronic publications.  According to the United States, this is inconsistent with 
China's national treatment commitments with resp ect to wholesaling through commercial presence as 
inscribed in its Schedule.  
7.1060  China  argues that Zong Pi Fa ("master wholesale" as expressed by the United States) is 
obsolete since the 1997 Electronic Publications Regulation  was repealed on 15 April 2008 by a new 
legislation, the 2008 Electronic Publications Regulation .  According to China, the latter  does not refer 
to Zong Pi Fa .  China takes the view that the US claim with respect to Zong Pi Fa  of electronic 
publications is irrelevant, since this form of dist ribution for electronic publications no longer exists. 
7.1061  In the same way, China argues th at the US claim with respect to the wholesale of electronic 
publications is irrelevant.  China concedes that the 1997 Electronic Publications Regulation  prohibits 
foreign-invested enterprises from engaging in th e wholesale of electronic publications.  China 
however submits that the current measures, the Publications Market Rule  and the Publications 
(Sub-)Distribution Rule,  which govern the wholesale of electronic publications, do not maintain such 
a prohibition.  According to China, this is confirmed by the  Response of GAPP on Electronic 
Publications  in 2005 and two GAPP Approval Decisions ta ken respectively in 2006 and 2007, which 
authorize foreign-invested enterprises to engage  in the wholesale of electronic publications.   
7.1062  The United States  rejects China's arguments.  It contends that the 2008 Electronic 
Publications Regulation  cited by China does not in fact replace the provisions relevant  for this dispute 
that are found in the 1997 Electronic Publications Regulation.   According to the United States, the 
prohibition on the master wholesale and wholesale of electronic publications by foreign-invested enterprises is unchanged, because the Publications Market Rule  and the Publications 
(Sub-)Distribution Rule  do not provide the right for foreign-invested enterprises to engage in the 
master wholesale and wholesale of electronic publications. 
7.1063  The United States therefore maintains its request for a finding from the Panel on the 
consistency of the 1997 Electronic Publications Regulation  with Article XVII of the GATS.  In 
addition, the United States seeks a finding from the Panel on the consistency of the Publications 
(Sub-)Distribution Rule with Article XVII . 
7.1064  Before examining the US claim, the Panel needs to address one preliminary matter which 
concerns whether there is a n eed to make a finding on the 1997 Electronic Publications Regulation , as 
it has been repealed. 
Preliminary matter 
 
7.1065  We recall our previous finding in Section VII.C.1(b)(vi) that despite China's assertion that the 
1997 Electronic Publications Regulation  no longer has legal effect, a ruling by the Panel on the US 
claims could assist in securing a positive solution to the dispute.  We therefore now proceed to 
examine the US claim, determining: (i) wh ether China has undertaken national treatment 
commitments with respect to the master wholesale and wholesale of electronic publications through commercial presence; and (ii) whether the measures at  issue are inconsistent with China's national 
treatment commitments under Article XVII of the GATS. 
Whether China's commitments on wholesale trade services cover master wholesale and 
wholesale of electronic publications  
7.1066  As noted at the beginning of this Section, the parties disagree on the translation of the Chinese 
term Zong Pi Fa .  As in our observations on the term Zong Fa Xing , we do not consider that the 
precise translation of the term Zong Pi Fa  is a significant issue in this claim, and we will use "master 
wholesale" to refer this service activity.  We shall also use, where appropriate, the phonetic symbols WT/DS363/R 
Page 338  
 
  of the original Chinese terms.  The issue before us is whether master wholesale and wholesale of 
electronic publications are covered by China' s GATS commitments on "Wholesale Trade Services" 
(Sector 4.B. in China's Schedule) as alleged by the United States. 
7.1067  The Panel has already found that China' s GATS commitments cover the wholesale of 
electronic publications through commercial presence.  The issue now is whether master wholesale is 
an activity that is within the definition of th e "Wholesale Trade Services " specified in China's 
Schedule. 
7.1068  The Panel notes China's statement that Zong Pi Fa  (master wholesale) was synonymous with 
Zong Fa Xing  (master distribution), but was exclusively used in the context of electronic 
publications.
634  The United States does not contest this stat ement and we have no reason to disagree.  
Thus, we understand that the activities involved in master wholesale ( Zong Pi Fa ) are of the same 
nature as the activities involved in master distribution ( Zong Fa Xing ).  As noted above, when 
operated by entities other than publishers, the prin cipal characteristics of master distribution may 
involve wholesale within the meaning of Annex 2 of  China's Schedule, because for reading materials 
subject to master distribution, the master dist ribution entity may purchase them from publishers and 
then may sell these reading materials either directly to industrial, commercial, institutional, or other 
professional business users, or to other wholesalers or retailers.  We therefore have found that master 
distribution is covered by China's commitments on "Wholesale Trade Services" (Sector 4.B. in 
China's Schedule).  For the same reasons, we find th at the master wholesale of electronic publications 
is also covered by those commitments. 
Whether the measures at issue are inconsistent  with China's national treatment commitments 
under Article XVII of the GATS  
7.1069  Having established that China has undertaken commitments with respect to the master 
wholesale and wholesale of electronic publications, the Panel now proceeds to examine whether the measures challenged under this claim are inc onsistent with Article XVII of the GATS. 
1997 Electronic Publications Regulation 
7.1070  We note that the 1997 Electronic Publications Regulation  was aimed at regulating the 
production, publication, reproduction, import and di stribution of electronic publications in China.
635  
It is therefore a measure affecting the supply of wholesale trade services of electronic publications for 
the purpose of Article XVII.  Chapter 6 of  the 1997 Electronic Publications Regulation  sets out rules 
governing the distribution of electronic publications, which include, inter alia , master wholesale and 
wholesale.  Under this chapter, Article 62 provides: 
"The establishment of an electronic publica tion distribution entity shall meet the 
following conditions: 
A. The distribution entity shall have a name and articles of association; B. It shall have a prescribed scope of business; C. It shall have necessary capital and equipment; 
D. It shall have a fixed place business; and 
                                                     
 
634 China's first written submission, para. 259. 
635 1997 Electronic Publications Regulation , Article 2.  (Exhibit US-15)  WT/DS363/R 
 Page 339 
 
 
  E. It shall have technical and manage rial personnel familiar with electronic 
publications. 
...  Wholly foreign-owned enterprises, Chin ese-foreign equity joint ventures and 
Chinese-foreign contractual ventures may not engage in master wholesale or 
wholesale of electronic publications" 
7.1071  According to the United States, foreign-invest ed enterprises are prohibited from engaging in 
the master wholesale and wholesale of electronic publications while wholly Chinese-owned enterprises are permitted to supply these services.  Chin a has never contested the US contention.  We 
note that there is nothing on the record to suggest  that wholly Chinese-owned enterprises are subject 
to any restrictions.  Article 62 of the 1997 Electronic Publications Regulation  appears to confirm this 
observation.  This provision explicitly prevents wh olly foreign-owned enterprises, Chinese-foreign 
equity joint ventures and Chinese-foreign contractua l ventures, i.e. the three permissible forms of 
foreign-invested enterprises in China, from engaging in the master wholesale and wholesale of electronic publications.  It follows that the conditi ons for establishment set out in the same provision 
only apply to wholly Chinese-owned enterprises.   
7.1072  As noted above, there are, or can be, foreign-i nvested enterprises that are owned or controlled 
by persons of another Member, and thus qualify as  "service suppliers of another Member".  The 
prohibition contained in Article 62 of the 1997 Electronic Publications Regulation  is based solely on 
the origin of service suppliers, and wholly Chinese-owned enterprises are not subject to this restriction.  To the extent that, under the measure at issue, a difference of treatment between foreign-
invested enterprises that would, if not prohibited,  engage in the master wholesale and wholesale of 
electronic publications and wholly Chinese-owned enterprises that are permitted to supply these 
services is based exclusively on the origin of  service suppliers, the "like" service suppliers 
requirement in Article XVII is met, as long as ther e will, or can, be domestic and foreign suppliers 
that under the measure at issue are the same  in all material respects except for origin.  In our view, 
there is no doubt that there will, or can, be fore ign-invested enterprises prohibited from engaging in 
the master wholesale and wholesale of electronic publica tions that are the same in all material respects 
as wholly Chinese-owned enterprises permitted to suppl y these services, except for their origin.  We 
also note that the parties do not dispute the lik eness of the service suppliers under the measure at 
issue.  We thus consider that, for the measure at  issue, the "like" service suppliers requirement in 
Article XVII is met.   
7.1073    Similarly to our earlier observations, the prohibition imposed on foreign-invested 
wholesalers, which includes service suppliers of othe r Members, deprives the latter of any opportunity 
to compete with like Chinese wholesalers in th e master wholesale and wholesale of electronic 
publications.  The prohibition thus has radically modi fied conditions of competition in favour of like 
wholly Chinese-owned wholesalers.  We consider th at the measure which explicitly maintains this 
prohibition, namely Article 62 of the 1997 Electronic Publications Regulation , accords to foreign-
invested wholesalers less favourable treatment with in the meaning of Article XVII of the GATS.  
7.1074  As noted above, China's national treatment commitments on wholesale trade services through 
commercial presence are only subject to the limitati ons listed in the market access column of its 
Schedule.   We note that nothing in China's Schedule could justify a measure that prohibits foreign-
invested enterprises from engaging in the master wholesale and wholesale of electronic publications. 
The Panel therefore finds that Article 62 of the 1997 Electronic Publications Regulation  is 
inconsistent with Article XVII of the GATS. WT/DS363/R 
Page 340  
 
  Publications (Sub-)Distribution Rule 
7.1075  In its second written submission, the  United States requests the Panel to find that the 
Publications (Sub-)Distribution Rule  is inconsistent  with Article XVII of the GATS because it 
prohibits foreign-invested enterprises from enga ging in the master wholesale and wholesale of 
electronic publications.  This claim is based on China's argumentation in responding to the first set of 
Panel questions.  The United States indicates that the Publications (Sub-)Distribution Rule  is 
identified in the panel request and is incl uded in the Panel's terms of reference.  
7.1076  China  argues that the Publications Market Rule  and the Publications (Sub-)Distribution Rule  
are the measures currently governing the wholesaling of electronic publications by foreign-invested 
enterprises, and that they do not prohibit foreign- invested enterprises from engaging in the wholesale 
of electronic publications.
636  According to China, this was confirmed by the Response of GAPP on 
Electronic Publications in 2005  and the two GAPP Approval Decisions.637 
7.1077  The United States  rejects China's argument, contending that the Publications 
(Sub-)Distribution Rule  prevents foreign-invested enterpri ses from engaging in the master wholesale 
and wholesale of electronic publications because it does not provide for such right to foreign-invested 
enterprises.  The United States indicates that the two GAPP Approval Decisions  cited by China apply 
only to the wholesaling of domestically published el ectronic publications, and fail to provide for the 
wholesaling of imported electronic publications or fo r the master wholesale of electronic publications.  
According to the United States, the Response of GAPP on Electronic Publications  in 2005 only 
addresses sub-distribution and not master wholesale of electronic publications regardless of whether 
they are imported or domestically produced.  
7.1078  The Panel begins by observing that the Publications Market Rule  and the Publications 
(Sub-)Distribution Rule  are identified as specific measures at i ssue in the panel request with respect 
the US claim regarding the distribution of reading ma terials and thus are within the Panel's terms of 
reference.  We next examine the relevant provis ions in the two measures which are cited by China as 
the measures currently governing the wholesaling of  electronic publications by foreign-invested 
enterprises.   
7.1079  We note that the Publications Market Rule  indeed applies to the wholesale of electronic 
publications.  Article 2 of the Publications Market Rule  provides that the measure applies to the 
distribution activities of publications which consists  of newspapers, periodicals, books and electronic 
publications.  Articles 8 and 9 of this measur e set out the conditions and procedures for the 
establishment of an enterprises engaging in the wh olesale of publications.  We however recall our 
previous observation in paragraph 7.992 that it does not contain detailed rules on the establishment of 
foreign-invested enterprises engaging in the distri bution of reading materials.  Article 16 of the 
Publications Market Rule  states: 
"To set up a book, newspaper and periodical sub-distribution ( Fen Xiao ) enterprise, a 
Chinese-foreign equity joint venture, contr actual joint venture, or a foreign capital 
enterprise shall follow the Publication (Sub-)Distribution Rule  jointly drawn up by 
the GAPP and the Ministry of Fore ign Trade and Economic Cooperation". 
7.1080  While the Publications (Sub-)Distribution Rule states that it applies to the distribution 
activities of books, newspapers and periodicals by fore ign-invested enterprises in China, it provides 
that these activities consists of wholesale and retail a nd that "books, newspapers  and periodicals" refer 
                                                      
636 China's response to question No. 91. 
637 Ibid.  WT/DS363/R 
 Page 341 
 
 
  to books, newspapers and pe riodicals published in China.638  Electronic publications are not 
mentioned in the Publications (Sub-)Distribution Rule  as such.  The Panel notes however that, in 
response to a question from the Panel, China stat es that since 2004 the distribution of electronic 
publications by foreign-invested ente rprises is no longer governed by the 1997 Electronic 
Publications Regulation , but by the Publications Market Rule  and the Publications (Sub-)Distribution 
Rule.  China submits that this is confirmed by the Response of GAPP on Electronic Publications  in 
2005 and two GAPP Approval Decisions ta ken respectively in 2006 and 2007.639 
7.1081  We note that the Response of GAPP on Electronic Publications  was addressed to the 
Shanghai Municipal Bureau of Press and Publicatio n, the press and publication administration in the 
municipality of Shanghai which has the authority to examine and approve the application for the 
establishment of foreign-invested  enterprises engaging in the distribution of publications in 
Shanghai.640  The Response of GAPP on Electronic Publications  explicitly states that foreign-invested 
enterprises are permitted to engage in the distribution ( Fen Xiao ) of electronic publications and that 
the local administration shall apply the Publications (Sub-)Distribution Rule  in examining 
applications for establishment.  The Response of GAPP on Electronic Publications  states: 
"Foreign invested enterprises can engage in distribution ( Fen Xiao ) of electronic 
publications but shall first obtain administrative licence in accordance with relevant laws and regulations. 
... For specific conditions, procedures and time, please refer to the Publications 
(Sub-)Distribution Rule. " 
7.1082  We also note that the two GAPP Approval Deci sions, respectively addressed to the Shanghai 
Municipal Bureau of Press and Publication a nd the Beijing Municipal Bureau of Press and 
Publication, authorize the establishment of Ch inese-Foreign joint ventures that would engage, inter 
alia, in the wholesale of domestically published electronic publications.  The two GAPP Decisions 
both require that the municipal press and publication administrations apply the Publications 
(Sub-)Distribution Rule  in their examination and approval of th e applications for the establishment of 
Chinese-Foreign joint ventures engaging, inter alia , in the wholesale of domestically published 
electronic publications.  The 2006 GAPP Approval Decision , addressed to the Shanghai Municipal 
Bureau of Press and Publication, states: 
"[W]e hereby approve Shanghai Bertelsma nn Culture Industry Co. Ltd., a joint 
venture based in Shanghai invested by Ch ina Technology Books Co. Ltd. which is a 
subsidiary of Shanghai Xinhua Publishing Group, and German Bertelsmann Joint 
Stock Limited Company, to increase the business of wholesale and online sale of 
domestically published books, newspapers, periodicals and electronic  publications…. 
Please handle the relevant formalities according to the Publications 
(Sub-)Distribution Rule. " 
7.1083  In another example, the 2007 GAPP Approval Decision , addressed to Beijing Municipal 
Bureau of Press and Publication states: 
"The Joyo Amazon Co. Ltd is approved to be established in Beijing by joint 
investment of Beijing Century Joyo Info rmation Technology Co. Ltd. and Amazon 
Europe Co. Ltd. 
                                                     
 
638 Article 2 of the Publication (Sub-)Distribution Rule  (Exhibit US-28). 
639 Exhibits CN-42 and 43. 
640 Article 10 of the Publications (Sub-)Distribution Rule (Exhibit US-28). WT/DS363/R 
Page 342  
 
  ... 
The business scope of the Joint Venture with respect to the distribution of 
publications is engaging in the wholesale,  retail and online sale of domestically 
published books, periodica ls, newspapers and electronic publications... 
Please handle the relevant formalities according to the Publications 
(Sub-)Distribution Rule.  ..." 
7.1084  We note that the GAPP is the competent administration that implements the Publications 
(Sub-)Distribution Rule .  It is also one of the two governmental departments that drew up and issued 
the Rule.  We further note that the GAPP's administ rative decisions are addressed to the municipal 
press and publication administrations to guide their practice in examining and approving 
establishment applications.  We understand that these decisions are not only effective for those 
specific cases, but also serve as precedents fo r future practice of local press and publication 
administrations .  In our view, the Response of GAPP on Electronic Publications  and the two GAPP 
Decisions referred to support the view that the Publications (Sub-)Distribution Rule  is applied to the 
establishment of foreign-invested enterprises engaging in, inter alia , the wholesale of electronic 
publications, even though electronic publications are not explicitly mentioned in the Rule.  
7.1085  We also note, as the United States points out, that the two GAPP Decisions only approve the 
establishment of foreign-invested enterprises enga ging in the wholesale and retail of domestically 
published reading materials, including electronic pub lications.  We recall that Article 2 of the 
Publications (Sub-)Distribution Rule  defines "books, newspapers  and periodicals" as books, 
newspapers and periodicals published in China and that electronic publications are not mentioned 
therein.  It appears reasonable to assume that, when  the measure is applied to an additional type of 
reading materials, i.e. electronic publications, its  application would not go beyond the limitation on 
"books, newspapers and periodicals".  The two GA PP Decisions seem to confirm this understanding.  
Indeed, the GAPP Decisions explicitly state that the business scope of the joint ventures is the 
distribution of "domestically published books, news papers, periodicals and electronic publications".  
They further require the administrative agencies to "handle the relevant formalities according to the 
Publications (Sub-)Distribution Rule ".  In response to a Panel question, China also confirms that 
foreign-invested enterprises can only engage in the wholesaling of domestically published electronic 
publications.
641 
7.1086  We recall the US allegation that the Publications (Sub-)Distribution Rule  prevents foreign-
invested enterprises from engaging in the wholesale of imported electronic publications or master 
wholesale of any electronic publications because it does not provide for the right of foreign-invested 
enterprises to engage in these service activities.   The US argument is based on China's 
acknowledgement that the Publications (Sub-)Distribution Rule  together with the Publications Market 
Rule are the measures currently governing the wholesale of electronic publications.   
7.1087  As noted above, the Publications Market Rule  does not provide detailed rules on the 
distribution of reading materials by foreign-i nvested enterprises.  To  the extent that the Publications 
(Sub-)Distribution Rule  is applied to the distribution of electronic publications, it is limited to the 
electronic publications published in China.  Neither the Publications Market Rule  nor the Publications 
(Sub-)Distribution Rule  provides that foreign-invested enterp rises are permitted to engage in the 
master wholesale of any electronic publications or the wholesale of imported electronic publications.  We also note, however, that neither of the tw o measures explicitly prohibits foreign-invested 
enterprises from engaging in these activities. 
                                                     
 
641 China's response to question No. 235.  WT/DS363/R 
 Page 343 
 
 
  7.1088  The issue before the Panel is  whether the fact that the Publications (Sub-)Distribution Rule  
does not explicitly address these ac tivities means that foreign-invest ed enterprises are excluded from 
engaging in these activities in violation of Chin a's GATS commitments on wholesaling.  In other 
words, the Panel needs to consider:  (i) whether the Publications (Sub-)Distribution Rule  has the 
effect of prohibiting foreign-invested enterprises fro m engaging in these activities;  (ii) if so, whether 
such prohibition constitutes "less favourable" treat ment accorded to service suppliers of another 
Member than that accorded to like Chinese suppliers within the meaning of Article XVII of the 
GATS. 
7.1089  As noted above, the Publications (Sub-)Distribution Rule  was issued based on, inter alia , the 
Publications Market Rule .  The wording of Article 16 of the Publications Market Rule  suggests that 
the Publications (Sub-)Distribution Rule  is intended to be the so le regulation governing the 
establishment of foreign-invested enterprises e ngaging in the wholesale and retail of reading 
materials.  There appears to be no other regulation that could serve as a legal basis for such establishment.  Since the Publications (Sub-)Distribution Rule  only applies to the establishment of 
foreign-invested enterprises engaging in the whol esale and retail of reading materials published in 
China, it, together with Article 16 of the Publications Market Rule , has the effect of excluding 
foreign-invested enterprises from engaging in ot her distribution activities relating to reading 
materials.  We note in this context, regard ing wholly Chinese-owned enterprises, that the Publications 
Market Rule  applies to the wholesale of electronic pub lications and does not subject wholly Chinese-
owned enterprises to this restriction.  Indeed, under the Publications Market Rule , wholly Chinese-
owned enterprises are permitted to engage in the wholesale of any electronic publications, whether 
imported or domestically published.  
7.1090  We therefore find that to the extent that it is applied to electronic publications, the 
Publications (Sub-)Distribution Rule , together with the Publications Market Rule , prohibits foreign-
invested enterprises from engaging in the wholesale of imported electronic publications. 
7.1091  The Panel must now determine whether the pr ohibition of foreign-i nvested enterprises from 
wholesaling imported electr onic publications under the Publications (Sub-)Distribution Rule  
constitutes a breach of Article XVII of the GATS, as claimed by the United States. 
7.1092  Since China states that the Publications Market Rule and the Publications (Sub-)Distribution 
Rule are the measures that currently govern the distribution of electronic publications, it is evident 
that they "affect" the supply of electronic publications distribution services for the purpose of Article XVII. 
7.1093  As noted above, China's national treatment co mmitment to the wholesale trade services sector 
implies a commitment to all services comprised in that sector, including the wholesale of imported 
electronic publications.  As well, to the extent that, under the measure at issue, a difference of 
treatment between foreign-invested enterprises that would, if not prohibited, engage in the wholesale 
of imported electronic publications and wholly Chinese-owned enterprises that are permitted to 
supply this service is based exclusively on the origin  of service suppliers, the "like" service suppliers 
requirement in Article XVII is met, as long as ther e will, or can, be domestic and foreign suppliers 
that under the measure at issue are the same  in all material respects except for origin.  There is no 
doubt that there will, or can, be foreign-invested enterprises prohibited from engaging in the wholesale of imported electronic publications that ar e the same in all materi al respects as wholly 
Chinese-owned enterprises permitted to supply this servi ce, except for their origin.  We also note that 
the parties do not dispute the likeness of the service s uppliers under the measure at issue.  We thus 
consider that, for the measure at issue, the "like" service suppliers requirement in Article XVII is met. 
7.1094  As we observed earlier, the total prohibiti on on foreign service suppliers from wholesaling 
imported electronic publications, when like Chinese s uppliers are permitted to do so, clearly modifies WT/DS363/R 
Page 344  
 
  the conditions of competition to the detriment of  the foreign service supplier, and thus constitutes 
"less favourable" treatment in terms of Article XVII.  The Panel therefore finds that, to the extent that 
it is applied to the wholesale of electronic publications, the Publications (Sub-)Distribution Rule , in 
conjunction with the Publications Market Rule , constitutes a breach of Article XVII of the GATS.  
7.1095  With respect to the US assertion that the Publications (Sub-)Distribution Rule  also prohibits 
foreign-invested enterprises from engaging in the master wholesale of any electronic publications, we 
note that this measure only applies to two types of distribution activity, name ly wholesale and retail.  
It does not apply to master wholesale.   We also note that the Response  of GAPP on Electronic 
Publications  and the two GAPP Approval Decisions do not refer to master wholesale either.  We are 
thus not convinced that the United States has made a prima facie case that the Publications 
(Sub-)Distribution Rule  prohibits foreign-invested enterpri ses from engaging in the master wholesale 
of any electronic publications. 
Conclusion
 
7.1096  Based on the considerations in paragraphs 7.1070-7.1074, the Pa nel finds that Article 62 of 
the 1997 Electronic Publications Regulation  is inconsistent with China's national treatment 
obligations under Article XVII of the GATS as it pr ohibits foreign-invested enterprises, including 
service suppliers of other Members, from engaging in the master wholesale or wholesale of electronic publications while like domestic service s uppliers are not similarly prohibited.   
7.1097  Based on considerations in paragr aphs 7.1078-7.1095, the Panel finds  that to the extent that it 
is applied to the wholesale of electronic publications, the Publications (Sub-)Distribution Rule , in 
conjunction with the Publications Market Rule , is inconsistent with China's national treatment 
obligations under Article XVII of the GATS as th ese two measures together have the effect of 
prohibiting foreign-invested enterprises, including service suppliers of other Members, from engaging 
in the wholesale of imported electronic publicatio ns while like domestic service suppliers are not 
similarly prohibited.   
7.1098  We do not find an inconsistency of the Publications (Sub-)Distribution Rule  with 
Article XVII in respect of the master wholesale of electronic publications as the United States has not 
established that the Publications (Sub-)Distribution Rule  prohibits foreign-invested enterprises, 
including service suppliers of other Members, from engaging in the master wholesale of any 
electronic publications as claimed. 
(b) Discriminatory requirements applying to foreign-invested enterprises 
7.1099  Having examined the US claims concerning discriminatory prohibitions by China on the 
distribution of reading materials by foreign-invest ed enterprises, we now turn to the US claims 
concerning alleged discriminatory requirements applie d by China to foreign-invested enterprises, in 
cases where the wholesale of reading materials by them is authorized. 
7.1100  The United States  submits that, where foreign-invested enterprises are permitted to engage in 
the sub-distribution of books, news papers and periodicals published in China, they are subject to 
various discriminatory requirements.  The United St ates claims that each of the five discriminatory 
requirements – with respect to registered capital, operating terms, pre-establishment legal compliance, 
examination and approval process, and GAPP deci sion-making criteria – constitutes a breach of 
Article XVII of the GATS, as each of them is  inconsistent with China's national treatment 
commitments on "Wholesale Trade Services" (Sector 4.B of China's Schedule) supplied through commercial presence.  According to the United Stat es, these discriminatory requirements are imposed 
through the Publications (Sub-)Distribution Rule  and the (Sub-)Distribution Procedure .   WT/DS363/R 
 Page 345 
 
 
  7.1101  China  requests the Panel not to consider the re quirements concerning the "pre-establishment 
legal compliance", "approval process requirements" a nd "decision-making criteria" to be within its 
terms of reference, because they are not specifically  mentioned in the US panel request.  China also 
requests the Panel not to consider the (Sub-)Distribution Procedure  as it is not a "measure" within the 
meaning of Article 3.3 of DSU. 
7.1102  The Panel  recalls its finding in paragraph 7.104 that the requirements concerning pre-
establishment legal compliance, examination and approval process, and GAPP decision-making criteria, as well as the Sub-Distribution Procedure  are not within its terms of reference.  The Panel 
will therefore examine only whether the alleged discriminatory requirements with respect to 
registered capital and operating terms are inc onsistent with Article XVII of the GATS.  
(i) Registered capital requirement 
7.1103  The United States  alleges that the requirement that the foreign-invested reading materials 
wholesaler shall have a registered capital of no less than RMB 30 million (approximately US$4 million) is inconsistent with Article XVII of the GATS, as this requirement is higher than the RMB 2 
million (approximately US$286,000) that a wholly Chinese-owned reading material wholesaler is 
required to have.  The United States notes that the capital requirement for foreign-invested 
wholesalers is contained in Article 7.4 of the Publications (Sub-)Distribution Rule , while that for 
wholly Chinese-owned wholesalers is set out in the Publications Market Rule.  For the United States, 
this fifteen-fold difference in capital requirement accords to foreign-invested wholesalers treatment 
significantly less favourable than that accorded to like Chinese-owned wholesalers and modifies 
conditions of competition.  The United States adds  that China has not listed in its Schedule any 
limitations on its national treatment commitment with  respect to the wholesaling of reading materials 
supplied through commercial presence.  According to the United States, the limitations that are listed 
by China in the horizontal section of its Schedule do not cover the case of a higher registered capital 
requirement for foreign-invested wholesalers.  The United States submits therefore that the 
requirement is inconsistent with  China's national treatment comm itments under Article XVII of the 
GATS. 
7.1104  China argues that formally different treatment between domestic and foreign services and 
services suppliers is not sufficient for establishing a violation of Article XVII of the GATS.  According to China, the different registered capita l requirement does not impact the actual conditions 
of competition since foreign-invested wholesalers benefit from a degree of flexibility that is not available to wholly Chinese-owned wholesalers.   China submits that wholly Chinese-owned 
wholesalers have to contribute the entire register ed capital before incorporation, while foreign-
invested wholesalers can contribute the registered cap ital in several subsequent instalments, including 
after incorporation.  China maintains that the United States fails to make a prima facie case under 
Article XVII of the GATS as it has not demonstrated that the re gistered capital requirement on 
foreign-invested wholesalers has modified the condi tions of competition to the detriment of foreign 
service suppliers.  
7.1105  The United States  submits that China is incorrect in  countering that wholly Chinese-owned 
wholesalers, unlike foreign-invested wholesalers, mu st contribute the entirety of their registered 
capital prior to establishment.  The United States notes that the 
2005  Company Law allows wholly 
Chinese-owned enterprises to contribute their regi stered capital in instalments over time as well.  
China , in its answer to a question from the Panel, conf irms that after the amendment of the Company 
Law in 2005, both foreign-invested and wholly-C hinese owned enterprises may contribute their 
registered capital in instalments over the same period of time.  
7.1106  The Panel  begins by examining the provision of the Publications (Sub-)Distribution Rule  that 
sets the registered capital requirement for foreign- invested enterprises for the purpose of wholesaling WT/DS363/R 
Page 346  
 
  books, newspapers and periodicals in China.  Article 7.4 of the Publications (Sub-)Distribution Rule  
states:  
"The following conditions shall be satisfi ed for the establishment of a foreign-
invested books, newspapers and periodicals wholesale enterprise: 
... 
(4) A registered capital of no less than 30 million RMB;" 
7.1107  The Panel then examines the relevant provision of the Publications Market Rule , which sets 
the registered capital requirement for wholly Chinese-owned wholesalers of books, newspapers and 
periodicals in China.  Article 8.4 states: 
"To set up a publication wholesale enterprise or for some other unit to engage in the 
wholesale of publications, the follo wing conditions must be met: 
... (4) Having a registered capital of no less than 2 million RMB." 
7.1108  This provision confirms that the registered cap ital requirement for wholly Chinese-owned, as 
compared to foreign-invested wholesalers of books, newspapers and periodicals in China is 
significantly lower. 
7.1109  The Panel notes that China argued, at least in itially, that the greater capital requirement 
imposed on foreign-invested wholesalers is "balance d" by the flexibility accorded to those foreign 
wholesalers, and not wholly Chinese-owned ones, to pay in the registered capital amount in instalments.  However, China's initial statement that only foreign-invested wholesalers benefit from 
flexibility in payment of their registered capita l no longer, according to China itself, represents 
Chinese law.
642  Since 2005, both foreign-invested and wholly Chinese-owned enterprises may 
contribute their registered capital in instalments over the same period of time.  Article 26 of the 2005  
Company Law  makes no distinction between Chinese and foreign firms in this respect: 
"The registered capital of a limited liabilit y company shall be the total amount of the 
capital contributions subscribed to by all th e shareholders that have registered with 
the company registration authority.  The amount of initial capital contributions made 
by all shareholders of this company shall be no less than 20% of its registered capital, nor less than the legally-defined minimu m amount of registered capita, and the 
outstanding part shall be paid off by the shareholders within 2 years as of the date of the incorporation of this company: in terms of an investment company, that 
outstanding part may be paid off within 5 years." 
7.1110  The Panel notes also that the 2006 Implementation Opinions  provides that the capital 
contribution made for a foreign-invested co mpany shall meet the requirements of the 2005  Company 
Law.  Further, paragraph 11 of Article 20 of China's Company Registration Regulation provides that: 
"For a shareholder of a foreign-invested limited liability company, the amount of his 
initial capital contributions shall meet the requirements of laws and administrative 
regulations, and the outstanding part shall be  paid off within two years from the date 
                                                     
 
642 China's response to question No. 224.  WT/DS363/R 
 Page 347 
 
 
  of the incorporation of that company or within five years if that company is an 
investment company." 
7.1111  We therefore understand, and China acknowledges,  that after the amendment of the Company 
Law in 2005, both foreign-invested and wholly-C hinese owned enterprises may contribute their 
registered capital in instalments over the same period of time. 
7.1112  We note that Article XVII of the GATS applies to "all measures affecting the supply of 
services".  We understand that measures affecting th e ability of foreign service suppliers to establish a 
commercial presence, such as the registered capit al requirement on service suppliers at issue, 
constitute such measures, and are thus within the scope  of Article XVII.  We note that the parties do 
not dispute this.  We next examine whether the registered capital requirement under the measure at 
issue constitutes "less favourable treatment" under Article XVII of the GATS.   
7.1113  As noted above, in order to establish "less favourable treatment" for the purpose of 
Article XVII, we also need to determine whether, under the measur e at issue, foreign-invested 
wholesalers and wholly Chinese-owned wholesalers are "like" service suppliers.  We consider that 
foreign-invested wholesalers qualify as "service supp liers of another Member" as long as the entity is 
owned or controlled by persons of  another Member.  We note that under the measure at issue, the 
difference of treatment, i.e. the registered capital requirement, is based exclusively on the origin of 
service suppliers.  We consider that the "like" servi ce suppliers requirement in Article XVII is met, as 
long as there will, or can, be domestic and foreign suppliers that, under the measure at issue, are the 
same  in all material respects except for origin.  In our view, there is no doubt that there will, or can, be 
foreign-invested wholesalers subject to a higher registered capital requirement that are the same in all 
material respects as wholly Chinese-owned enterprises not subject to such limitation, except for their 
origin.  We also note that the parties do not di spute the likeness of the service suppliers under the 
measures at issue.   
7.1114  With respect to the difference in  the registered capital requirement, we note that the parties do 
not dispute that such difference has an impact on the conditions of competition between foreign-
invested wholesalers and like, wholly Chinese-owned wholesalers.  Clearly, differing requirements in 
the amount of minimum capital required to establish a business affect service suppliers' market access 
opportunities.   
7.1115  We observe that, with respect to the s upply of services through commercial presence, if 
service suppliers from other Members are subject to a higher registered capital requirement than that 
for domestic service suppliers, they face a higher cost  for market entry that would, in some cases, 
have a negative effect on their ability to compete with  domestic service suppliers.  In this dispute, a 
Chinese wholesaler needs to raise no less than 2 million RMB for its establishment while a foreign-
invested wholesaler has to raise no less than 30 million RMB.  As demonstrated by the United States, 
15 wholly Chinese-owned wholesalers could establish their businesses using the amount of capital required to establish a single foreign-invested wholesaler  in China.  It is evident that the threshold for 
market entry of wholly Chinese-owned wholesalers is significantly lower than that for foreign-
invested wholesalers. This places foreign-invest ed wholesalers at a competitive disadvantage in 
seeking to establish a commercial presence so as to  supply the Chinese market through commercial 
presence.    
7.1116  Looked at from a different angle, one can see that the 30 million RMB registered capital 
requirement would exclude from the Chinese market all foreign-invested enterprises who cannot raise 
this amount of capital, while Chinese suppliers that ar e similarly not able to meet a registered capital 
requirement of RMB 30 million would not be excluded (assuming they could nonetheless meet the RMB 2 million threshold). WT/DS363/R 
Page 348  
 
  7.1117  The Panel also notes that China has decided to insert in other parts of its own Schedule of 
commitments similar types of alleged discriminatory capital or asset requirements.  For example, China's commitment on technical testing and analys is services, which is found under the sector 
heading "Other Business Services", lists an entry under mode 3 which limits establishment of joint 
ventures to those with no less than US$350,000 in  registered capital.  Further, under the sector 
heading "Tourism and Travel-Related Services", China's commitment on travel agency and tour 
operator services also lists a registered capital requirement of no less than RMB 4 million for the establishment of a joint venture travel agency or t our operator, which is sche duled to be brought down 
to RMB 2.5 million within three years after accession.  Although these examples are not determinative in the Panel's analysis of the preci se measure at issue here, they do support the view 
that China was aware of the possib ility of inscribing such limitations in its Schedule, but that it chose 
not to do so.     
7.1118  As noted above, under the measure at issue, foreign-invested wholesalers who are service 
suppliers of another Member and wholly Chinese wh olesalers will, or can, be "like" service suppliers 
in the sense of Article XVII.  Furthermore, in light of the above considerations, we consider that the 
significantly greater amount of registered cap ital required for foreign-invested wholesalers 
unfavourably modifies the conditions of competition that they face by exacting a higher price for market entry.  We consider therefore that China accord s foreign-invested wholesalers supplying 
services through commercial presence treatment less favourable than th at accorded to like, wholly 
Chinese-owned wholesalers within the meaning of Article XVII of the GATS.   
7.1119  Finally, we recall that China does not inscribe in Sector 4.B. (Wholesale Trade Services) of 
its Services Schedule a specific limitation that foreign-invested wholesalers are subject to a higher 
registered capital requirement.  Consequently, Chin a is not entitled to maintain a measure containing 
such a condition. 
7.1120  Thus, the Panel concludes that the registered cap ital requirement set forth in Article 7.4 of the 
Publications (Sub-)Distribution Rule  is inconsistent with Article XVII of the GATS.  
(ii) Operating term requirement 
7.1121  The Panel now examines the second of the two me asures, an operating term requirement, that 
the United States claims applies only to foreign-i nvested wholesalers and discriminates against them 
contrary to Article XVII of the GATS. 
7.1122  The United States  notes that pursuant to Article 7.5 of the Publications (Sub-)Distribution 
Rule, the operating term for foreign-invested wholesalers is limited to 30 years, while wholly 
Chinese-owned wholesalers are free of any term limitations.  The United States argues that the 
30-year term places foreign-invested wholesalers at  a competitive disadvantage as their continued 
operations are subject to the discretion of government authorities.  The United States further argues that this imposes considerable uncertainty on co mmercial relationships, particularly when an 
operating term is close to its expiry.  In the view  of the United States, maintaining current business 
and generating new business becomes more difficult when a foreign-invested wholesaler cannot 
guarantee that it will continue to be in business af ter the expiry of its operating term.  The United 
States also argues that the limited operating term not only disadvantages foreign-invested enterprises 
in terms of their post-30 year operations, but also undermines the quality of their pre-30 year 
operations.  According to the United States, this requirement imposes a chilling effect on the business 
opportunities and commercial relationships availa ble to foreign-invested enterprises.   
7.1123  China  argues that, to succeed in its claim, the United States must show not merely that 
foreign invested wholesalers are treated differently from domestic wholesalers, but also that they are 
treated less favourably.  According to China, th e United States must show that the different  WT/DS363/R 
 Page 349 
 
 
  requirements affecting foreign-invested wholesaler s alter the conditions of competition so that 
foreign-invested wholesalers are placed at a genui ne and concrete competitive disadvantage compared 
to like domestic wholesalers.  China further argue s that the 30-year operating term requirement for 
foreign invested wholesalers has no impact on actual conditions of competition.  China submits that an operating term that is close to expiry can be  extended pursuant to a non-discretionary, automatic 
and simplified procedure.  China further submits that in practice, neither the wholly-Chinese 
wholesaler nor the foreign-invested wholesaler is  subject to any actual time-limitation for their 
activity.  China maintains that denying its right to  introduce the requirement on operating terms would 
undermine its sovereign right to regulate market acc ess in the field of services consistently with its 
GATS commitments. 
7.1124  The United States  disagrees with China's assertions, cont ending that the extension of the 
operating term is not automatic under Chinese law,  but requires an approval process that is not 
governed by objective criteria.  The United States notes that any extension of the operating term 
requires the agreement of all investors and board directors, and must comply with China's laws, 
regulations and policies on foreign investment.  The United States thus understands that under 
Chinese law, each of these parties holds a veto on ex tension and can use that leverage to extract 
concessions from the foreign-invested parties.  The United States argues that this artificial and 
unnecessary commercial situation places undue strain and extra burdens on the foreign-invested 
wholesalers, a predicament not faced by wholly Chinese-owned wholesalers.  The United States also 
notes that even after the agreement of the joint ve nture parties is secured, extension of the operating 
term depends on approval by governmental authorities, which is not based on objective criteria. 
7.1125  Rejecting the US arguments above, China  submits that the operating term requirement for 
foreign-invested enterprises in China is in fact adopted to protect the reasonable expectations and 
interests of such enterprises by guaranteeing th eir business activity within the approved business 
scope and operating term.  China further submits that it has the sovereign right to determine and 
adjust which sectors of its economy should be open to  foreign investment in a manner not inconsistent 
with its international obligations.  According to  China, with an operating term, the business of 
foreign-invested enterprises is free from the influence of any change in  foreign investment policy, and  
this helps to minimize the uncertainty in foreign in vestment policy faced by foreign service providers.   
7.1126  China indicates that the extension of the opera ting term is required by law to meet three 
conditions:  the agreement of all investors, the ag reement of all directors and compliance with the 
laws, regulations and policies on foreign investment a pplicable at the time of application.  According 
to China, these three conditions are neutral;  as long as the application for extension satisfies the three 
conditions, the examining authority is ob liged by law to grant approval.   
7.1127  The Panel begins its analysis by observing that it is uncontested that foreign-invested 
wholesalers are subject to a maximum 30-year operating term, whereas wholly Chinese-owned wholesalers face no such limitation.  Foreign-invest ed wholesalers are therefore accorded treatment 
that is formally different from that accorded to  wholesalers who are wholly Chinese-owned.  The 
parties do not dispute this.  The issue for us to ex amine is whether this formally different treatment 
constitutes "treatment no less favourable" under Article XVII of the GATS. 
7.1128  We need first to examine whether, under the measure at issue, foreign-invested wholesalers 
and wholly Chinese-owned wholesalers are "like" service suppliers for the purpose of Article XVII.  
We consider that foreign-invested wholesalers qua lify as "service suppliers of another Member" as 
long as the entity is owned or controlled by pers ons of another Member.  We note that under the 
measure at issue, the difference of treatment, i.e. the operating term requirement, is based exclusively 
on the origin of service suppliers.  We consider that the "like" service suppliers requirement in 
Article XVII is met, as long as there will, or can, be domestic and foreign suppliers that, under the 
measure at issue, are the same  in all material respects except for or igin.  In our view, there is no doubt WT/DS363/R 
Page 350  
 
  that there will, or can, be foreign-invested whol esalers subject to a 30-year operating term limitation 
that are the same in all material respects as w holly Chinese-owned enterprises not subject to such 
limitation, except for their origin.  We note that the parties do not dispute the likeness of the service 
suppliers under the measures at issue.   
7.1129  Since the operating term requirement governs the distribution of reading materials by foreign-
invested enterprises, we consider that it is "affec ting" the supply of the relevant services for the 
purpose of Article XVII.   
7.1130  We recall the requirement under Article XVII that a Member accord "no less favourable 
treatment" to foreign services or service suppliers  than it does to like domestic ones.  Under 
paragraph 2 of Article XVII, the treatment need not be identical.  Formally different treatment may be 
accorded to foreign services or service suppliers, as long as that treatment does not modify conditions 
of competition in favour of like domestic services or  service suppliers.  Therefore, China's formally 
different treatment of foreign-invested wholesalers with respect to operating term does not necessarily indicate an inconsistency with Article XVII.  It is  for the United States, as the complaining party, to 
demonstrate that the formal difference in treat ment by China has modified the conditions of 
competition in favour of wholly Chinese-owned wholesalers. 
7.1131  The demonstration of "less favourable treatment " of foreign services or service suppliers 
under Article XVII must proceed through careful analysis of the measure and the market.  In examining the national treatment obligation applyi ng to trade in goods, the Appellate Body in US – 
FSC (Article 21.5 – EC)  stated: 
"The examination of whether a measure involves 'less favourable treatment' of 
imported products within the meaning of  Article III:4 of the GATT 1994 must be 
grounded in close scrutiny of the 'fundament al thrust and effect of the measure 
itself'
643.  This examination cannot be rest on simple assertion, but must be founded 
on a careful analysis of the contested measure and of its implications in the marketplace.  At the same time, however, the examination need not be based on the 
actual effects of the contested measure in the marketplace
644."645 
7.1132  We consider that this statement by the Appellate Body is relevant also to an analysis under 
Article XVII of the GATS, since an examination of  "less favourable treatment" involves, in goods as 
well as services cases, an analysis of the effect s of a measure on conditions of competition.  
7.1133  We first examine the basic requirement for a maximum 30-year operating term.  It is 
contained in paragraph 5 of Article 7 of the Publications (Sub-)Distribution Rule , which states 
"7. Establishment of a foreign-invested  enterprise for the wholesale of books, 
newspapers and periodicals requires the following conditions: 
... 5) The term of business shall be no more than 30 years." 
                                                     
 
643 (footnote original)  Appellate Body Report on Korea – Various Measures on Beef , supra , 
footnote 44, para. 142. 
644 (footnote original)  Appellate Body Report on Japan – Alcoholic Beverages II,  supra , footnote 116, 
at 110. 
645 Appellate Body Report on US – FSC (Article 21.5 – EC) , paras. 215 and 221.  WT/DS363/R 
 Page 351 
 
 
  7.1134  We now turn to the conditions which a foreign- invested enterprise must fulfil in order to 
extend the 30-year operating term.  The parties refer us to four Chinese regulations that set out the 
requirements for an extension: the Chinese-Foreign Equity Joint Venture Law , the 2000 Chinese-
Foreign Contractual Joint Venture Law , the Foreign-Funded Enterprise Law , and the Opinions on the 
Extension of Operating Terms.   These regulations all provide, in similar language, the date by which 
an application for the extension of the operating te rm shall be submitted to the approval authority, and 
the time allowed for the authority to decide whether to approve the application.646  Paragraph 1 of the 
Opinions on the Extension of Operating Terms  states: 
"[I]f a foreign-invested enterprise wants to  extend its operation terms, it shall apply 
for extension to the approving authority prior to the 180th day before the expiry date 
of the operation terms ('Ma ndatory Time Period'). The approving authority shall 
decide whether to approve or not to a pprove within 30 days after receipt of 
application. If no decision is made before  the expiry date of the operation terms, 
approval for extension shall be de emed to have been granted." 
7.1135  Apart from the timely submission of the request, three substantive conditions must be met for 
an extension to be granted.  Article 3 of the Opinions on the Extension of Operating Terms  states: 
"The application for extension shall meet the following conditions:  (1) the extension shall be agreed by all investors; (2) the extension shall be agreed by all directors of the Board;  and (3) the extension shall comply with the laws, regulations and policies on foreign 
investment at the time of application." 
7.1136  The main issue before us is whether the requi rement to renew the 30-year operating term 
unfavourably modifies "conditions of competition" to the detriment of the foreign-invested 
wholesaler.  The Panel observes that the extension pro cedure on its face is not a mere formality.  First, 
a positive decision by the competent authority is required, and a time period for its decision is given.  Thus, the application by the foreign-invested whol esaler is not a simple requirement to notify the 
competent authority.  Secondly, there are three s ubstantive conditions laid down that a wholesaler's 
application must fulfill.  The failure to meet any of  the three conditions leads to the rejection of the 
application.  Thus any single investor, or any single  member of the Board of directors, in effect has 
the power to veto an application to extend the opera ting term of the foreign-invested wholesaler.  This 
potential veto, which matures at the end of the 30- year operating term, accords significant bargaining 
power to any individual investor or board member, undermining the normal governance rules of these 
affected wholesalers.  Likewise, the requirement to "comply with the laws, regulations and policies on 
foreign investment at the time of application" could well mean that a wholesaler who had been authorized to do business in a particular way unde r its initial licence, and had continued to do so 
legally for the duration of its operating term, might  find that its application to extend its operating 
term is denied since the conditions of its initia l licence might no longer accord with China's current 
"laws, regulations and policies on foreign investme nt".  In sum, the occurrence of any of these 
eventualities could impose significant costs on the foreign-invested wholesaler.  
7.1137  These considerations indicate to the Panel th at the maximum 30-year operating term imposed 
on foreign invested wholesalers, coupled with a re newal process subject to three conditions, imposes 
                                                     
 
646 Article 13 of the Chinese-Foreign Equity Joint Venture Law  (Exhibit CN-48), Article 24 of the 2000 
Chinese-Foreign Contractual Joint-Venture Law (Exhibit CN-49), Article 20 of the Foreign-Funded Enterprise 
Law (Exhibit CN-50), and Article 1of the Opinions on the Extension of Operating Terms (Exhibit CN-51). WT/DS363/R 
Page 352  
 
  risk, and therefore may lead to costs, on foreign- invested wholesalers that their like wholly Chinese-
owned competitors do not bear.  As demonstrated by the United States, the disadvantages experienced 
by foreign-invested wholesalers are particularly  acute in the context of multi-year and supply 
contracts, where repeat services cannot be guarant eed by the foreign-invested enterprises as the 
expiration of its operating term a pproaches.  Producers and customer s alike are likely to disfavour 
suppliers with operating term limitations because that restraint entails the risk of service interruptions.  
Foreign-invested wholesalers may also have difficu lty in securing in a timely manner the finances 
needed for their continued operations due to uncertain ties in the extension of operating terms.      
7.1138  Although these costs stem from risks that are r ealized only toward the end of the 30-year 
operating term, they nonetheless have a present value.  That present value can be evaluated as early as 
the moment a decision is being taken whether to est ablish a new foreign-invested wholesaler.  In this 
way, the 30-year operating term requirement, together  with the associated renewal procedures, could 
potentially affect the current conditions of compe tition between foreign-invested and wholly Chinese-
owned wholesalers. This would particularly aff ect those foreign-invested wholesalers who have 
operation plans for more than 30 years.  
7.1139  We therefore understand that the operating te rm requirement and the associated renewal 
procedures, which only apply to fo reign-invested wholesalers, indeed have implications in the 
marketplace.  We observe that China has the undoubt ed right to regulate trade in services under the 
GATS, including by adjusting its foreign investment  policy.  This regulation must however be in 
accordance with the GATS commitment s that China has chosen to make in its Schedule.  Should 
China wish to maintain discriminatory measures on foreign service suppliers in service sectors for 
which it has undertaken national treatment commitme nts, then it must indicate those measures as 
limitations in its Schedule.  We recall that Chin a has not inscribed in Sector 4B (Wholesale Trade 
Services) of its Schedule any limitation related to  a limited operating term for foreign-invested 
wholesalers. Consequently, China is not entitled to  maintain such a condition under Article XVII of 
the GATS. 
7.1140  In light of the above considerations, we fi nd that the operating term requirement and the 
associated renewal procedures modify, with respect  to foreign-invested wholesalers who qualify as 
"service suppliers of another Member", the conditi ons of competition in favour of wholly Chinese-
owned wholesalers.  As noted above, we consider that, for th e measure at issue, the "like" service 
suppliers requirement in Article XVII is met.  We therefore consider that China has accorded foreign-
invested wholesalers treatment less favourable than that accorded to wholly Chinese-owned 
wholesalers within the meaning of Article XVII of the GATS.     
7.1141  The Panel therefore finds that the operating term  requirement provided for by Article 7.5 of 
the Publications (Sub-)Distribution Rule  is inconsistent with Article XVII of the GATS. 
(iii) Conclusion  
7.1142  Based on the considerations in paragraphs 7. 1106-7.1120 and 7. 1127-7.1141, the Panel finds 
that the requirements concerning registered capital and operating term for foreign-invested 
wholesalers respectively contained in para graphs 4 and 5 of Article 7 of the Publications Sub-
Distribution Rule  are inconsistent with China's national treatment obligations under Article XVII of 
the GATS.  
2. 
Distribution of sound recordings in electronic form: claims under Article XVII of the 
GATS   
7.1143  The United States  submits that China takes measures that prohibit foreign-invested 
enterprises from engaging in the electronic distri bution of sound recordings .  This prohibition is  WT/DS363/R 
 Page 353 
 
 
  inconsistent with Article XVII of the GATS, accor ding to the United States, because it violates 
China's national treatment commit ments under mode 3 with respect to "sound recording distribution 
services", as listed in Sector 2.D. of its Services Sc hedule.  According to the United States, each of the 
four Chinese measures – the Internet Culture Rule , the Circular on Internet Culture , the Network 
Music Opinions , and the Several Opinions  – is inconsistent with Article XVII.  The United States 
submits that the four measures taken together also breach Article XVII as they create a regime 
governing the electronic distribution of sound recordi ngs.  The United States further submits that the 
Catalogue  and the Foreign Investment Regulation  are also part of this regime. 
7.1144  China  rejects the US claims, contending that the services at issue are "network music 
services", a new type of service totally different from the "sound recording distribution services" 
listed in China's Schedule.  According to China,  "sound recording distribution services" only covers 
the distribution of sound recordings embedded in physical media. 
7.1145  The Panel  notes that the major issue in dispute un der this claim is whether the services at 
issue, which the United States say s are affected by specified Ch inese measures, are "sound recording 
distribution services" listed in the sectoral column of China's Schedule and can therefore be covered 
by China's national treatment commitment.  Accordin gly, we will first determine whether the services 
at issue are "sound recording distribution services" listed in China's Schedule.  We will then examine the measures identified by the United States under this claim, to determine whether they affect the 
services at issue and are inconsistent with Ch ina's national treatment commitments under "sound 
recording distribution services".  
(a) Whether China has undertaken GATS commitments for the distribution of sound recordings 
in electronic form 
7.1146  In order to address the question of whether the services at issue are covered by China's GATS 
commitments on "Sound recording distribution services" , the Panel first needs to identify the services 
that have been invoked by the United States, and then determine the scope of China's commitments 
for these services.  
(i) Services at issue 
7.1147  For the United States,  the services at issue are the "electronic distribution of sound 
recordings".  In its panel request, the United St ates claims that Chinese measures place market access 
restrictions and discriminatory requirements on fo reign service suppliers seeking to engage in the 
"digital distribution of sound recordings" that is, the distribution of sound recordings not embedded in 
a physical medium.  For the United States, "sound r ecordings" include songs, "ring tones" and "ring 
back tones".  In its answer to a question from th e Panel, the United States submits that "electronic 
distribution" of the services at issue should be un derstood in a broad sense.  According to the United 
States, such "distribution" encompasses wholesale,  retail, and other transmission activities over the 
Internet and through other electromagnetic means.  It should be understood to  cover the dealing out, 
dispersing, or otherwise the moving of a good or service further downstream in the chain from 
production to consumption.  Thus, the "electronic distribution of sound recordings" encompasses the 
wholesale and retail of sound recordings, as well as  other activities involved in conveying the sound 
recording downstream and to the ultimate consumer, whether distributed through the Internet, telecom 
networks, or other electronic means.   
7.1148  China  submits that the United States in its panel request limits the scope of its claim to 
distribution of sound recordings over the Internet , and not by other means such as telecommunications 
systems, including mobile telephony.  According to China, transmission of music through other 
electromagnetic means is therefore not within the scope of the dispute.  WT/DS363/R 
Page 354  
 
  7.1149  The United States  notes that the measures at issue, in particular the Network Music Opinions , 
are more broadly applicable to dissemination over the "network".  This would include wired or 
wireless media such as the internet and mobile communications.  
7.1150  The Panel  notes China's argument that the services at issue raised by the United States do not 
include the transmission of music by electronic mean s other than the Internet, since the United States 
in the panel request limits its clai m to the digital distribution of sound recordings over the Internet.  
The relevant section of the panel request reads as follows:  
"The measures at issue, however, appear to place market access restrictions and 
discriminatory requirements on foreign service  suppliers seeking to engage in the 
digital distribution of sound recordings.  For example, the Interim Regulations on 
Internet Culture Administration (the 'Inter im Regulations') defi ne 'internet cultural 
activities' as including activities such as w holesaling and retailing of 'internet cultural 
products' on the internet (including to mob ile telephones).  The Interim Regulations 
further define "internet cultural products" as including various kinds of 'network audiovisual products', including both audiovi sual products that have been produced 
specifically for transmission over the internet  and products that are the result of the 
transformation of an audiovisual product exis ting in physical form into a format that 
can be transmitted over the internet.  It a ppears, therefore, that the definition of 
"internet cultural products" extends to digita l sound recordings, and that the definition 
of 'internet cultural activities' extends to the digital distribution of such products."
647 
7.1151  In examining the panel request, we note that th e United States claims that specific Chinese 
measures are inconsistent with Article XVII of the GATS, since these measures discriminate against 
foreign service suppliers seeking to engage in the "d igital distribution" of sound recordings.  The US 
claim is thus specified as "digital" distribution, which China argues means distribution only over the 
Internet.   In examining the dictionary meaning of "digital", we note that it refers in a technical sense 
to "signals or information represented by discrete numeric values of a physical quantity such as 
voltage or magnetic polarization (comm only representing the digits 0 and 1)".648  In a more general 
sense, the same dictionary states th at "digital" can refer to "the use of computer technology or digital 
communications, especially digital multimedia and the Internet". 
7.1152  Looking at this more general meaning of "digital", we take particular note of the use of the 
qualifying phrase "especially digital media and the Inte rnet".  This indicates to us that there can exist 
"digital" communications other than over the Inte rnet, which might include, for example, mobile 
telephone networks.  From this we deduce that ther e can also be "digital" distribution other than 
through the Internet.  We see no contextual reason to r estrict the scope of the term "digital" in the US 
claim solely to distribution over the Internet. 
7.1153  We therefore find that the US claim relating to the "electronic distribution of sound 
recordings" include their distribution through the Intern et or by other electronic means.  We shall refer 
to these services in this part as the "services at issue". 
(ii) Sectoral scope of "sound recording distribution services"  
7.1154  The United States  submits that the proper application of the customary rules of treaty 
interpretation reflected in the Vienna Convention  leads to the conclusion that China's commitments on 
"sound recording distribution services" include the distribution of sound recordings through electronic means, and this conclusion is consistent with the principle of technological neutrality.  
                                                     
 
647 United States' panel request WT/DS363/5, page 6. 
648 Oxford English Dictionary , online version, http://dictionary.oed.com    WT/DS363/R 
 Page 355 
 
 
  7.1155  In the United States' view, the ordinary meaning of "recording" is "the action or process of 
recording audio or video signals for subse quent reproduction" or "recorded material".649  Thus, the 
term "recording" does not distinguish between record ings of sound stored on physical media or those 
stored electronically. Distribution of sound recordi ngs thus includes distribution of any recorded 
sound, whether in hard-copy or electronically.  Acco rdingly, the ordinary meaning of the term "sound 
recording distribution services" includes electr onic distribution of sound recordings.   
7.1156  The United States argues that the term "dis tribution" does not necessarily mean the 
distribution solely of goods, but also services, as  suggested by Article XXVIII(b) of the GATS.  
Distribution refers to the range of activities undert aken to move a product further downstream.  For 
the United States, the sale of a sound recording on  a CD to a retail outlet or electronically to a 
company that then sells it through transmission over the Internet both involve distribution of a sound 
recording.  The United States asserts that the de finition of "distribution services" in Annex 2 to 
China's Services Schedule expressly applies only to the distribution of goods under sector 4, and is thus not relevant for the interpretation of sector 2.D. 
7.1157  For the United States, the definitions of certain  terms in the GATS pr ovide relevant context 
for the interpretation of China's commitments.  Artic le I:3(b) of the GATS defines services broadly to 
"includ[e] any service in any sector except services supplied in the exercise of government authority."  In addition, Article XXVIII(e)(i) defines "sector" to  mean "with respect to a specific commitment, one 
or more, or all, sub-sectors of that service as speci fied in a Member's Schedule."  In light of the 
ordinary meaning of "sound recording distribution"  and the context, the United States submits that 
China's commitments in this sector must be read  to include the electronic distribution of sound 
recordings. 
7.1158  Because an analysis of the relevant treaty terms pursuant to Article 31 does not leave the 
meaning of the terms of China's GATS schedule ambiguous, obscure, or unreasonable, the United 
States contends that there is no need to resort to s upplementary means of interpretation.  Even if this 
were not the case, an analysis of the supplementary  means of interpretation under Article 32 confirms, 
according to the United States, its interpretation u nder Article 31 that China's services commitments 
cover the electronic distribution of sound recordings. 
7.1159  Electronic distribution of sound recordings ex isted before China's accession to the WTO, 
according to the United States.  Ch ina itself was aware that music was being distributed electronically 
at the time of its accession.  Even if China were  correct that it did not intend to make a commitment 
with respect to the electronic distribution of sound r ecordings, the United States submits that its intent 
is not determinative.  In US – Gambling , the panel made clear that a Memb er's intent is not relevant in 
discerning whether the Member has a commitment with  respect to a particular means of delivery.  
Because China did not explicitly exclude electr onic distribution of sound recordings from its 
commitment on sound recording distribution services, the United States contends that China's services 
commitments include this form of distribution.   
7.1160  According to the United States, its interpretation of China's Schedule is also consistent with 
the principle of technological neutrality.  Electr onic distribution of sound recordings constitutes a 
modern means to supply an existing service.  If Ch ina's arguments were accepted, the United States 
contends that WTO Members could invoke this reasoning to evade services commitments any time a new means of delivering a service was developed.  On the other hand, the principle of technological neutrality is consistent, according to the United Stat es, with the concept that the GATS is sufficiently 
dynamic so that Members need not renegotiate th e Agreement or their commitments in the face of 
ever-changing technology.  The United States notes that the Panel in US – Gambling  states that "the 
                                                     
 
649 The New Shorter Oxford English Dictionary , L. Brown (ed.) (Clarendon Press, 1993) Vol. II, 
p. 2506 (Exhibit US – 59). WT/DS363/R 
Page 356  
 
  GATS does not limit the various technologically possible means of delivery under mode 1" and that 
"if a Member desires to exclude market access w ith respect to the supply of service through one, 
several or all means of delivery included in mode  1, it should do so explicitly in its schedule".  
According to the United States, this reasoning appl ies equally to China's market access commitments 
under mode 3.  
7.1161  China submits that its commitments on "sound re cording distribution services" cover the 
distribution of sound recordings only in physical form.  For China, the  commitments should be 
interpreted according to the customar y rules of interpretation of public  international law, codified in 
Articles 31 and 32 of the Vienna Convention.   
7.1162  China contends that the term "recording" refers  to the physical medium that contains the 
result of a recording process.  The ordinary definiti on of the term "distribution", according to China, 
necessarily refers to the action of mark eting and supplying goods and commodities
650, and does not 
refer to "distribution" of sound through electr onic means.  Thus, when read together, "sound 
recording" and "distribution services" refer to the marketing and supply of a specific category of goods, namely goods containing recorded music.  For China, therefore, "sound recording distribution 
services" does not cover the transmission of intangi ble content to users via the Internet.  China 
submits that this is further confirmed by the specifi c meaning which China attributes to the concept of 
"distribution services" provided in Annex 2 to its GATS schedule.   
7.1163  China notes that the Republic of Korea, in its answers to the questions of the Panel, submits 
that its commitment on "record production and distribution services (Sound Recording)" in Sector 2.D. of its Services Schedule "only covers the pr oduction and distribution of sound recordings in 
physical form (e.g. Long-Play (LP) disc)" and th at "electronic production or distribution of sound 
recordings is not covered".  
7.1164  China also submits that its Services Schedul e has to be interpreted in light of the 
circumstances of its conclusion.  At the time of negotiations on China's accession to the WTO, 
network music services did not, according to Ch ina, constitute an established business operating 
within a legal framework.  China contends that network music services only emerged fully after China 
acceded to the WTO in 2001.  Until the breakthrough  of network music services around 2003, China 
submits that these services were largely illegal. Un til the entry into force of the WIPO Copyright 
Treaty in 2002, China argues that no international consensus on the protection of Intellectual Property Rights had been reached allowing a worldwide legal exploitation of music over the Internet.  China 
notes that it revised its Copyright Law in 2001 in order to protect for the first time the right to 
authorize the legal exploitation of music over the Internet.  China submits that its awareness of 
technological developments does not alter the conclu sion that the GATS negotiators did not agree to 
include a new and unfamiliar service in China's co mmitments under Sector 2.D. of its Services 
Schedule.  
7.1165  China notes, in addition, that the in dubio mitius  principle, applied by the Appellate Body in 
EC – Hormones, states that one should not lightly assume that a sovereign state intends to impose 
upon itself the more onerous, rather than the less burde nsome, obligation.  This suggests, according to 
China, that when a GATS commitment cannot be in terpreted clearly to include a new service not 
existing at the time of negotiation, it should not be interpreted to do so.  Therefore, China argues that 
its commitments should not be interpreted as c overing the new sector "network music services".  
7.1166  In China's view, the United States' reference to  the principle of "technological neutrality" is 
irrelevant in this dispute, because network musi c services are a service distinct from the distribution 
                                                     
 
650 American Heritage Dictionary of the English Language , 4th ed. (Houghton Mifflin 2000) (Exhibit 
CN-72) and Shorter Oxford English Dictionary , 6th ed. (Clarendon Press 2007) (Exhibit CN-73)  WT/DS363/R 
 Page 357 
 
 
  of sound recordings in physical form, and cannot be  considered as a mere means of delivery of sound 
recording distribution services.   China further submit s that the principle of "technological neutrality" 
as such and its systemic implications are still unde r consideration among WTO Members.  For China, 
the application of the principle of technological neutrality, as set out by the panel in US – Gambling,  
to the interpretation of Members' GATS Schedules, would conflict with the principle of progressive 
liberalisation embodied in the text of the GATS,  especially in the Preamble and Article XIX.  
7.1167  The Panel  recalls that the main issue arising under this claim is whether the services at issue 
are covered by China's commitments on "sound recording distribution services" in Sector 2.D. of its Services Schedule.  In resolving th is issue, the main interpretative question is whether China's sectoral 
entry extends to the supply of  such services through the delivery of content to the consumer 
"electronically", and not embedded in a physical medium such as a CD or DVD. 
(iii) Interpretation of GATS  Schedules 
7.1168  As noted previously, Article XX:3 of the GATS provides that Members' schedules of specific 
commitments form an integral part of the GATS.  Therefore, the rules of interpretation that apply to services schedules are the same as those applicable  to the GATS itself.  Our interpretation will 
therefore need to proceed accordi ng to the customary rules of inte rpretation of public international 
law as codified in Articles 31 and 32 of the Vienna Convention.    
7.1169  Pursuant to Article 31 of the Vienna Conven tion, we should interpret China's Services 
Schedule in good faith in accordance with the ordinary meaning to be given to the terms of the Schedule when read in their context and in light of the object and purpose of the GATS and the WTO Agreement.  Pursuant to Article 32 we may have recourse to supplementary means of interpretation, 
in order to "confirm" the meaning resulting from the application of Article 31, or to determine the 
meaning when the interpretation according to Artic le 31 leaves the meaning "ambiguous or obscure" 
or, leads to a result which is "man ifestly absurd or unreasonable". 
7.1170  The relevant part of China's commitments is reproduced as follows: 
Sector or sub-sector Limitations on 
Market Access Limitations on  
National Treatment Additional 
Commitments 
D. Audiovisual  Services  
- Videos, including 
entertainment software 
and (CPC 83202), distribution services 
- Sound recording 
distribution services  ... 
(3) Upon accession, foreign 
services suppliers will be 
permitted to establish contractual joint ventures with 
Chinese partners to engage in 
the distribution of audiovisual products, excluding motion 
pictures, without prejudice to 
China's right to examine the content of audio and video 
products (see footnote 1) 
  
... ... 
(3) None 
 
  
 
  
 
  
 
  
...  
Without prejudice to 
compliance with 
China's regulation on the administration of 
films, upon 
accession, China will allow the importation 
of motion pictures 
for theatrical release on a revenue-sharing 
bases and the 
number of such imports shall be 20 
on an annual basis. WT/DS363/R 
Page 358  
 
  Sector or sub-sector Limitations on 
Market Access Limitations on  
National Treatment Additional 
Commitments 
- Cinema Theatre 
Services (3) Upon accession, foreign 
services suppliers will be 
permitted to construct and/or renovate cinema theatres, with 
foreign investment no more 
than 49 per cent. ... (3) None 
 
  
 
 ...  
(Footnote 1 that is referenced here is a footnote contained in the Horizontal part of China's Schedule. It states 
that the operation, management and  equity participation in a contractual joint venture are determined by the 
contract establishing it.) 
 
7.1171  The Panel notes that the parties, in applying the applicable rules of interpretation codified in 
Articles 31 and 32 of the Vienna Convention to inte rpret the inscription "sound recording distribution 
services" in Sector 2.D. of China's Services Schedul e, have drawn different conclusions.  The United 
States submits that by this inscr iption, China has made commitment s on the distribution of recorded 
sound, whether as a physical or non-physical product.  China, on the other hand, contends that its 
commitment under "sound recording distribution services"  covers the distribution of sound recordings 
only as a physical product. 
Ordinary meaning  
7.1172  We will begin our interpretation of the ordi nary meaning of "sound recording distribution 
services" by examining in turn the two main elements  that compose this entr y in China's Schedule:  
"sound recording", and "distribution services". 
"sound recording" 
7.1173  We observe that the main interpretative diffi culty in the term "sound recording" is the 
meaning of the word "recording".  To determine the ordinary meaning of "recording", both parties have referred to dictionary defini tions.  We consider that, of the several definitions of "recording" 
offered in this dictionary, the most relevant for our purposes is "recorded material; a recorded 
broadcast, performance."
651 
7.1174  In light of this dictionary definition, China argues that the word "material" designates the 
physical medium containing the result of the recording process, and that a "sound recording" is therefore a physical object.  The United States, on the other hand, holds that the ordinary meaning of "recording" does not distinguish between recordings of sound stored on physical media and those 
stored electronically.   
7.1175  In the Panel's view, the reference to the phrase "recorded material" in the cited dictionary 
definition can only mean, in a grammatical sense, the "material that is recorded" and not the 
"recording material".  This is confirmed by the two specific examples given in the dictionary definition:  a "recorded broadcast" and a "record ed performance" are both considered as "recorded 
material".  Since the terms "broadcast" and "perfo rmance" clearly refer to content, and not to a 
particular medium on which the content is embedde d or transferred, the word "material" in the 
dictionary definition must refer to content.  Ha d the dictionary definition intended to define a 
"recording" as a physical object, it would have used a different term, such as "recording material", and 
                                                     
 
651 Shorter Oxford English Dictionary , 6th ed. (Clarendon Press 2007), Vol. II, p. 2927.  WT/DS363/R 
 Page 359 
 
 
  not "recorded material", and given examples of types of physical media on which recordings are 
embedded or transferred. 
7.1176  An analysis of the ordinary meaning of "sound r ecording", based on this dictionary definition, 
suggests therefore that the term cannot be limit ed to sound embedded or transferred on physical 
media.  In other words, the ordinary meaning of "sound recording" depends not on the technology of 
storage or distribution of the sound, but rather on its nature as "content".   
"distribution services" 
7.1177  Having examined the ordinary meaning of "soun d recording", we now look at the ordinary 
meaning of "distribution services".   The parties differ also in their views on the meaning of this term.  China submits that it refers to the action of marketing and supplying physical products and 
commodities only, while the United States argues that it can also involve the distribution of services. 
7.1178  We begin by looking at a dictionary defi nition of the term "distribution".  The Shorter Oxford 
English Dictionary  defines this term, in an economic or commercial sense, as: 
"the dispersal of commodities among consumers affected by commerce."
652 
7.1179  The term "commodity" is then further defined as: 
"[A] thing of use or value; spec. a thing that  is an object of trade, esp. a raw material 
or agricultural crop"; or "a thing one deals in or makes use of".653 
7.1180  According to this dictionary meaning of the term, "distribution" means the "dispersal of 
commodities", and this dispersal can include, in its most general sense, anything that is "of use or 
value".  We note the use of the term "commodities".  While historically it may be true that the term "commodity" was commonly understood to refer mo re to tangible goods than to services, nowadays 
technology allows an increasing range of intangible products to be distributed in a commercial sense.  
These intangible products, such as digitised content, of ten involve services, and can be distributed to 
consumers.  In fact, Article XXVIII of the GATS exp licitly defines the supply of a service – which, of 
course, is not in itself a good – as including its distribu tion.  At least one other dictionary consulted by 
the Panel directly supports this interpretation, defining "distribution" as the "movement of goods and 
services  from the source through the distribution channel".
654  In our view, therefore, distribution can 
be understood as referring to a transaction whereby an ything of value, tangible or intangible, is 
dispersed among consumers, with  or without intermediaries. 
7.1181  Our analysis so far, based on an examination of  basic dictionary definitions, suggests that the 
ordinary meaning of the words "sound recording" refe rs to content, and not to any physical medium 
on which the content may be embedded.  At the same  time, our analysis suggests that the ordinary 
meaning of the term "distribution" can be understood as the dispersal of things of value, and that this 
can involve tangible or intangible products.  Combining both of these elements, our discussion so far suggests that China's commitment on "sound recording distribution services", covers the distribution of sound recordings through an electronic medium, and not just the distribution of sound recordings 
embedded on a physical medium as argued by China.   We must now further examine this preliminary 
                                                     
 
652 Shorter Oxford English Dictionary  6th ed. (Clarendon Press 2002), Vol. I, p. 721.  We note that 
other dictionary definitions of the term "distribution", quoted in the context of Article III:4 of the GATT 1994 at paras. 7.1457-7.1459, are not inconsistent with this definition. 
653 Shorter Oxford English Dictionary  5th ed. (Clarendon Press 2007), Vol. I, p. 461. 
654 Businessdictionary.com.  Emphasis added. The Monash Marketing Dictionary also describes a 
distribution channel as the path or route taken by goods and services  as they move from producer to final 
consumer (www.buesco.monash.edu.au/mkt/dictionary/). WT/DS363/R 
Page 360  
 
  meaning, pursuant to Article 31 of the Vienna Convention , which provides that the ordinary meaning 
of the terms of the treaty must be examined in thei r "context" and in light of the "object and purpose" 
of the treaty.  
Context
 
7.1182  According to Article 31:2 of the Vienna Convention, the "context" within which a treaty 
provision should be interpreted comprises the text of the treaty, including its preamble and annexes, 
and certain agreements or instruments made at the ti me of the conclusion of the treaty.  With respect 
to the interpretation of a GATS Schedule, the Appellate Body in US – Gambling  has stated that this 
context includes:  (i) the remainder of the Member's Schedule, (ii) the substantive provisions of the GATS, (iii) the provisions of covered agreements other than the GATS, and (iv) the GATS schedules 
of other Members.
655  Accordingly, we will now examine our preliminary view of the meaning of 
China's commitment on "sound recording distribution services" in the context provided by these elements. 
China's GATS Schedule 
7.1183  We note that the entry "sound recording distribu tion services" is inscribed in Sector 2.D. of 
China's Schedule, entitled "Audiovisual Services", and th at this sector is in turn one of the sector 
groups that China has inscribed in its Schedule.  Si nce a panel "must give meaning and effect to all 
the terms of the treaty"
656, we consider that we must examine carefully for possible context the whole 
of China's Schedule.  We consider that this examin ation should include in particular the inscriptions 
China has made for Audiovisual Services, as well as those made in other relevant sectors, notably 
Distribution Services and its related Annex 2. 
7.1184  Recalling that our overall interpretative task, in light of the United States' claim, is to 
determine whether China's commitment on the supply of "sound recording distribution services" 
through commercial presence covers distribution in non-physical form, we begin with an examination 
of China's other inscriptions in the Audiovisual Services sector. 
Audiovisual Services (Sector 2.D) 
7.1185  China's commitment on "sound recording distribution services" falls within the sectoral 
heading of "Audiovisual Services".  Having considered  the ordinary meaning of this commitment, we 
now need to consider as possible context the foll owing other elements inscribed under "Audiovisual 
Services":  the meaning imparted by the sector head ing itself;  the scope of treatment guaranteed 
under the market access and national treatment column s that apply to "Sound recording distribution 
services";  additional commitments inscribed by Ch ina under the heading Au diovisual Services; and 
finally, other sub-sectors falling under audiovisu al services including any specific commitments 
applicable to them. 
7.1186  We begin our contextual examination of China's GATS Schedule by examining the wording 
of the sector heading – Audiovisual Services – that the commitment on sound recording distribution 
services falls within.  We observe that the core m eaning of the term "audiovisual" means "pertaining 
to both hearing and vision."657  This meaning suggests that the scope of "Audiovisual Services" 
extends to activities in which content is sensed by th e user through the faculties of hearing or vision.  
It would not appear to exclude any service from its scope on the basis of the medium on which the content may be coded, stored or transferred.  Th is suggests that a service in China's Schedule which 
                                                     
 
655 Appellate Body Report on US – Gambling , para. 178. 
656 Appellate Body Report on US — Gasoline , p.23, DSR 1996:I, 3, at 21. 
657 Oxford English DictionaryOnline , available at http://dictionary.oed.com./entrance.dtl.  WT/DS363/R 
 Page 361 
 
 
  appears under the heading "Audiovisual Services", unless it is specifically modified in the wording of 
the sectoral entry, relates to such core services as producing, distributing, projecting or broadcasting content ("hearing or vision"). 
7.1187  We next examine for relevant context th e specific commitments undertaken for "sound 
recording distribution services".  These specific comm itments – the inscriptions made in the columns 
entitled "limitations on market access", "limita tions on national treatment" and "additional 
commitments" – serve to qualify the extent of th e commitment being undertaken for "Sound recording 
distribution services", but may also provide context fo r the scope of sectoral coverage to which that 
commitment applies, and which is inscribed in the "sector or sub-sector" column.  In this light, we 
note that in the "limitations on market access" co lumn of its Schedule, China has inscribed the 
following with respect to supply through commercial presence: 
"Upon accession, foreign services suppliers w ill be permitted to establish contractual 
joint ventures with Chinese partners to engage in th e distribution of audiovisual 
products, excluding motion pictures , without prejudice to China's right to examine the 
content of audio and video products ( see footnote 1)". (emphasis added) 
7.1188  The vertical placement of this commitment with in its column shows that it applies to "Sound 
recording distribution services", as well as to "V ideos, including entertainment software and 
CPC(83202), distribution services".  The wording of the commitment is particularly relevant for our purposes, since it provides further information on the ex tent of the commitment in terms of its sectoral 
scope, namely "audiovisual products, excluding mo tion pictures".  Examining more closely this 
wording, we note that it refers specifically to a udiovisual "products".  We observe that the term 
"product" in contemporary usage refers to services as  well as goods, a view that finds support in the 
Oxford English Dictionary, which defines this te rm in its commercial sense as "[a]n article or 
substance that is manufactured or refined for sale (more recently applied also to services)."
658  We  
note also that the CPC, on the basis of which document W/120 was drawn up, and to which many Members including China make reference in their schedules, is about "products" that include both 
goods and services. We find therefore that the use of the term "audiovisual products " in China's 
market access commitment is a further indication that "sound recording distribution services" are not limited to the distribution of physical products, but extend also to the distribution of intangible 
products and services. 
7.1189  Continuing our examination of the wording of  China's market access commitment, we note 
that China excludes "motion pictures" from the distribution of "audiovisual products" that are the 
subject of its market access commitment.  It seems clear to us that China's specific exclusion of the 
distribution of "motion pictures" indicates that this  service is considered by China to be within the 
normal sectoral scope of "audiovisual products".  Fu rther, in responding to a question from the Panel, 
China indicates that the distribution of motion pictur es is not considered to be the distribution of a 
physical good.
659  It follows that China accepts implicitly that the distribution of non-physical 
                                                      
658 Oxford English Dictionary Online , available at http://dictionary.oed.com/entrance.dtl. 
659 China's response to question No. 86.  The Panel notes in this respect that the CPC contains, under its 
services section, a category referring to the production of motion pictures (96112).  Obviously, the simple production of a good could not be said to constitute a service, nor would it make sense to undertake 
commitments under the GATS as regards the production of a good.  The CPC also contains, under the same 
section, a category relating to the distribution of motion pictures (96113).  Since the production of motion pictures could not be said to relate to the production of a good in this context, we similarly consider that the 
distribution of motion pictures cannot there relate to the distribution of physical goods, but rather to that of an 
intangible product.  We also note that  the CPC uses the term "cinematogra phic film" when referring to physical 
goods (CPC 3895).  The wholesale and retailing of cinema tographic films is therefore found in the CPC section 
on distribution services  (CPC 62263; CPC 63254), which is solely concerned with the distribution of physical WT/DS363/R 
Page 362  
 
  products is included within the sc ope of "audiovisual products" mentioned in China's market access 
column.  Likewise, the distribution of "audiovisual products" (which as we have seen includes the distribution of non-physical products) in China's market access commitment must logically be 
included within the scope of the sub-sector inscribed in the sector column of China's Schedule.  This 
is further evidence, in the view of the Panel,  that "sound recording distribution services" includes 
distribution of non-physical products.  The Panel notes that this conclusion applies also to the other 
sub-sector covered by the market access commitment,  "Videos (...) distribution services", which we 
deal with in a later section of these findings. 
7.1190  We now examine the column entitled "Add itional Commitments" contained in the 
Audiovisual Services section of China's schedule.  In this column, China has committed to allow "the 
importation of motion pictures for theatrical rele ase on a revenue-sharing basis and the number of 
such imports shall be 20 on an annual basis."  Both  parties agree that this means 20 distinct titles 
(content), and not 20 physical copies of titles (goods).  In the Panel's view, the entry in this column, 
which is scheduled alongside, and therefore in re lation to, the specific commitments on "videos (...) 
distribution services" and on "sound recording distribution services" further suggests that the sectoral 
scope of these entries cannot be sai d to refer solely to physical products, to the exclusion of services 
relating to content. 
7.1191  In conclusion, our examination of the ma rket access commitments under Audiovisual 
Services (which cover  "audiovisual  products" excluding "motion pict ures"), as well as our analysis of 
the entry under additional commitments (which refers to the import of content, not physical products), 
provides context that lends support to our prelim inary view that China's entry on "Sound recording 
distribution services" does not exclude the dist ribution of music and other sound content as non-
physical products.  We note that this conclusion applies also to the other sub-sector covered by 
China's market access commitment, "Videos (...) distribution services", which we deal with in a later 
section of these findings.  
7.1192  Having explored the context provided by Ch ina's market access commitment for "Sound 
recording distribution services", we now examine th e other two sub-sectors inscribed by China under 
the heading "Audiovisual Services", for further cont extual meaning.  These two other sub-sectors are: 
"Videos, including entertainment software a nd (CPC 83202), distribution services", and "Cinema 
Theatre Services".  
7.1193  With respect to the first of these subsectors, "Videos, including entertainment software and 
(CPC 83202) distribution services", we will demonstrat e later in paragraphs 7.1320 to 7.1349 that it 
covers, inter alia , the distribution of videos embedded in a physical  carrier, but is not limited to that.  
We find in those paragraphs that the ordinary mean ing of the terms in the entry in light of their 
context indicates that the sectoral coverage of "Videos (...) distribution services" extends to the 
distribution of video content.  
7.1194  As also demonstrated in paragraphs 7.1334 to  7.1336 the terms "distribution services" in the 
context of the subsector "Videos (...) distribution services" appears to have a broad meaning in the 
specific context of China's Schedule.  First, the te rm "distribution services" can cover the distribution 
of both physical and non-physical products.  Sec ond, the subsector description includes the services 
defined in CPC 83202, which encompass rental-lea sing activities, and the movement of products 
along the network of commerce to the final consumer.  We consider that the concept of "distribution 
services" in China's entries relating to videos and to  sound recording must have similar meaning.  This 
view is reinforced by our observation that the text of the market access column referring to the 
"distribution of audiovisual products", as well as th e entries in the national treatment and additional 
                                                                                                                               
                                      
goods.   We note that such approach is enshrined in the W/120 and reproduced by various Members in their 
schedules of commitments under the GATS.      WT/DS363/R 
 Page 363 
 
 
  commitment columns are common to both "Sound r ecording distribution services" and "Videos (...) 
distribution services".   Further, we see nothing in  China's Schedule that would contradict such 
reading and that would suggest that "distribution servi ces" in the context of this particular entry has a 
narrower meaning.  Indeed, we recall that China has chosen not to specify in its Schedule the scope of 
its sectoral entry, nor to include a reference to a particular CPC category.   
7.1195  We now consider the contextual relevance of the remaining sub-sector under Audiovisual 
Services –  "Cinema Theatre Services".  The word ing of this entry would suggest that the main 
activity in this sub-sector is exhibiting motion pi ctures to the public, together with any ancillary 
services.  With respect to "Cinema Theatre Servi ces", China has inscribed a market access limitation, 
for supply through commercial presence, as follows: 
"Upon accession, foreign services suppliers w ill be permitted to construct and/or 
renovate cinema theatres, with foreign investment no more than 49 per cent". 
7.1196  The wording of this commitment indicates, with respect to supply through commercial 
presence, that the sectoral scope of the commitmen t goes beyond projecting motion pictures to include 
a service supplier seeking to "construct and/or renovate  cinema theatres".  We note, however, that this 
service activity appears to be covered also by Ch ina's commitments under "Construction and Related 
Engineering Services", in Sector 3 of its Schedule.   This sector contains a specific reference to 
CPC 512, which itself contains a sub-sector 51250 (" For public entertainment buildings"), which is 
described as "Construction work (incl. new work , additions, alterations and renovation work) of 
public entertainment buildings such as cinemas ...".   At first glance, the cons truction or renovation of 
cinema theatres would seem to be covered by bot h Audiovisual Services and Construction Services 
sectors. 
7.1197  The activity of construction or renovation of cinema theatres cannot, however, fall under both 
sectors at once if ambiguity in the level of commitments is to be avoided.  In s upport of this principle, 
the Appellate Body in US – Gambling  has stated that  
"[B]ecause a Member's obligations rega rding a particular service depend on the 
specific commitments that it has made with r espect to the sector or subsector within 
which that service falls, a specific service cannot fall within two different sectors or subsectors.  In other words, the sectors and subsectors in a Member's Schedule must be mutually exclusive."
660 
7.1198  The mutual exclusivity of sectors and subsectors in Members' Schedules is further explained 
by the Appellate Body in these terms:  
"If this were not the case, and a Member scheduled the same service in two different 
sectors, then the scope of the Member's commitment would not be clear where, for 
example, it made a full commitment in one of those sectors and a limited, or no, 
commitment, in the other."661 
7.1199  Given the specific textual reference to "cons truction and renovation of cinema theatres" 
within Audiovisual Services, and the impermissib ility for, as noted by the Appellate Body for the 
same service to be covered under different sectors,  we deduce that China h as chosen to cover this 
activity solely under Audiovisual Services, and not under Construction a nd Related Engineering 
Services. 
                                                      
660 Appellate Body Report on US – Gambling , para. 180. 
661 Appellate Body Report on US – Gambling , para. 180, footnote 219. WT/DS363/R 
Page 364  
 
  7.1200  We draw three inferences from China's sectoral placement of its commitment covering the 
construction and renovation of cinema theatres.  First, it would appear to indicate that China wished 
also to group under the heading Audiovisual Se rvices activities that are related to audiovisual 
services, even if these services have been classified  in another sector under relevant classification 
systems or according to practices of other WTO Me mbers.  Second, as a consequence of this grouping 
of related activities under the audiovisual sector, th e range of services included in that sector are 
wider-ranging than would otherwise be the case.  
7.1201  In particular, the inclusion within "Cinema Th eatre Services" of services "to construct and/or 
renovate cinema theatres" shows that sectoral inscriptions under Audiovisual Services contain 
services that are not focused on the core activitie s of production, distribution or reproduction of 
audiovisual content, but also on services that are only auxiliary to such core activities, and that would 
have been classified in other sections of the Sc hedule, under relevant classification systems or 
according to practices of other WTO Members.  With  respect to our interpretation of the scope of 
"Sound recording distribution services", this could be an indication that China may have included 
within its scope service activities (such as the dist ribution of content embedded in physical products 
such as CDs and DVDs) that might otherwise be included in another sector (such as Distribution 
Services) of its Schedule.  This may be an indi cation that the scope of "Sound recording distribution 
services" extends (as agreed by the parties in this  case), to the distribution of content embedded in 
physical products.  However, it does not address the issue of whether the commitment extends also to 
the distribution of content not embedded in physi cal products, but conveyed to the consumer on a 
non-physical carrier. 
7.1202  Third, we consider that the entry "Cinema Theatre  Services", despite the fact that it apparently 
extends to activities normally covered in sectors other than "Audiovisual Services", still has at its core 
the service that is normally understood to fall within "Audiovisual Services":  namely services 
relating to audiovisual content, in this case the pr ojection or exhibition of motion pictures.  This 
suggests that China's apparent desire to expand the scope of commitments normally falling under 
audiovisual services – by including services and activities normally classified in other sectors – has 
not come at the expense of excluding from sector 2.D the services that would normally be considered to be subject to scheduling under "Audiovisual Services" , that is, those relating to audiovisual content.  
This is consistent with the view that the en try on "sound recording distribution services" includes 
what is normally considered an "Audiovisual Service" , namely the distribution of sound recordings as 
content, especially since China has not indicated otherwise in its Schedule.  
7.1203  In summary, the context provided by China's in scriptions in the Audiovisual Services sector 
of its Schedule support the view that the entry on "Sound recording distribution services" extends to 
the distribution of content in non-physical products.   
Distribution Services (Sector 4) 
7.1204  Having examined the inscriptions China has entere d in the Audiovisual Services sector of its 
Schedule, we now examine the entries China has made  in other sectors to discover any context useful 
in determining the meaning of "sound recording di stribution services".  What is striking is that 
distribution services are covered, more generall y, in Sector 4 of China's Schedule, entitled 
"Distribution Services (as defined in Annex 2)".  Annex 2 lists four main sub-sectors:  commission 
agent services, wholesaling, retailing, and franchising.  The Annex states at the outset that the "principal services rendered in each subsector can be characterized as reselling merchandise".  For 
commission agents' services, wholesaling, and reta iling it specifies that these services consist of the 
sale of "goods/merchandise".  Accordingly, it is  clear to us that Annex 2, and the sector on 
Distribution Services which refers to it, applies only with respect to commission agents' services, 
wholesaling, or retailing of goods or merchandise – in other words, the distribution of all physical  
products.  The only goods that China's commitments under Distribution Services do not cover are  WT/DS363/R 
 Page 365 
 
 
  those explicitly listed in the corresponding sector co lumn – salt and tobacco for commission agents' 
and wholesale services, and tobacco for retail services. 
7.1205  In our view, had China's relevant entr ies under Audiovisual Services (namely "Sound 
recording distribution services" and "Video (...)  distribution services") been intended to cover 
exclusively audiovisual products in physical form , there would have been no need to insert these 
entries under a sector other than Distribution Servi ces, where the distribution of physical goods are 
generally covered in China's Schedule.  Thus, it is  reasonable to presume that the coverage of the 
entries in China's Schedule under "Audiovisual Se rvices" should extend to the distribution in non-
physical  form of audiovisual products.  In reaching th is view, we recall that, in order to ensure 
unambiguous commitments, the sectors and subsectors in a Member's Schedule must be mutually 
exclusive, and that a specific service cannot theref ore be interpreted as falling within two different 
sectors or subsectors.662   
7.1206  The Panel notes China's view that the refere nce to goods and merchandise, contained in 
Annex 2 on Distribution Services supports China' s position that "Sound recording distribution 
services", in similar fashion, involves only physical products.  We observe however that the definition 
of "distribution services" contained in Annex 2 a ppears not to apply to services other than those 
covered under Sector 4 – Distribution Services.  First, China's heading on "Distribution Services" is accompanied by the qualifier "as defined in Annex 2", whereas the heading on "Audiovisual Services" 
makes no mention of any Annex.  Second, the term inology of Annex 2 has little in common with that 
used in China's commitments on Audiovisual Services.   The terms defined in Annex 2 –  "commission 
agents' services", "wholesaling services", "retailing se rvices", and "franchising services" – are used in 
various sector-specific commitments under Distributi on Services, but not under Audiovisual Services 
or any other sector listed in China's Schedule.  Simi larly, the definition of "distribution services" in 
Annex 2 generally accords with the nature of the services listed under Distribution Services in China's 
Schedule, which principally involve "reselling merc handise".  Finally, the term "distribution services" 
is not used within the GATS and Members' schedules to mean solely "reselling merchandise".  China 
itself indicates, for example, that "motion picture distribution services" is not concerned with the 
distribution of goods or merchandise.
663  We are therefore not convinced that the definition of 
"distribution services" contained in Annex 2 is applicable to Audiovisual Services, or that the definitions in Annex 2 suggest in any way that  the "distribution services" referred to under 
Audiovisual Services cover only audiovisual content embedded in physical products. 
7.1207  The Panel wishes to recall at this point th at the US claim on "Sound recording distribution 
services"  covers only the distribution of the non-phy sical product.  Although not within the scope of 
the claim, both parties agree that "Sound recording distribution services" concerning the physical  
product are covered in China's Schedule under A udiovisual Services, and not under Distribution 
Services where distribution of the physical product is ge nerally covered.  Since this is not an issue that 
we are asked to rule on in the present dispute, we make no determination on it. 
7.1208  Having examined China's Schedule for useful context for the interpretation of "Sound 
recording distribution services", we now examine wh ether provisions of the GATS itself can shed 
light on this matter. 
Provisions of the GATS  
7.1209  The Panel recalls that a Member's Schedule, according to Article XX:2, is an integral part of 
the GATS, and the provisions of the GATS thus appl y to the inscriptions in China's Schedule.  In 
examining the definitions in Article XXVIII(b) of the GATS, we note that "the supply of a service" is 
                                                     
 
662 See paragraphs 7.1197 and 7.1198. 
663 China's response to question No. 86. WT/DS363/R 
Page 366  
 
  defined as including the "production, distribution , marketing, sale and delivery of a service" 
(emphasis added).  This definition makes clear that th e activity of "distribution" is included within the 
notion of the supply of a service.  Since a "service" is intangible and not itself a good (although the supply of a service may well involve goods), this defi nition suggests that the supply of a service listed 
in a Member's Schedule, unless otherwise specified, can cover the distribution of non-physical 
products, such as sound recordings delivered ove r the Internet.  In our view, therefore 
Article XXVIII:(b) of the GATS is further support fo r the view that the supply of "sound recording 
distribution services" that China has committed to in  its Schedule applies, unless otherwise specified 
in its Schedule, to the distribution of the intangible content of sound recordings, and is not limited, as 
China argues, to the distribution of sound recordings as physical products. 
GATS Schedules of other Members 
7.1210  The Panel observes that other Members' GATS Schedules, like China's, form part of the 
GATS.  They are treaty text, and reflect the common intention of all Members.  Under Article 31 of 
the Vienna Convention , GATS  Schedules can therefore provide context for the interpretation of 
China's commitment on "Sound recording distribution services".   We recognize however the need for 
caution, recalling the Appellate Body's view that "use of other Members' Schedule as context must be 
tempered by the recognition that each Schedule has its own intrinsic logic"
664. 
7.1211  As noted above, China has argued that Ko rea's position on the scope of Korea's own 
commitment on sound recording provided support for China's view that its commitment in the same 
area only concerns the distribution of the physical product, not the electronic distribution of content.
665  Korea, as a third party, has indeed indicated that it considered its entry to cover only sound 
recordings in physical form.666 
7.1212  We observe that the relevant entry in Kor ea's Schedule reads as follows: "Record production 
and distribution services (Sound Recording)".667  In examining this sectoral entry, we note that it 
subordinates the phrase "Sound Recording" by enclos ing it in parentheses.  What Korea focuses its 
commitment on is specified as " record  production and distribution services" (emphasis added).  
Among the dictionary meanings of "record", the most relevant in this usage appears to be: 
"A disc or, formerly, a cylinder from which recorded sound or television pictures can 
be reproduced.  Occasionally also, a recording made on magnetic tape."668 
7.1213  We note that the cited dictionary meaning of "record" refers to the medium on which content 
is recorded, and not primarily to the content itself.  On the basis of this meaning, we cannot agree with 
China's view that the wording of Korea's commitm ent, coupled with Korea's statement that its 
commitment covers sound recordings only in physical  form, supports China's in terpretation of its own 
commitment on "sound recording distribution services".   
7.1214  The Panel also observes that, apart from China and Korea, 15 Members have made 
commitments relating to sound or audio recording under Audiovisual Services.669  Of these, two have 
linked "sound recording" explicitl y to the notion of distribution services. The inscriptions in the 
column "sectors and sub-sectors" of the Schedules of these Members read as follows: 
                                                      
664 Appellate Body Report on US – Gambling , para. 182;  Panel Report on US – Gambling , para. 6.98. 
665 See also China's response to question No. 240 and United States' comments on China's response. 
666 Korea, response to question No 3. 
667 GATS/SC/48. 
668 Oxford English Dictionary Online, available at  http://dictionary.oed.com/entrance.dtl. 
669 Armenia, Cape Verde, Central African Republic, Georgia, Hong Kong China, Japan, Jordan, 
Kyrgyz Republic, Malaysia, Panama, Singapore, Chin ese Taipei, Tonga, United States, and Vietnam.  WT/DS363/R 
 Page 367 
 
 
  Malaysia: "Motion Picture, video tape and audio recording distribution services (CPC 
96113)".670 
Singapore: "the services covered are producti on, distribution and public display of – 
motion pictures; - video recordings; - sound recordings".671 
 
7.1215  With respect to Malaysia's sectoral entry, which refers to "audio recording distribution 
services", this phrase appears to be synonymous with  "sound recording distribution services" (since 
the only change is the substitution of the word "audi o" for  "sound"), the ordinary meaning of which 
we have examined above.  We recall from our previ ous examination that the word "recording" (unlike 
the word "record") refers primarily to content , and not to the medium on which content is embedded.  
We therefore do not consider that the entry "audi o recording distribution services" in Malaysia's 
Schedule lends support to China's view that its co mmitment is restricted to the distribution of 
audiovisual content embedded in a physical product.  The same can be said of Singapore's entry on 
the "production, distribution and public displa y of motion pictures; video recordings; sound 
recordings", in that the ordinary meaning of th e terms "sound recordings" can be analysed the same 
way as that of "sound recording" in China's Schedule.   
7.1216  In view of China's arguments in relation to Korea's Schedule, we note two important aspects 
in examining more generally how Members have  made commitments in their Schedules on the 
distribution of sound recordings.  First, when Me mbers' services schedules specify commitments for 
audiovisual products in physical form, they tend to  do so under their sector on Distribution Services.  
Second, when Members' services schedules mention s ound recordings in physical form (either to 
specify their inclusion or exclusion from a commitme nt), they tend to do so (unlike China) by using 
terms referring to the medium on which the sound r ecording is embedded.  For both these points, we 
observe that, although the practice of other Memb ers is in no way binding on any Member, this 
practice at the very least does not lend support to  China's interpretation that its commitment under 
Audiovisual Services covers only sound  recordings in physical form.  Illustrating these two points, we 
note that: 
(a) Canada has specifically excluded from its  wholesale and retailing commitments under 
Distribution Services such physical products as "musical scores, audio and video recordings in 62444" (wholesale) and "music scores, audio and video records and tapes in 63234" (retailing).
672 
(b) Some Members, namely Albania, Croatia, Estonia, Latvia, Lithuania, Moldova and 
Peru673, which all acceded to the WTO before  China, underscore in their section on 
Distribution Services that their wholesale and/or retailing commitments cover audio and video records and tapes mentioned in  the relevant CPC number.  These are 
specific physical products.
674  
(c) Some other Members, including Cambodia, FYR Macedonia, Nepal, Ukraine and 
Vietnam, which all acceded to the WT O after China, expressly specified under 
Distribution Services that their wholesale and/or retail commitments covered audio records, scores and tapes, which are all physical products.
675 
                                                      
670 GATS/SC/52. 
671 GATS/SC/76. 
672 GATS/SC/16. 
673 Peru is an original WTO Member. 
674 GATS/SC/131; GATS/SC/130; GATS/SC/127; GATS /SC/126; GATS/SC/133; and GATS/SC/134. 
675 GATS/SC/138, GATS/SC/139, GATS/SC/ 140, GATS/SC/142, and GATS/SC/144. WT/DS363/R 
Page 368  
 
  7.1217  Although this point was not raised in the partie s' arguments, the Panel notes further that some 
Members, under the Audiovisual Services heading of their schedules, have taken commitments specifically on "distribution services", typically in relation to "motion pictures and video tapes" (CPC 
96113).
676  We observe that CPC 96113 defines these ser vices as involving "the sale or rental of 
movies or tapes to other industries  for public entertainment, television broadcasting, or sale or rental 
to others." (emphasis added)   However, the Panel does not consider that this inscription, contained in 
some other Members' schedules, suggests that th e "distribution services" mentioned in China's 
Schedule in "Sound recording distribution services" are restricted to distribution "to other industries", as in the case of the services de scribed in CPC 96113.  We observe that China has included no 
reference to the CPC for its commitment on "S ound recording distribution services", nor has it 
otherwise defined in specific terms what this sectoral  entry entails.  Further, as discussed above and in 
the subsequent section, the particular context in  which China's sectoral annotation is found, in 
particular the accompanying entry on "video, in cluding entertainment software and (CPC 83202), 
distribution services", in no way suggests that the "distribution services" in China's entry on "sound 
recording distribution services" are restricted  to what is spelled out in CPC 96113. 
7.1218  We therefore find that the context provided by the Schedules of other Members, does not 
point to an interpretation in any way different from that suggested by the other contextual elements 
we have examined – that China's entry on "Sound r ecording distribution services" in the Audiovisual 
Services sector of its Schedule extends to sound recordings distributed in non-physical form. 
Object and purpose
 
7.1219  We now verify whether our interpretation of China's commitment on "Sound recording 
distribution services" is consistent with the object and purpose of the GATS.  We note that the 
Preamble of the GATS indicates that the Agreement is aimed, inter alia , at establishing "a multilateral 
framework of principles and rules for trade in servi ces with a view to the expansion of such trade 
under conditions of transparency and progressive libera lization".  In light of this general object and 
purpose, the Preamble also provides that commitmen ts negotiated under the Agreement should aim at 
"securing an overall balance of rights and obligati ons" between the Members.  We find that our 
interpretation of China's commitment on "Sound reco rding distribution services" is consistent with 
this object and purpose. 
Preliminary conclusion  
7.1220  The Panel has now completed its interpretation of the scope of China's commitment in its 
GATS Schedule on "Sound recording distribution servi ces" according the rules set out in Article 31 of 
the Vienna Convention .  After examining the ordinary meaning to be given to the terms of China's 
Schedule when read in their context and in light  of the object and purpose of the GATS, we have 
reached the preliminary conclusion that this commit ment extends to sound recordings distributed in 
non-physical form, through technologies such as the Internet. 
                                                      
676 These Members are: Armenia (GATS/SC/ 137), Cape Verde (GATS/SC/145), Georgia 
(GATS/SC/129), Hong Kong, China (GATS/SC/39), India (GATS/SC/42) , Israel (GATS/SC/44), Japan 
(GATS/SC/46), Jordan (GATS/SC/ 128), the Republic of Korea (GATS/SC/48), Kyrgyz Republic 
(GATS/SC/125), Lesotho (GATS/SC/114), Malaysia (GATS/SC/52), New Zealand (GATS/SC/62), Nicaragua 
(GATS/SC/63), Oman (GATS/SC/132),  Panama (GATS/SC/124), Saudi Arabia (GATS/SC/141), Singapore 
(GATS/SC/76), Chinese Taipei (GATS/SC/136/rev.1),  Thailand (GATS/SC/85), Tonga (GATS/SC/143), the 
United States (GATS/SC/90), and Viet Nam (GATS/SC/142).  Of these, we note that the commitments of Cape 
Verde, Saudi Arabia and Tonga - recently acceded Members - expressly specify or clarify in their schedules that 
their commitments on motion picture di stribution services consist of the licensing of motion pictures.     WT/DS363/R 
 Page 369 
 
 
  Supplementary means of interpretation  
7.1221  The Panel recalls that pursuant to Article 32 of the Vienna Convention a treaty interpreter 
may have recourse to supplementary means of in terpretation "in order to confirm the meaning 
resulting from the application of Article 31, or to  determine the meaning when the interpretation 
according to Article 31 leaves the meaning ambiguous  or obscure or leads to a result which is 
manifestly absurd or unreasonable."  The Panel co nsiders that, in the ci rcumstances of the present 
case, recourse to such supplementary means is usef ul to confirm the Panel's preliminary conclusion. 
7.1222  We recall that we have found, in interpreti ng China's sectoral entry on "Sound recording 
distribution services" in accordance with Article 31 of  the Vienna Convention, that the sectoral scope 
of this commitment covers the service of distri buting non-physical products.  However, the parties 
have presented arguments with respect to documents and circumstances that fall outside the scope of 
matters that may be considered under the interpreta tive rules in Article 31 of the Vienna Convention , 
but may be considered under the supplementary rul es in Article 32.  We will therefore proceed to 
examine: (i) preparatory work in the negotiation of the GATS, including documents that negotiators 
may have relied upon in drafting their Schedules,  such as document W/120 and the 1993 Scheduling 
Guidelines, and (ii) the circumstances of the co nclusion of the China's Protocol of Accession 
annexing China's Schedule to the GATS, in particul ar evidence of the existence at that time of 
distribution of sound recordings in non-physical form.  We undertake this examination to confirm, as provided under Article 32 of the Vienna Convention , our view that China's sectoral entry includes the 
distribution of sound recordings in non-physical form. 
Preparatory work – Document W/120 and the 1993 Scheduling Guidelines 
7.1223  The Panel notes that in the preparation of their GATS schedules, Members generally used 
document W/120.
677  This document contains a re-arranged a nd more aggregated version of the five 
services sectors covered in the CPC.  Document W/120 contains a list of 12 service sectoral headings, each (except for a heading "Other services not includ ed elsewhere") further divided into subsectors.  
To give precision, each of the sectoral and subsector al items is generally linked to the one or more 
CPC categories to which they correspond.  The cat egories in document W/120, as well as in the CPC, 
are exhaustive and mutually exclusive.  Statements made by several negotiators at the time of the 
issuance of document W/120 suggest that the documen t was not however meant to be a classification 
scheme that was binding on WTO Members.
678 
7.1224  A second GATT Secretariat document used by negotiators in the preparation of their 
Schedules is referred to as the 1993 Scheduling Guidelines .679  These Guidelines set out principles and 
techniques to be used to draw up GATS Schedules.  As  an overarching principle, they stipulate that it 
is "vital that schedules be clear, precise and based on a common format and terminology".  With 
respect to the classification of ser vices sectors, the 1993 Scheduling Gu idelines state that "in general" 
the classification "should be based on" document W/ 120.  Further, any Member wishing to use its 
own subsectoral classification or defi nitions "should provide concordance with the CPC".  If this were 
not possible, then the Member "should give a sufficiently detailed definition to avoid any ambiguity 
as to the scope of the commitment". 
                                                      
677 MTN.GNS/W/120, dated 10 July 1991. 
678 Note on the Meeting of 27 May to 6 June 1991, MTN.GNS/42, para. 19 (24 June 1991).  The 
relevant part of this document is as follows: "The re presentative of the United States, Poland, Malaysia and 
Austria said that the list (W/120) should be illustrative or indicative and not bind parties to any specific 
nomenclature." 
679 Scheduling of Initial Commitments in Trade in  Services: Explanatory Note, MTN.GNS/W/164, 3 
September 1993. WT/DS363/R 
Page 370  
 
  7.1225  The Panel views document W/120 and the Sche duling Guidelines as important elements of 
the preparatory work leading to the conclusion of the GATS, a position that is supported by the 
Appellate Body in US – Gambling.
680  In that case, the Appellate Bo dy stated that document W/120 
and the 1993 Scheduling Guidelines "provided a co mmon language and structure which, although not 
obligatory, was widely used and relied upon".  The Appellate Body further emphasized the 
importance of these two documents, in confirmi ng the interpretation of a GATS Schedule reached 
under Article 31 of the Vienna Convention , by quoting approvingly the pa nel's statement that, "unless 
otherwise indicated in the Schedule, Members were assumed to have relied on W/120 and the 
corresponding CPC references."681 
7.1226  We now examine China's Schedule to dete rmine whether document W/120 and the 1993 
Scheduling Guidelines confirm our earlier view th at its inscription on "Sound recording distribution 
services" covers the service of distributing non-ph ysical products, by technologies such as the 
Internet.  
7.1227  We observe first that China's Schedule overa ll follows the same structure, naming and 
numbering scheme as document W/120, including CP C references. All the first-level sectors that 
China has inscribed in its Schedule (apart from Bu siness Services, where it lists sub-sectors without 
referring to any first-level sector), as well as the great majority of sub-sectors listed, adopt the same terminology, numbering scheme and CPC references  as document W/120.  Even when China has 
chosen not to inscribe a W/120 sector in its schedule ( as in "8. Health Services" and "10. Recreational, 
Cultural and Sporting Services"), China's Schedule re spects the resulting gap, and maintains the same 
specific numbering as in document W/120.   China' s Schedule is not identical to document W/120 – 
China has not, for example, used  the same sub-sector wording or CP C codes referred to in document 
W/120 for its commitments under Audiovisual Serv ices.  Nonetheless, the commonality with 
document W/120 in structuring, naming and numbe ring of the great majority of sectors and sub-
sectors indicates that China drew up its Schedule in light of document W/120, a nd that this document 
can impart some meaning to those entries.  Ind eed, as the Appellate Body stated, "unless otherwise 
indicated in the Schedule, Members were assumed to have relied on W/120 and the corresponding 
CPC references".
682  We therefore disagree w ith China that only the specific entry under examination 
for its consistency with GATS commitments – "Sound recording distribution services" – is relevant 
for the interpretation of the sectoral scope of this commitment.683  It is clear to us that the context and 
structure in which these specific entries are found can be  relevant in their interpretation.  Furthermore, 
although the document W/120 and the 1993 Scheduling Guid elines were prepared in light of original 
Members' Schedules that entered into force with the WTO Agreement in 1995, there is no evidence 
before us that these documents have been any less important in drawing up the GATS Schedules of 
Members, such as China, that ha ve since acceded to the WTO. 
7.1228  The Panel will now examine the detailed structure of  China's Schedule.  It contains nine first-
level, sectoral headings that, as stated, correspond la rgely in name and number to those contained in 
document W/120.  In particular, the heading titled "2. Communications Services" in China's Schedule, 
under which Audiovisual Services is classified, is the same in name and numbering as in document 
W/120.  The first-level listings compare as follows: 
                                                      
680 Appellate Body Report on US – Gambling , para. 196. 
681 Appellate Body Report on US – Gambling , para. 204, quoting the Panel Report on US – Gambling , 
para. 6.106. 
682 Appellate Body Report on US – Gambling , para. 204, quoting the Panel Report on US – Gambling , 
para. 6.106. 
683 China's response to question No. 239.  WT/DS363/R 
 Page 371 
 
 
   China's Schedule  W/120 
1. (Sector heading omitted) 1. Business Services 
2.  Communication Services 2.  Communication Services 
3.    Construction and Relating Engineering  
             Services 3.   Construction and Relating Engineering   
             Services 
4. Distribution Services 4. Distribution Services 
5. Educational Services 5. Educational Services 
6. Environmental Services 6. Environmental Services 
7. Financial Services 7. Financial Services 
… (sector omitted) 8. Health Services 
9. Tourism and Travel Related Services 9. Tourism and Travel Related Services 
... (sector omitted)  10. Recreational, cultural and sporting services 
11. Transport Services 11. Transport Services 
... (sector omitted)  12. Other services not included elsewhere 
 
7.1229  Under "Communication Services", China has lis ted "Audiovisual Services", which we note 
also corresponds in name and numbering to the equi valent subsector in document W/120.  However, 
as regards the sub-sectors within Audiovisual Serv ices, China has chosen not to follow document 
W/120, and has not added the CPC reference number s that are found in document W/120.  The three 
sub-sectors that China has inscribed in Audiovisual Services compare to those contained in document 
W/120 as follows: 
China's Schedule W/120  
2.D. Audiovisual services 2.D.   Audiovisual services   
- Videos, including entertainment 
software and (CPC83202), distribution services a. Motion picture and video tape 
production and distribution services  
 9611 
 b. Motion picture projection 
services  9612 
 c. Radio and television services  9613 
 d. Radio and television transmission 
services   7524 
-     Sound recording distribution services  e. Sound recording   n.a. 
-     Cinema Theatre Services   
 Note: emphasis added, vertical spacing of entries is adjusted to aid comparison of similar items. 
 
7.1230  China's entry on "Sound recording distribu tion services" appears to be based on a 
modification in the wording and scope of the W/120 subsector on "Sound recording".  However, since 
there is no CPC number indicated in document W/120 for "Sound recording", the interpretative value 
of any correspondence between the W/120 subsector  and the entry in China's Schedule is not 
immediately evident.  Likewise, China's entry on "Videos ... distribution services" would appear to be 
related, but only distantly, to the W/120 subsect or on "Motion picture and video tape production and 
distribution services".  Finally, China's entry on "Cinema Theatre Services" appears to include the WT/DS363/R 
Page 372  
 
  services in the W/120 subsector on "Motion picture projection services", but also appears to cover 
other auxiliary cinema services.
684   
7.1231  We recall that China's Schedule generally fo llows the structure of document W/120, even 
though it does not do so in every case and, as we have seen, not for the subsectoral entries falling within Audiovisual Services.  However, since China uses the same title and numbering for "2.D. 
Audiovisual Services" as does document W/120, it seems appropriate to try to confirm our 
interpretation of the scope of China's commitmen ts on Audiovisual Services by comparing the scope 
of the services included under the same heading in  document W/120.  These services include the 
production and distribution of motion pictures and video tapes (CPC 9611), and the projection of 
motion pictures and video tapes (CPC 9612).  Also included are "radio and television services", which 
refer to the production of radio and television pr ogrammes (CPC 9613) and to  radio and television 
transmission services" (CPC 7524), which refers to th e broadcasting of television and radio signals.  
"Sound recording" is also included, although with no corresponding CPC category. 
7.1232  The Panel observes that the type of servi ce referred to under Audiovisual Services in 
document W/120 appears to focus on audiovisual content , as opposed to the physical form on which 
the content may be stored or transferred.  For example, the production and transmission of television 
and radio programmes refers to intangible activities,  and not to physical products as such, even though 
physical products may naturally be used to provi de services (e.g. a television set to receive the 
television signals and allow the viewing of the tele vision programming).  This is unsurprising, in our 
view, since the GATS deals with trade in services.  Trade in services,  while often involving goods in some way, essentially cover activities and these are inta ngible.  The Audiovisual Services sector in 
document W/120 thus appears to focus on the activities of production, distribution, and reproduction 
of audiovisual content , and related services, and does not appear to limit its scope by indicating any 
particular medium on which that content must be stor ed or transferred.  For the reasons stated above, 
this interpretation of the meaning of "2.D Audi ovisual Services" in document W/120 sheds additional 
light on the meaning of the heading "2.D. Audiovisu al Services", and the entries under it, that are 
contained in China's Schedule, unless the particul ar wording and context of China's commitment 
would indicate otherwise.  
7.1233  In this respect, the Panel notes that the inclus ion of the terms "video tape" under the heading 
of Audiovisual Services in document W/120 (" motion picture and video tape production and 
distribution services", CPC 9611) might initially suggest that this sector focuses also on physical goods.  Indeed, the terms "video tape" commonly refers  not only to content, but also to the physical 
medium.   However, in our view, this wording does not undermine the focus on content within 
Audiovisual Services in document W/120.  Indeed, l ooking at the CPC categories cross-referenced in 
document W/120, we note that the heading CPC 9611 reads "motion picture and video  production and 
distribution services" (emphasis added).  The s ub-classes 96112 and 96113 then use the term "video 
tape" when referring to production and distributio n.  Since 96112 and 96113 fall under 9611, we are 
not convinced that the intention in the CPC was to  refer to something different from services related 
to content.  In our view, this is confirmed by  the fact that CPC 9611 – more specifically 96112 – 
refers to video tape production services.  Under the CPC classification system, the production of 
goods is not an activity that normally appears wi thin the CPC section devoted to services, and 
therefore not within the scope of services listed in  document W/120.  We therefore do not consider 
that the reference to "video tape" in the W/120 sh ould alter our observation above that the heading 
Audiovisual Services comprises services relating to content. 
                                                     
 
684 The "Cinema Theatre Services" subsector in China' s Schedule also appears to comprise services 
normally classified as construction services, as indicated in paras. 7.1195 to 7.1202 and 7.1345 to 7.1347 of our 
analysis.  WT/DS363/R 
 Page 373 
 
 
  7.1234  The Panel further notes that when the CPC, on which document W/120 is based, refers to 
audiovisual content embedded in a physical product, it uses unambiguous terms referring to the medium, and not the general term "sound recording" .  In the goods section of the CPC, physical 
media containing recorded sound are described as "r ecords, tapes and other recorded media for sound 
or other similarly recorded phenomena (except ci nematographic film)" (CPC 47520).  CPC 47520 is 
further referenced in the definition of relevant CPC categories for commission agents' services (CPC 
62114), wholesale trade services (CPC 62244) and retail services (CPC 63234), which are all 
characterized as sale of merchandise. Likewise, fo r unrecorded physical media, the CPC refers to 
"prepared unrecorded media for sound recording or similar recording of other phenomena (except 
cinematographic film)" (CPC 47510).  This listing of types of physical media further confirms the 
view that the term "sound recording" is not li mited to physical media on which sound has been 
recorded. 
Circumstances of the conclusion of the GATS – "nascent and unfamiliar service" 
7.1235  China  argues that the electronic distribution of sound recordings as an established business 
and the legal framework for such business emerge d only after the negotiation of its GATS Schedule 
and its accession to the WTO.  According to China,  this was part of the circumstances of the 
conclusion of its GATS Schedule that  have to be taken into account when interpreting its commitment 
on "sound recording distribution services".   
7.1236  The United States  responds that the commercial or legal status of the business at the time of 
China's accession is not relevant.  Even if it were, according to the United States, the electronic 
distribution of sound recordings existed well before  China's accession, and China was aware of this 
fact at the time of its accession to the WTO. 
7.1237  The Panel  considers that, in seeking to confirm the "common intention of Members" with 
respect to a commitment in a GATS Schedule, ev idence on the technical feasibility or commercial 
reality of a service at the time of the service commitment may constitute  circumstances relevant to the 
interpretation of its scope under Ar ticle 32 of the Vienna Convention.
685  This is particularly true 
where, like China's entry on "sound recording distri bution services", the commitment is not explicitly 
linked to a well-defined system of services classification, such as the CPC.  At the same time, the significance of any evidence of lack of technical feasibility or absence of commercial reality of the 
service at the time of the service commitment would n eed to be carefully evaluated.  We consider 
therefore that any evidence that sound recordings delivered in non-physical form were not, unlike 
today, technically possible or commercially prac ticed at the time China's Schedule was negotiated 
might, in principle, be relevant as a supplementary m eans of interpretation with respect to the scope of 
that commitment . 
7.1238  A first issue to consider is at what point in time the evidence should be assessed.  In answer to 
a Panel question, China states: "... the decisive  point in time – when having recourse to the 
circumstances of the relevant treaty conclusion – is the time span before the Sino-US accession 
negotiations were concluded,  i.e. by 15 November 1999."
686  China claims that the negotiations of 
China's GATS Schedules were concluded at the same time.687  In examining this issue, we note that, 
                                                      
685 The Appellate Body in EC – Computer Equipment stated:  "The purpose of treaty interpretation 
under Article 31 of the Vienna Convention is to ascertain the common  intention of the parties.  These common 
intentions cannot be ascertained on the basis of the subjective and unilaterally determined 'expectation' of one of 
the parties to a treaty." (Appellate Body Report on EC – Computer Equipment, para. 84).  In that case, the 
Appellate Body also said: "The fact that Members' Sche dules are an integral part of the GATT 1994 indicates 
that, while each Schedule represents the tariff commitm ents made by one Member, they represent a common 
agreement among all Members." ( Ibid., para. 109) 
686 China's response to question No. 231. 
687 China's first written submission, para. 478 including original footnote 238. WT/DS363/R 
Page 374  
 
  in accordance with Article XII of the WTO Agreem ent, a State may accede to the WTO "on terms to 
be agreed between it and the WTO" – not terms ag reed between it and individual WTO Members.  
We note that a Working Party was established on 7 December 1995, pursuant to Article XII of the 
WTO Agreement to examine China's accession application.
688  While China undertook certain 
bilateral market access negotiations with respect to  goods and services at the request of interested 
Members of the Working Party, bilateral agreem ents between China and individual WTO Members 
could not be considered as agreements with the WTO.   
7.1239  We note further that the Working Party on Ch ina's Accession continued to meet regularly 
after 15 November 1999, the date of the conclusion of  bilateral negotiations claimed to be significant 
by China.689  The Working Party's last meeting took place on 17 September 2001 and its Report was 
circulated to WTO Members on 1 October 2001.  China's draft Services Schedule, which was annexed 
to the draft Protocol on China's Accession, was circulated at the same time (document WT/ACC/CHN749/Add.2).  China's Accession Protoc ol, including its GATS commitments, contains 
the terms of accession agreed between China and th e WTO, and reflects the common intention of 
China and the WTO.  This common intention was formed when the final text of the Protocol was 
approved by the WTO on 10 November 2001 and w as accepted by China on 11 November 2001.
690  
The circumstances which may be examined in orde r to assess this common intention include those 
arising up to the moment that approval was given by the WTO and China.  We note that this view on 
when the evidence of the circumstan ces should be assessed accords with that of the Appellate Body in 
EC – Chicken Cuts  when it stated that "the circumstances of the conclusion should be ascertained over 
a period of time ending on the date of the conclusion" of the treaty at issue.  
7.1240  We now look at the evidence presented by the parties on the technical feasibility and 
commercial practice with respect to the electronic di stribution of sound recordings before and at the 
time of China's Protocol of Accession.  The par ties do not dispute the technical feasibility of the 
electronic distribution of sound recordings at this ti me.  Indeed, distribution of music on the Internet, 
largely unauthorized, had existed for quite some time  before legitimate online music services emerged 
in the late 1990s.  With respect to overall commercial practice, the 2004 Online Music Report  by the 
International Federation of the P honographic Industry, submitted to the Panel by China, states that the 
commercial origins of electronic downloading of sound recordings go back at least as far as 1998, when a commercial site began selling music singles  and albums on the internet in the United States.
691  
Other commercial sites followed, and by the ear ly 2000s record companies were expanding their 
licensing agreements across a wide variety of  online retailers, beginning to licence the Catalogue s of 
major international performers, and shorteni ng the gap between off-line and online releases.692  With 
respect to the commercial situation in China, th e United States presents evidence of a joint-venture 
agreement, dated 21 February 2000, between an Amer ican firm and a Chinese enterprise, to distribute 
music electronically within China.693  Although China considers that this joint venture had not 
resulted in the establishment of any website in Ch ina by mid-2001, it does not present evidence that 
                                                      
688 Following China's accession application pursuant  to Article XII of the WTO Agreement, the 
existing Working Party on China's Status as a GATT 1947 Contracting Party was transformed into a WTO 
Accession Working Party, eff ective from 7 December 1995.  
689 The Working Party on the Accession of China me t on 13 occasions from March 2000 to September 
2001. 
690 China's Accession Protocol was adopted by a decision of 10 November 2001 at the WTO's 
Ministerial Conference. China notif ied its acceptance to the WTO on 11 November 2001.  China became a 
Member of the WTO on 11 December 2001.  
691 The report states that in 1998, eMusic.com began selling singles and albums in mp3 format on the 
web in the US. The Report continues to say that by the summer of 2001, OD2 launched its WebAudioNet 
platform, enabling retailers to offer legitimate services in Europe. See 2004 Online Music Report , Exhibit 
CN-57. 
692 2004 Online Music Report , Exhibit CN-57. 
693 Exhibits US-85 and US-100.  WT/DS363/R 
 Page 375 
 
 
  the parties to this "cooperative agreement" did not have, in 2000, the intent to supply music 
electronically within China.   
7.1241  We also note that, within the WTO, the backgr ound note on Audiovisual Services prepared by 
the Secretariat, dated on 15 June 1998, makes th e factual statement that the "distribution [of 
audiovisual content] can be through physical medi a such as CD-ROMs, as well as through the Internet 
or the other new networks".694   
7.1242  Thus, the evidence presented by the parties suggests that the electronic distribution of music 
had become a technical possibility and commercial reality, albeit limited, by 1998, and in any case before the entry into force of China's GA TS Schedule following its accession to the WTO on 
11 December 2001. 
7.1243  We note China' argument that, whatever the co mmercial reality with respect to the electronic 
distribution of sound recordings, there was no inte rnational consensus on a legal framework for the 
protection of intellectual property rights until the entry into force of the WIPO Copyright Treaty in 2002.   In answer to a question by the Panel, China acknowledged however that the Copyright Treaty 
was adopted in 1996, and that China had par ticipated in the negotiation of this treaty.
695  Whatever the 
date, however, we observe that the lack of an in ternational framework of intellectual property rights 
with respect to the electronic distribution of sound r ecordings would not, in itself, be an impediment 
either to the legal supply of those services within  a WTO Member, or that Member's ability to make 
full commitments on them in its Schedule.   
7.1244  We note that China also raises arguments based  on the absence of a domestic legal framework 
for the exploitation of music over the internet.  Ac cording to China, this domestic legal framework 
was only put in place in its 2001 Copyright Law.  China's first legally-authorized enterprise 
undertaking this activity was authorized in the same  year.  However, in its answer to a Panel's 
question, China states that the first draft of the amendment of the Copyright Law was provided to a 
committee of the National People's Congress in Nove mber 1998, but withdrawn in June 1999 because 
of the absence of any provision for the protection of copyright in network environments.696  A n  
amended version adopted in December 2000 filled in this gap in coverage.697  This process shows that 
China was considering a legal framework for servi ces related to online music business at least since 
1999. 
7.1245  Even if the electronic distribution of sound recordings had been shown not to be specifically 
permitted within China at the relevant time, the Panel takes the view that this would not in itself have 
prevented China from making a valid commitment on these services in its Schedule.  A Member's 
service commitments need not reflect its existing legal framework.  A number of Members, including 
China itself, have undertaken specific commitment s whereby they have committed to guarantee a 
market access level higher than their regulatory regimes at the time the commitments were made.  
7.1246  In sum, the record indicates that the electronic distribution of sound recordings had become a 
commercial reality in many markets before China's accession to the WTO.  Ch ina was aware of this 
fact.  The domestic legal framework for the electroni c distribution of sound recordings in China, to 
the extent that this is relevant for our interpre tation, was under consideration in China from as far 
back as 1998, although put in place only in 2001.  Chin a had clearly taken note of, and was altering its 
domestic law to take into account the commercial r eality of electronic distribution of sound recordings 
before its accession to the WTO in 2001. 
                                                      
694 WTO document S/C/W/40. 
695 China's response to question No. 230. 
696 China's response to question No. 229. 
697 Ibid. WT/DS363/R 
Page 376  
 
  7.1247  We find therefore that the electronic distributio n of sound recordings was technically feasible 
and a commercial reality as early as 1998 and, in any case, before China's accession to the WTO in 
December 2001.  We are therefore not persuade d that the meaning of the phrase "sound recording 
distribution services" cannot extend to the distribution of sound recordings in non-physical form, for 
the reason that negotiators of China's GATS Schedul e and, more broadly, WTO Members, had at the 
time no conception of the technical or commercial viab ility of this form of distribution.  This finding 
is consistent with our earlier analysis, under Ar ticle 31 of the Vienna Convention, of China's 
commitment on sound recording distribution services. 
Other arguments – "technological neutrality" and "relevant factors"
 
7.1248  The United States  invokes the principle of "technological neutrality" to argue that any 
practical differences that may ex ist between the supply of sound recordings in physical and non-
physical form are simply differences with respect  to the "means of delivery".  According to the 
principle of technological neutrality, these differences are not relevant to the interpretation of the 
scope of a GATS commitment, unless specified in a Member's Schedule.  The United States asserts that the principle of technological neutrality w as espoused by WTO Members in a report adopted by 
the General Council for Trade in Services, and supported by a statement by the panel in US – 
Gambling . 
7.1249  China  submits that a principle of technological  neutrality cannot be invoked to make 
irrelevant, for the purpose of determining the scope of its GATS commitment, the practical 
differences between the supply of sound recordings in physical as compared to non-physical form.  
According to China, the principle of technological  neutrality has never been formally accepted by 
Members.  Even if the principle had been accepted,  China claims that it only applies to different 
technologies used in the supply of the same  service, which is not the case with respect to the 
distribution of sound recordings in non-physical, as compared to physical, form.  For China, the 
services at issue, which are distributed on a non-physical medium, are different services ("network 
music services"), and not "sound recording distribution services". 
7.1250  Having dismissed the status and relevance fo r this case of a principle of technological 
neutrality, China then argues that it is necessary to examine a numbe r of relevant "factors" with 
respect to the two service activities, in order to  determine whether they constitute the same or 
different services.  These factors vary case-by-case, with no single one being decisive.  In the present circumstances, China states that four factors ar e important:  "essential operational characteristics", 
"perception of the end-users", "international cl assification", and the applicable "international 
recognized legal framework".
698  China argues that these factors, ap plied to the services at issue, are 
sufficiently divergent to indicate that the distribution of sound recordings on non-physical media is a different service from the distribution of sound record ings using physical media.  Thus, according to 
China, the services at issue, wh ich involve the use of non-physical media, do not fall within China's 
commitment on sound recording distribution services.   The "network music services" are different, 
and for that reason the principle of technical neutrality is not applicable. 
7.1251  The United States responds that there is no text ual basis whatsoever for distinguishing and 
classifying services according to a relevant "factor" approach.
699  Furthermore, for the United States, 
there are practical difficulties that arise in attemp ting to apply the factors advanced by China.  The 
United States notes that the application of the first two factors mentioned by China produce widely varying results across different services as well as different means of supply.  The United States also 
points out that the application of certain other fact ors mentioned by China to the services at issue do 
not consistently result in differences between s ound recording distribution on physical as opposed to 
                                                     
 
698 China's response to question No. 97(a). 
699 United States' second written submission, paras. 157-161.  WT/DS363/R 
 Page 377 
 
 
  non-physical media, and that there are other flaws w ith respect to the application of the remaining 
factors. 
7.1252  The Panel  notes that, in seeking to assess the interpre tative value of the differences that arise 
in the supply of the services at issue, compared to the supply of sound recording distribution services 
using physical media, the parties have invoked two principles or tests.   The United States invokes the 
principle of "technological neutrality" to say that any such differences should not be interpreted to 
narrow the scope of China's commitment on sound r ecording distribution services.  China argues to 
the contrary that a series of relevant "factors" must  be examined, and that th ese lead in this case to the 
interpretation of its commitment as not including th e distribution of sound recordings on non-physical 
media, which is a separate service ("network mu sic services") for which China has not taken GATS 
commitments. 
7.1253  We recall that in determining the scope of China's commitment on "sound recording 
distribution services", we have sought to apply th e customary rules of interpretation of public 
international law, as set out in Articles 31 and 32 of the Vienna Convention .  In doing so, we have 
examined the ordinary meaning of the terms of China's commitment, in the context provided by the 
rest of China's Schedule, the provisions of the GATS, and other Members' Schedules.  We have 
arrived at an interpretation of the words that Chin a, after negotiation with other WTO Members, chose 
to inscribe in its Schedule – "sound recording distribution services".  These words have not been 
further qualified by China with respect to the medium on which the audio content is distributed.  
7.1254  We observe that a Member is free, when maki ng a commitment, to add greater precision to its 
Schedule by qualifying the terms of the commitment.  That greater precision may qualify the scope of 
a service with respect to a wide range of attributes.  A Member may, for example add descriptive 
terms that specifically exclude a service supplied in  a certain way, or include that service under a 
different heading with different commitments.  A Member may also add precision (unlike China in 
this case) by referring directly to a product classificat ion system, such as that contained in document 
W/120 or the CPC.  A reference to an external cl assification system is in fact recommended in the 
Scheduling Guidelines.700 
7.1255  Further emphasizing the need to specify any desi red qualifications to the scope of inscribed 
services, we note the statement by the Appellate Bo dy that a commitment wi th respect to a service 
includes a commitment with respect to all of its sub-services.701  This, to us, is further evidence that 
the appropriate interpretation of the scope of a commitment flows primarily from the meaning of the 
terms of that commitment.  A panel cannot read into  a schedule qualifications that do not arise from 
an interpretation carried out in accordance with the rules set out in Article 31 of the Vienna 
Convention.  It is on this foundation that we have interpreted the core meaning of China's 
commitment on "sound recording distribution services" to cover the distribution of audio content in non-physical form. 
7.1256  In light of our interpretation of China's co mmitment, we now examine the US argument on 
"technological neutrality".  This principle, accord ing to the United States, establishes that any 
differences between the supply of the sound recording distribution services on physical, as compared to non-physical, media are merely "technological", and thus should not, unless specified in China's Schedule, serve to narrow the scope of China's commi tment.  The United States derives this principle 
from a statement in a Progress Report on a "W ork Programme on Electronic Commerce", dated 
                                                     
 
700 The 1993 Scheduling Guidelines indicate that wher e it is necessary to refine further a sectoral 
classification, this should be done on the basis of the CP C or other internationally recognized classification.  See 
para. 16 of the Guidelines. 
701 Appellate Body Report on US – Gambling  para. 180. WT/DS363/R 
Page 378  
 
  19 July 1999, prepared by the Council fo r Trade in Services for the General Council.
702   T h e  
statement says: 
"It was also the general view that the GA TS is technologically neutral in the sense 
that it does not contain any provisions that distinguish between the different technological means through which a service may be supplied."
703 
7.1257  We note that this statement has been referred to by the panel in US – Gambling .  That panel, 
in examining the range of possible means of deliv ery included in a full market access commitment on 
cross-border supply, concluded that such a commit ment includes "all means of delivery, whether by 
mail, telephone, Internet etc., unless otherwise specified in a Member's Schedule."704  The panel in 
that case added that this was "in line" with the prin ciple of technological neutrality that "seems to be 
largely shared among WTO Members" as evidenced  by the statement in the Progress Report.705 
7.1258  We note, however, that in interpreting China's commitment on "sound recording distribution 
services", we have no need to invoke a principle of technological neutrality.  We have already found 
that the core meaning of China's commitment on these services includes the distribution of audio 
content on non-physical media.  The principle of t echnological neutrality might have come into play  
had we found that China's commitment covered dist ribution on physical media and that there was 
doubt about whether it also covered the distribution of content on non-physical media.  But this was not the case here. 
7.1259  We now turn to China's argument that, to determine whether the services at issue – the 
distribution of sound recordings on non-physical  media – are covered by China's commitments on 
"sound recording distribution services", we need to examine four relevant "factors".  According to 
China, these factors would include in this case: " essential operational characteristics", "perception of 
the end-users", the "international classification", an d the applicable "international recognized legal 
framework".
706   
7.1260  While these four factors might be illuminating in an analysis of policy perspectives, the Panel 
finds that they are of limited value in arriving at, or confirming a proper interpretation of, the relevant 
commitment in China's Schedule.  Importantly, we  also observe that China has offered no textual 
basis for these four factors.   
7.1261  Even when China seeks to apply these factor s to the practical differences between the 
distribution of sound recordings on non-physical and physical media, in order to show that these activities are different services, the resulting analysis is far from clear.  The United States puts forward cogent arguments showing that the analysis of certain elements in China's factor analysis 
does not lead to an unambiguous result. 
7.1262  We examine, for example, China's analysis of  the factor of "international classification".  
China points to the draft of the forthcoming CPC version 2, which creates a new category explicitly 
                                                     
 
702 S/L/74. 
703 Work Programme on Electronic Commerce – Progress Report to the General Council , adopted by 
the Council for Trade in Services on 19 July 1999, S/L/74, 27 July 1999. para. 4.  This view was not, however, 
unanimous since the Report adds that "[s]ome delegations expressed a view that these issues were complex and needed further examination". 
704 Panel Report on US – Gambling , para 6.285 
705 Ibid.  The reference by that panel to the principle of technological neutrality was not referred to by 
the Appellate Body in its report on the subsequent appeal in that case. 
706 China's response to question No. 97(a).  WT/DS363/R 
 Page 379 
 
 
  covering the distribution of sound recordings using non-physical media.707  At the same time, the 
forthcoming CPC maintains an entirely separate cate gory for the distribution of sound recordings in 
physical form.708  For China, this is a further indication th at the distribution of sound recording using 
non-physical media is a different service from the distribution of sound recordings on physical media, and that the former is not covered by China's commitment on "sound recording distribution services". 
7.1263  We do not, however, find this reference by Ch ina to the forthcoming CPC version 2 to be 
relevant in determining the issue before us.  The Panel recalls that it has not based its finding that 
China's commitment on "sound recording distribu tion services" covers the distribution of non-
physical media on an assumption that this activity is the same service as the distribution of sound recording using physical media.  Further, we note that China's commitment on "sound recording 
distribution services" does not refer to the CPC, nor  provides any further definition of the covered 
service.  Finally, we note that the new categorization in the forthcoming CPC was completed well after agreement was reached on China's Schedule.   
7.1264  For all these reasons, we find that China's "f actor" approach sheds little light on the issue 
before us, and that the principle of technological ne utrality, whatever its status within the WTO, is 
likewise not needed in this case for the proper interpretation of China's commitment on "sound 
recording distribution services". 
Conclusion
 
7.1265  Overall, based on the above c onsiderations, we conclude that the inscription of "sound 
recording distribution services" under the heading of  Audiovisual Services (Sector 2.D) of China's 
Services Schedule extends to the distribution of sound recordings in non-physical form, notably 
through electronic means. 
(b) Whether the measures at issue are inconsistent  with China's national treatment commitments 
(Article XVII) 
7.1266  The Panel will now examine whether the measur es at issue are inconsistent with China's 
national treatment commitments under Article XVII of the GATS for the supply, through commercial 
presence, of sound recording distribution services. 
7.1267  The United States  claims that several Chinese measures accord less favourable treatment to 
foreign-invested entities, compared to like Chines e ones, that seek to engage in the electronic 
distribution of sound recordings, and that this treat ment is inconsistent with China's commitments 
under Article XVII.  According to the Unite d States, these Chinese measures include: the Internet 
Culture Rule , the Circular on Internet Culture,  the Network Music Opinions ,  the Several Opinions ,  
the Catalogue  and the Foreign Investment Regulation . 
7.1268  The United States submits that the Circular on Internet Culture , the Network Music Opinions , 
and the Several Opinions  each explicitly prohibit foreign-inv ested entities from distributing sound 
recordings electronically, and that each is incons istent with China's commitments under Article XVII 
of the GATS.  The United States contends that the Internet Culture Rule , on the other hand, does not 
on its own provide for less favourable treatment for foreign-invested enterprises engaging in sound 
                                                      
707 A new group 843 covers "On-line content" with a new class 8432 "On-line music content".  This in 
turn covers two subclasses:  84321 "Musical audio downloads", and 84322 "Streamed audio content".  We note 
that the CPC version 2 is now in final form. 
708 Subclass 61242 covers "Wholesale trade services on a fee or contract basis, of radio and television 
equipment and recorded audio and videodiscs and tapes", which explicitly includes goods of group 476, which 
in turn includes subclass 47610 "physical media". WT/DS363/R 
Page 380  
 
  recording distribution services, but sets up an overarching regime that, as implemented, accords less 
favourable treatment to foreign-invested suppliers. 
7.1269  The United States argues that the Catalogue  and the Foreign Investment Regulation  are also 
part of the regime prohibiting foreign-invested entities from engaging in the electronic distribution of sound recordings.  The United States points to Article X:7 of the Catalogue , under the heading 
"Catalogue  of Prohibited Foreign Investment Industries" , which provides that foreign investment is 
prohibited in enterprises engaging in "news websites,  network audiovisual program services, internet 
on-line service operation site, and internet culture ope ration".  The United States further notes that the 
Foreign Investment Regulation  provides guidance on the meaning of terms in the Catalogue .  
Accordingly, for the United States, the Catalogue  and the Foreign Investment Regulation  are together 
inconsistent with Article XVII of  the GATS because they modify the conditions of competition in 
favour of like wholly Chinese-owned entities.  
7.1270  China does not provide specific responses to the arguments of the United States, relying 
instead on its argument that the services at issu e are not within the scope of "sound recording 
distribution services" appearing in its Schedule.  In  its answer to a question from the Panel, China 
confirms that foreign-invested entities are prohib ited from engaging in the supply of the services at 
issue.
709 
(i) Requirements of Article XVII 
7.1271  The Panel  begins its analysis by recalling the term s of paragraph 1 of Article XVII, which 
reads: 
"In the sectors inscribed in its Schedule, and subject to any conditions and 
qualifications set out therein, each Member shall accord to services and service 
suppliers of any other Member, in respect of all measures affecting the supply of services, treatment no less favourable than that it accords to its own like services and 
service suppliers."
 
7.1272  The wording of Article XVII indicates that we n eed to determine:  (a) whether the services at 
issue are inscribed in China's Schedule;  (b) whethe r the measures at issue a ffect the supply of these 
services;  (c) the extent of China's national tr eatment commitment, incl uding any conditions or 
qualifications, with respect to these services entere d in its Schedule;  and (d) whether these measure 
accord less favourable treatment to service supp liers of other Members, in comparison to like 
domestic suppliers. 
Whether the services at issue are within the scope of services listed in China's Schedule  
7.1273  With respect to this element, we have alread y made a finding above that the services at issue 
are indeed within the scope of "Sound recording di stribution services" inscribed in China's Schedule, 
and are therefore subject to any national treatment commitment that China may have indicated. 
Whether the measures at issue are "affecting" trade in services  
7.1274   With respect to this element, we consider that, since the measures at issue (and which are 
examined in detail below) directly govern the supplie rs of the services at issue, they "affect" the 
supply of these services in the sense of Article XV II, and the parties have not argued otherwise. 
                                                      
709 China's response to question No. 81.  WT/DS363/R 
 Page 381 
 
 
  Extent of China's national treatment commitment for "sound recording distribution services" 
supplied through commercial presence  
7.1275  We must now determine the extent of Chin a's national treatment commitment for "Sound 
recording distribution services".  In the national treatment column of its Schedule corresponding to 
the sectoral entry on "Sound recording distribution" , China has inscribed "None ".  This means that, 
with respect to this mode of supply, China has co mmitted not to introduce or maintain any limitations 
with respect to national treatment for "Sound recording distribution services". 
7.1276  Despite this initial indication of a full national treatment commitment by China for the 
services at issue, we can only have a full pictur e of this commitment by looking as well at the 
inscriptions in the market access column for the corresponding sector and mode of supply, and at 
China's horizontal commitments.  
7.1277  Turning first to the market access  column for Audiovisual Services, we note that China has 
inscribed, for commercial presence, the following :  
"Upon accession, foreign services suppliers w ill be permitted to establish contractual 
joint ventures with Chinese partners to engage in the distribution of audiovisual 
products, excluding motion pictures, without prejudice to China's right to examine the 
content of audio and video products (see footnote 1)." 
7.1278  We note that the vertical position of this inscrip tion in the market access column shows that it 
applies to the services at issue – "sound recordi ng distribution services".  The inscription indicates 
that China allows foreign service  suppliers to engage in the di stribution of audiovisual products, 
including sound recordings, through the establishment of contractual joint ventures.  The only 
limitation on market access that China is entitle d to maintain for "sound recording distribution 
services" under Article XVI of the GATS is therefore a joint venture requirement on foreign investment, made subject to a content review requi rement.  Since this limitation applies to service 
suppliers solely of foreign origin, it must also be  read, by virtue of Article XX:2 of the GATS, as a 
limitation on China's national treatment commitment s on "sound recording distribution services".   
China has not, therefore, committed to full na tional treatment for the services at issue supplied 
through commercial presence. 
7.1279  Turning next to the horizontal  section, we recall that the inscriptions here apply, unless 
otherwise specified in individual sector commitments,  to commitments in all sectors listed in China's 
Schedule.  Here, with respect to commercial presen ce, China has not indicated any national treatment 
limitations.  It has, on the other hand, inscribed market access limitations.  Only three forms of 
foreign-invested enterprises are permitted: fore ign capital enterprises (also referred to as wholly 
foreign-owned enterprises), equity joint ventures, a nd contractual joint ventures.   Contractual joint 
ventures are permitted to be established in Chin a for the purpose of supplying services.  Foreign 
investment in equity joint ventures must account fo r a minimum of 25 per cent of total registered 
capital;  no maximum percentage is indicated.  Furt her limitations in the horizontal section of China's 
Schedule are also applicable to the services we ar e concerned with, but these limitations are not at 
issue in this claim.
710 
7.1280  Summarizing our analysis, we find that China' s national treatment commitment on "sound 
recording distribution services", supplied through co mmercial presence, is limited by requiring that 
                                                      
710 These elements contain limitations to mark et access commitments for commercial presence 
concerning branches, representative offices, existing ag reements and licences, as well as land usage periods.  
They also contain limitations to national treatment concerning existing subsidies for domestic services suppliers 
in three sectors, including audiovisual services. WT/DS363/R 
Page 382  
 
  foreign service suppliers take the form of a contr actual joint venture.  China's national treatment 
commitment for the services at issue is also lim ited by other types of measures indicated in the 
horizontal section of its Schedule but, as stated, these are types of measures that are not at issue in this dispute.
711 
Interpretative issues on the treatment of like service suppliers  
7.1281  Finally, we must assess whether each of th e measures at issue is inconsistent with 
Article XVII because it results in "treatment less fav ourable than that [China] accords to its own like 
services and service suppliers".  We will make  this final assessment for each measure in 
part VII.D.2(b)(ii) below, but need no w to clarify three preliminary issues. 
Service suppliers "of any other Member" 
7.1282  As a first preliminary issue, we note that Article XVII:1 establishes rights and obligations 
with respect to "service suppliers of any other Memb er".  The measures at issue, however, and China's 
commitments in its Schedule, refer to the supply of  services by a "foreign-invested entity".  Recalling 
the relevant definitions set out in Article XXVIII of  the GATS, we observe that any "foreign-invested 
entity" supplying the services at issue in China, and th at is owned or controlle d by persons of another 
Member, is a service supplier "of any other Member" w ithin the terms of Article XVII.  In the absence 
of any contrary evidence before us, we find that ther e are, or can be, foreign-invested enterprises that 
are foreign-owned or controlled, and thus "service suppliers of any other Member". 
Service suppliers that are "like" 
7.1283  As a second preliminary issue, we observe that  Article XVII:1 requires that treatment be 
assessed between domestic and foreign services or serv ice suppliers that are "like".  Since the United 
States focuses its claim on the treatment of suppliers  rather than services, we will likewise centre our 
analysis on the likeness of the suppliers of the services at issue.  
7.1284  We note that the measures at issue (examined in  detail in part VII.D.2(b)(ii) below) are 
alleged by the United States to contain prohibitions on the right to establish and supply the services at 
issue – thereby according less favourable treatme nt to services suppliers of other Members 
exclusively on the basis of origin.  When orig in is the only factor on which a measure bases a 
difference of treatment between domestic service su ppliers and foreign suppliers, the "like service 
suppliers" requirement is met, provided there will, or can, be domestic and foreign suppliers that 
under the measure are the same  in all material respects except for origin.    
7.1285  In examining the specific measures at issue, discussed in more detail below, we have no 
reason not to believe, nor have the parties argued, that the measures do not accord different treatment 
to foreign suppliers based exclusively on their forei gn origin.  We therefore find that, with respect to 
these measures, there will, or can, be "like" service suppliers in the sense of Article XVII.  
Measures that are discriminatory prohibitions 
7.1286  As our third preliminary issue, we recall that the United States alleges that the measures at 
issue concern a prohibition with respect to foreign suppliers seeking to supply the services at issue.  
The United States further asserts that the prohi bition does not extend to wholly-owned Chinese 
entities supplying these services.712  Since the record does not indicate otherwise, and China does not 
                                                      
711 Except as regards existing subsid ies to domestic service suppliers. 
712 United States' first written submission, para. 154.  WT/DS363/R 
 Page 383 
 
 
  contest this assertion, we accept that wholly Chinese-owned entities are permitted to engage in 
Internet cultural activities that involve the services at issue.  
7.1287  Recalling our earlier discussion on this point, we find also that, to the extent a discriminatory 
prohibition can be identified in the measures at issu e, foreign suppliers of the services at issue are 
prevented from competing with like Chinese suppliers , and less favourable treatment in terms of 
Article XVII can be inferred.  A total absence of competition between the domestic service suppliers 
and like service suppliers of other Members resulting from the measure would, if shown, clearly modify the conditions of competition in favour  of wholly Chinese-owned service suppliers.   
(ii) Measures at issue 
Coverage of electronic distribution other than through the Internet
 
7.1288  We now examine the six Chinese measures that the United States has invoked, in order to 
determine whether the scope of these measures sugg est a wider or narrower meaning be given to 
"digital" distribution of sound recordings.  The Unit ed States identifies and lists in its panel request 
six Chinese measures:  the Internet Culture Rule , the Circular on Internet Culture,  the Network Music 
Opinions , the Several Opinions , the Foreign Investment Regulation  and the Catalogue.  We will 
examine whether the scope of these measures exte nds to the electronic distribution of sound 
recordings by means other  than the Internet.  
7.1289  The parties agree that five of the measures cited by the United States in its panel request 
specifically cover activities related to the Internet.  The Internet Culture Rule  governs "Internet 
cultural entities" engaging in "Internet cultural activities" with respect to "Internet cultural 
products".713 The Circular on Internet Culture implements the Internet Culture Rule , and retains the 
same scope.  The Several Opinions  states that "[f]oreign investors are prohibited from setting up and 
operating ... a business dealing with Internet culture."714  T h e  Foreign Investment Regulation  
incorporates by reference the Catalogue , which states that foreign investment is prohibited in 
enterprises engaging in "news websites, network audiovisual program services, internet on-line 
service operation sites, and internet culture operations."715  
7.1290  The parties differ, however, on whether the Network Music Opinions  applies to the 
transmission of sound recordings through electroma gnetic means other than the Internet.  This 
measure is drawn up based on, inter alia , the Internet Culture Rule,716 and consists of three sections 
and two attachments.  The United States bases its argument on the view that the measure applies to 
distribution means other than the Internet by q uoting from Section I of the measure, entitled "Status 
Quo and Development Objectives of China's Network Music Market".  Article 1 of Section I states: 
"In recent years, the network music market in our country has developed swiftly.  
Music products transmitted through such wire d or wireless media as the internet and 
mobile communications have helped shape the digital music production, dissemination, and consumer models, thus promoting the network culture industry in 
China and enriching the cultural a nd recreational life of the people." 
                                                     
 
713 Internet Culture Rule , Articles 1-3 (Exhibit US-32). 
714 Several Opinions , Article 4 (Exhibit US-6). 
715 Catalogue , Article X.7 of the Catalogue of Prohibited Foreign Investement Industries (Exhibit 
US-5). 
716 The legal basis of the Network Music Opinions  includes the Cultural Development Program of the 
National 11th Five-Year Plan, the State Council's Decision on Establishing Administrative Licensing for 
Administrative Examination and Approval Ma tters Necessary to be Retained and the Internet Culture Rule . WT/DS363/R 
Page 384  
 
  7.1291  Section I contains a narrative describing the de velopment of China's network music market.  
The part quoted by the United States describes the recent development of China's network music 
market, in which music products are transmitted through wired or wireless media, including the 
Internet and mobile communications.  The quote from the measure does not, however, prescribe that the measure applies to the transmission of mu sic through means other than the Internet.   
7.1292  Section II, entitled "Supporting the Healthy De velopment of the Netw ork Music Industry", 
provides general guidance on the development of ne twork music, including: ensuring correct value 
orientation, promoting the integration of tec hnology and content, and enhancing the competitive 
ability of network music enterprises on the market .  This section does not define the scope of 
application of the measure either. 
7.1293  Section III, entitled "Regulating the Network Music Order", sets out a number of 
requirements that apply specifically to activities rela ted to the Internet.  No provision applies to the 
transmission of music through means other than the In ternet.  Article 8 states that the application for 
establishing an Internet cultural entity to engage in  network music business shall meet the requirement 
of the Internet Culture Rule.  Article 9 provides that, "for imported music products which are to be 
disseminated through a network and whose content has been reviewed by th e Ministry of Culture, 
commercial Internet culture entities shall complete  legal formalities (see attachment for relevant 
requirements)".  Article 11 provides that the dissem ination of illegal content shall be punished in 
accordance with Article 24 of the Internet Culture Rule,  and that websites ope rated without approval 
or dealing in illegal content sh all be investigated and punished pursuant to the same measure . 
7.1294  The two attachments to the Network Music Opinions  similarly refer specifically to activities 
related to the Internet.  The first is a "Declaration Form to the Ministry of Culture for Importation of 
Network Music Works".  It refers, inter alia , to the "operational website", the "IP address" and the 
"number of licence of the internet culture operation" .  Clearly, the form is meant to apply only to 
Internet culture entities.  The second attachment is entitled "Procedures and Materials for Content 
Review of Network Music Products", and it likew ise applies only to Internet culture entities.
717   
7.1295  We note that the United States points to a news report on the official website of the Chinese 
MOC as evidence of an official interpretation of the Network Music Opinions.   The news item states 
that in the Network Music Opinions :   
"[M]usic was defined for the first time,  referring to music products as transmitted 
through the Internet, mobile communication network as well as other wired and wireless media... This pattern is mainly co mposed of two parts: one is to provide – 
via the Internet – online music to be download ed or played in the computer terminals; 
the other is for wireless network business ope rators to provide – through their value-
added wireless services- wireless music to be played in the terminals of mobile phones, which is also known as mobile music.   For the purpose of network music, the 
work "network" not just refers to what we normally call as the Internet.  It refers to 
information networks, including telecommuni cation network, mobile Internet, cable 
television network, satellite communications, microwave communication, optical fibre communication, as well as other va rious interconnection between intelligent 
networks whose interaction is achieved based on the IP protocol."
718 
7.1296  The Panel notes that the original source of the news item is not the MOC, but "China Culture 
Market Net" (www.ccm.gov.cn), a website on Chin a's culture market, sponsored by the Culture 
                                                      
717 This attachment provides for the content review procedures that only appl y to commercial Internet 
culture entities.  Network Music Opinions , Appendix 2 (Exhibit US-34). 
718 Exhibit US-101.  WT/DS363/R 
 Page 385 
 
 
  Development Centre under th e MOC and operated by an Internet culture company.719  M o r e  
important, the news report itself does not  suggest that its understanding of the Network Music 
Opinions  represents the official interpretation by the MO C.  We are not convinced that such a news 
report, even if published on the Ministry website, can serve as an authoritative interpretation of the 
Network Music Opinions  by the MOC.  Even if the content of this news item were taken into account, 
we note that it indicates that for the purpose of netw ork music, the interaction of networks involved is 
achieved based on the IP protocol.720  In other words, transmission through the Internet is the essential 
element of network music.   
7.1297  We also note that the Internet Culture Rule  defines "Internet cultural activities" as primarily 
consisting of:  
"(1) Activities of producing, reproducing, importing, wholesaling, retailing, renting 
out or broadcasting Internet cultural products; 
(2) Putting cultural products online on the Internet, or sending cultural products 
through the Internet to end user's computers, fixed telephones, mobile phones, radios, TV sets, game players, etc. enabling Intern et users to browse, read, appreciate, watch 
on demand, use or download the cultural products; and 
(3) Activities such as exhibitions and comp etitions of Internet cultural products." 
7.1298  After examining the structure and content of the Network Music Opinions  – as well as its 
relationship to the Internet Culture Rule  – we find that this measure does not apply to the transmission 
or distribution of material, including music, without using the Internet. 
7.1299  We conclude therefore that the measures at issue – the Internet Culture Rule , the Circular on 
Internet Culture,  the Network Music Opinions , the Several Opinions , the Foreign Investment 
Regulation  and the Catalogue – extend only to services at issue that depend at some stage on 
electronic distribution over the Internet.  This, how ever, does not imply that the measures at issue do 
not cover services that may be initiated or terminated using technology other than the Internet, such as 
mobile phone systems. 
Specific measures
 
7.1300  We now examine more closely the measures at i ssue, to determine whether as claimed by the 
United States they impose a prohibition on service s uppliers of other Members, with respect to the 
supply through commercial presence of "sound recording distribution services".  
Internet Culture Rule 
7.1301  We note that the United States argues that the Internet Culture Rule  sets up an overarching 
regime that, as implemented, prohibits forei gn-invested entities from supplying sound recording 
distribution services, inconsistently with Article XVII.  
7.1302  We first examine the scope of the Internet Culture Rule .  It applies to persons engaging within 
the territory of China in "Internet culture activities".721  These are defined in Article 3 as including 
                                                      
719 http://www.ccm.gov.cn 
720 Internet is defined as a collection of interconnected networks using the Internet Protocol which 
allows them to function as a single, large virtual ne twork.  See the office website of the International 
Telecommunication Union: www.itu.int 
721 Internet Culture Rule , Article 4 (Exhibit US-32). WT/DS363/R 
Page 386  
 
  wholesaling and retailing on the internet (including through mobile telephones) of "internet cultural 
products".  These are in turn defined in Article 2 as:  
"[C]ultural products produced, disseminate d and circulated through the Internet, 
primarily consisting of:  audiovisual produc ts, game products, performances (drama) 
work of art, animated cartoons, and othe r Internet cultural products produced or 
reproduced by use of certain technological means to disseminate over the Internet." 
7.1303  Since Internet culture activities include whol esaling and retailing Internet cultural products, 
which include audiovisual, products and thus sou nd recordings, we infer that sound recordings 
disseminated through the Internet are wi thin the scope of application of the Internet Culture Rule . 
7.1304  The main provisions of the Internet Culture Rule provide a legal framework for regulating 
"Internet culture activities", in particular the entitie s engaging in such activities.  Article 4 defines 
"Internet culture entities" as "Internet inform ation service providers approved by cultural 
administrations and telecommunications administrati ons to engage in Internet cultural activities".  
Articles 7 to 11 set out the requirements regarding th e establishment of Internet culture entities.  We 
observe, however, that no provision in the Internet Culture Rule  appears explicitly to prohibit foreign 
investment in Internet culture entities, and thus to  prohibit service suppliers who are foreign-invested 
entities from engaging in the electronic distribution of sound recordings over the Internet. 
7.1305  We note that the United States challenges this measure as implemented .  However, the United 
States has not demonstrated how this individual  measure, as implemented,  accords less favourable 
treatment to foreign-invested suppliers of sound recording distribution services compared to wholly Chinese-owned suppliers.  We therefore consider th at the United States has not made a prima facie 
case that the Internet Culture Rule  accords less favourable treatment to foreign-invested suppliers of 
sound recording distribution services. 
Circular on Internet Culture 
7.1306  We now examine the Circular on Internet Culture , which serves to implement the Internet 
Culture Rule .  Article II states that "[p]rovisionally, a pplications submitted by Internet information 
service providers with foreign investment for enga ging in Internet cultural activities shall not be 
accepted."  It is therefore evident that foreign-i nvested information service suppliers are explicitly 
prohibited from engaging in Internet cultural activiti es, for an indefinite period of time.  Since the 
distribution of sound recordings over the Internet is one of the "Internet cultural activities" defined in 
the Internet Culture Rule , we find that the Circular on Internet Culture  prohibits foreign-invested 
entities, including service suppliers of another Member, from supplying the services at issue. 
Network Music Opinions 
7.1307  Turning to the Network Music Opinions,  we recall that it is a measure based in part on the 
Internet Culture Rule , which applies to Internet culture entities engaging in the network music 
business, including the transmission of music in digita l form over the Internet.  Article (8) of the 
Network Music Opinions  states in clear terms that "it is prohibited to establish network cultural 
entities with foreign investment."   As in the case of the Circular on Internet Culture , we find 
therefore that Article (8) of the Network Music Opinions
 prohibits foreign-invested entities, including 
service suppliers of another Member, from supplying the services at issue. 
Several Opinions 
7.1308  We now examine the Several Opinions.  This is a measure issued jointly by several Chinese 
government departments, including the MOC.  Artic le 4 prohibits foreign investors from "setting up  WT/DS363/R 
 Page 387 
 
 
  and operating a business dealing in internet culture".   We understand that the reference to "Internet 
culture business" in the Several Opinions  has the same meaning as "Internet cultural activities" 
referred to in the Internet Culture Rule,  as the parties do not dispute this and that there is nothing on 
the record to suggest the contrary. We  therefore find that Article 4 of the Several Opinions  contains a 
prohibition on foreign-invested entities, including service suppliers of another Member, from 
supplying the services at issue. 
Catalogue  and the Foreign Investment Regulation  
7.1309  Finally, we examine the Catalogue  and the Foreign Investment Regulation.  We note that 
Article X:7 of the Catalogue , under the heading " Catalogue  of Prohibited Foreign Investment 
Industries", provides that foreign investment is pr ohibited in enterprises engaging in "news websites, 
network audiovisual program services, internet on- line service operation sites, and Internet culture 
operations".  We understand that "Internet culture operations" refers  to "Internet cultural activities", as 
the parties do not dispute this and that there is not hing on the record to suggest the contrary.  With 
respect to the Foreign Investment Regulation , we observe that on its own it contains no prohibition on 
these activities. 
7.1310   We recall our observations in paragraph 7.1037 , with respect to the relationship between the 
Catalogue  and the Foreign Investment Regulation .  Based on this analysis, we find that Article X:7 of 
the Catalogue,  under the heading " Catalogue  of Prohibited Foreign Investment Industries", in 
conjunction with Articles 3 and 4 of the Foreign Investment Regulation , prohibits foreign-invested 
entities from engaging in Internet cultural activ ities which include the services at issue.   
(c) Conclusion 
7.1311  The Panel finds that the Circular on Internet Culture  (Article II), the Network Music Opinions  
(Article 8), and the Several Opinions  (Article 4), are each inconsistent  with China's national treatment 
commitments under Article XVII of the GATS as each prohibits foreign-invested enterprises, including service suppliers of other Members, from engaging in the electronic distribution of sound recordings, while like domestic service suppliers are not similarly prohibited.  For the same reasons, 
Article X:7 of the Catalogue, under the heading " Catalogue  of Prohibited Foreign Investment 
Industries", in conjunction with Articles 3 and 4 of the Foreign Investment Regulation,  is also 
inconsistent with Article XVII of the GATS.    
7.1312  The Panel, however, does not find that the Internet Culture Rule  in itself is inconsistent with 
Article XVII of the GATS.  
3. 
Distribution of AVHE products in physical form:  claims under Articles XVI and XVII 
of the GATS 
7.1313  The United States puts forward claims under Articles XVI and XVII of the GATS concerning 
the distribution in China of audiovisual home en tertainment (AVHE) products through commercial 
presence.  It defines these products as including  "videocassettes, video compact discs (VCDs) and 
digital video discs (DVDs)".  Some provisions of the measures on which the US claims are based, 
have been determined by the Panel not to be within its terms of reference, and we are therefore unable 
to rule on them.722  For the remaining claims, the Panel will first examine those relating to China's 
commitments on market access, and then those relating to national treatment.  In each case, the Panel will examine the commitments on the services at issu e that China has inscribed in its GATS Schedule, 
and then determine whether the measures raised by the United States are consistent with those 
commitments. 
                                                     
 
722 See Section VII.B.6. WT/DS363/R 
Page 388  
 
  (a) Whether China has undertaken GATS commitments  for the distribution of AVHE products in 
physical form 
7.1314  The United States  alleges that China maintains a limita tion on foreign equity participation in 
contractual joint ventures engaging in the di stribution of AVHE products through commercial 
presence, in violation of Article XVI:2(f) of the GA TS.  According to the United States, the limitation 
on foreign equity is maintained in four measures:  the Audiovisual (Sub-)Distribution Rule, the 
Catalogue, the Foreign Investment Re gulation, and the Several Opinions .  Since China does not 
schedule this type of limitation in its market  access commitments on mode 3 under "Audiovisual 
Services", the United States argues that each of the four measures constitutes a breach of Article XVI 
of the GATS.  The United States also argues that th ese four measures are inconsistent with China's 
national treatment commitments under Article XVII of the GATS. 
7.1315  China  rejects the US claim, contending that the challenged measures do not provide for a 
limitation on foreign equity particip ation in contractual joint ventures engaging in the distribution of 
audiovisual products, contrary to Article XVI:2(f).  According to China, the measures limit only the 
rate of profit and loss allocation be tween partners of these contractual joint ventures.  For China, since 
Article XVI does not impose any obligations on Members to insert limitations with respect to the rate 
of profit and loss allocation in their GATS schedules, these measures do not violate China's obligations under this provision. 
7.1316  The Panel  observes that China's market access commitments under Article XVI and national 
treatment commitments under Article XVII only apply to the services at issue if it can be shown that these services are covered within the sectors inscribed by China in its Schedule.  Our first task is 
therefore to define the services at issue, and to  determine whether these fall within the scope of 
sectoral commitments that China h as undertaken in its Schedule.  
(i) Services at issue 
7.1317  The Panel notes that the United States makes it s claim with respect to the wholesale, retail 
and rental of AVHE products, which it defines as including "videocassettes, video compact discs 
(VCDs) and digital video discs (DVDs)", all of which are physical products.  We will refer in this part 
to these distribution activities (wholesale, retail a nd rental of AVHE products) as the "services at 
issue". 
Sectoral scope of China's entry on "Video s, including entertainment software and 
(CPC 83202), distribution services"  
7.1318  The United States  submits that China's inscription unde r Audiovisual Services for "Videos, 
including entertainment software and (CPC 83202), dist ribution services" covers the services at issue.  
The United States contends that China's inscripti on includes not only the distribution of the basic 
AVHE products specified above, but also the distribu tion of "videogames, computer games as well as 
the leasing or renting services concerning videocassettes."723 
7.1319  China  does not contest the US assertion that the distribution of AVHE products in physical 
form is covered by its GATS commitments under A udiovisual Services within "Videos, including 
entertainment software and (CPC 83202), distri bution services".  Although the distribution of 
products in physical form is generally covered in  China's Schedule under the heading Distribution 
Services (Sector 4), China explains that it has chosen to group the distribution of products relating to 
the audiovisual sector under Audiovisual Services (Sector 2.D). 
                                                      
723 United States' first written submission, para. 311.  WT/DS363/R 
 Page 389 
 
 
  7.1320  The Panel  recalls that the services at issue in the US claim are the distribution through 
wholesale, retail or rental of audiovisual home ente rtainment (AVHE) products delivered in physical 
form, including videocassettes, VCDs, and DVDs.  In order to determine whether these services are 
covered, as claimed by the United States, by Chin a's commitment on "Videos, including entertainment 
software and (CPC 83202), distribution services", we must examine China's Schedule.  China's 
commitments in its Schedule under Audiovisual Services (including here only the relevant 
commitments on mode 3 or commercial presence) read as follows:  
Sector or sub-sector Limitations on 
Market Access Limitations on  
National 
Treatment Additional 
Commitments 
2.  D.  Audiovisual  Services      
- Videos, including 
entertainment software 
and (CPC 83202), distribution services 
- Sound recording 
distribution services  (3) Upon accession, foreign 
services suppliers will be 
permitted to establish contractual joint ventures with Chinese 
partners to engage in the 
distribution of audiovisual 
products, excluding motion 
pictures, without prejudice to China's right to examine the 
content of audio and video 
products (see footnote 1) (3) None 
 
  
 
 Without prejudice to 
compliance with 
China's regulation on the administration of 
films, upon accession, 
China will allow the 
importation of motion 
pictures for theatrical release on a revenue-
sharing bases and the 
number of such imports shall be 20 on 
an annual basis. 
- Cinema Theatre Services (3) Upon accession, foreign 
services suppliers will be 
permitted to construct and/or renovate cinema theatres, with 
foreign investment no more than 
49 per cent. (3) None  
(Footnote 1 that is referenced here is a footnote contained in the Horizontal part of China's Schedule. It states 
that the operation, management and  equity participation in a contractual joint venture are determined by the 
contract establishing it.) 
 
7.1321  We note that the entry on "Videos, including entertainment software and (CPC 83202), 
distribution services" appears in the column of  China's Schedule titled "Sector or sub-sector", 
indicating that China is making commitments for these services.  Our task is to determine whether the 
services at issue – AVHE products distributed on a ph ysical medium – are within the scope of the 
service inscribed by China in its Sc hedule.  Since the description of the services at issue – distribution 
of "AVHE" products, and the terms used by the United States to describe further this activity – are not the same as the terms China uses in its entry, we must  engage in an interpreta tion of China's Schedule.  
7.1322  Noting that the claim by the United States con cerns solely the distribution of audiovisual 
products in physical form, in particular videocassette s, VCDs and DVDs, the core interpretative issue 
before us is whether the entry a pplies to content distributed on these physical media.  We note that 
China accepts that the entry covers the distribution of audiovisual products in physical form.  The 
Panel recognizes, however, that a common view of th e parties on the interpretation of an entry to a 
GATS schedule cannot be determinative.  WT/DS363/R 
Page 390  
 
  Ordinary meaning
 
7.1323  As always, our interpretation begins with the ordinary meaning  of the relevant terms in 
China's entry.  At the outset, we observe that  the sectoral entry that China has inscribed under 
Audiovisual Services  – "Videos, including entertainment software and (CPC 83202), distribution services" – is not explicitly defined elsewhere in its  Schedule.  Nor is the entry as a whole explicitly 
defined through reference to an external services classification scheme, such as the CPC.  Although 
part of the entry – the reference to CPC 83202 – is  defined by linking to an external category 
definition, this constitutes only one element of a complete sectoral entry.   
7.1324  We now turn to the precise wording of China's en try.  We will look first at the ordinary 
meaning of the categories of product specified, namely  "videos", "entertainment software", and "(CPC 
83202)".  We will then look at the ordinary meaning of the second element of the sectoral entry, 
which is "distribution services".   
"videos" 
7.1325  The United States argues that the term "videos"  in China's entry m eans "film recorded on 
tape, DVD, etc."   Consulting a dic tionary, we find that the first-listed definition of the term "video" is  
"[t]hat which is displayed or to be displayed on a television screen or other cathode-ray tube; the 
signal corresponding to this."
724 
7.1326  This definition suggests that video, in itself, re fers primarily to visual content, and not to a 
physical product.  This interpretation is also s uggested by the frequent combination of "video" with 
other terms such as "video on demand", "video transm ission" or "recording of video".  In these cases, 
the meaning of video also appears not to refer primar ily to physical products as such.  As well, in the 
goods section of the CPC, to which this entry makes reference, physical products are referred to as 
"video records and tapes", which also  suggest that "video" refers primarily to content.  We note that 
the use of the plural form of the term ("videos") in China's commitment does not appear to us to be 
determinative one way or the other, since there can be  a plurality of different content just as there can 
be a plurality of physical products. 
7.1327    We note, however, that a dictionary definiti on of "video" quoted by the United States defines 
this term as "film etc. recorded on videotape: colloquial = video cassette.  Also, videotape as a 
recording medium."725  This definition indicates that the term "v ideo" can also be used to refer to the 
video content when embedded in a physical medium.  In this colloquial sense, the term "video" refers 
to "video tape" or "video cassette" which, with  recent technological development, would presumably 
include VCDs and DVDs.  The dictionary we have consulted confirms this second meaning by stating 
that the term "video" can also refer to "videotape as a recording medium".726  For the reasons 
indicated,  however, we think that the term "video" can be used equally, if not primarily, to refer to visual content.   
"entertainment software" 
7.1328  We now examine the term "entertainment softwa re".  Starting with the word "software" we 
note that this term is defined in the dictionary as "[t]he programs and procedures required to enable a 
computer to perform a specific task, as opposed  to the physical components of the system".
727   The 
                                                      
724 Oxford English DictionaryOnline , available at http://dictionary.oed.com/entrance.dtl. 
725 Shorter Oxford Dictionary, 5th ed. (Clarendon Press 2002), Vol. II., p. 3534 (Exhibit US-42). 
726 Oxford English Dictionary Online , available at  http://dictionary.oed.com/entrance.dtl. 
727 Shorter Oxford Dictionary,  5th ed. (Clarendon Press 2002), Vol. II., p. 2910.  WT/DS363/R 
 Page 391 
 
 
  term "entertainment" is de fined in the same dictionary as "the ac tion of occupying a person's attention 
agreeably" or "that which affords interest or amusement".728 
7.1329  In our view, the term "entertainment soft ware" can therefore be understood as meaning 
computer programs or procedures designed to inter est or amuse its users.  The Panel observes that 
these often take the form of video or computer games produced by the entertainment software 
industry.  A core element of the software defi nition – "programs and procedures" – would indicate 
that the term "entertainment software" refers primar ily to intangible content.  Nevertheless, the Panel 
recognizes that such content – in the form of computer or video games, for example – is frequently, but not exclusively, distributed to consumers as a physical product.  For that reason, it appears to us that the term "entertainment software" can refer, as a collective noun, not only to content distributed 
on a non-physical medium (such as the internet), but also using a physical medium (such as a DVD).   
7.1330  We note that China's entry reads "Videos, including  entertainment software ... ".  The use of 
the term "including" indicates that the term "vid eos" is broad enough to encompass "entertainment 
software" which, as we noted, can include video and computer games distributed either on a non-physical medium, or as a physical product. 
"CPC 83202" 
7.1331  The inclusion of the phrase "and (CPC 83202)," is  a rather terse addition to China's sector 
entry, consisting only of a numerical reference.  It points to a specific category of the CPC which 
reads as follows:  
"83202  Leasing or rental services concerning video tapes Renting or hiring services concerning pre-recorded video cassettes for use in home 
entertainment equipment, predominantly for home entertainment."  
7.1332  The Panel notes that the CPC definition explic itly refers to "video cassettes", which are 
clearly physical products.  Since the term "videos" is stated to "include" CPC 83202, "videos" must 
include "video cassettes", and hence the physical pr oduct.  Thus, the reference to CPC 83202 suggests 
that China's entry on "video, including entertainment software and (CPC 83202), distribution 
services" must cover at least some  services related to physical produc ts.  Both parties consider that 
this is the case.  We further observe that the CPC was published in 1991, before VCDs and DVDs 
existed.  Noting that VCDs and DVDs are video reco rding media that have repl aced video tapes in the 
market, it is reasonable to assume that CPC 83202 applies to VCDs and DVDs as well.   
7.1333  The Panel reaches the preliminary view, based on an examination of the ordinary meaning 
largely as reflected in dictionary and other defin itions, that the terms "videos" and "entertainment 
software" refer primarily to intangible content, but can refer also, in a colloqu ial sense, to the content 
as embedded in a physical product such as a video cassette, VCD or DVD.  Viewed in light of the 
reference to "CPC 83202", we would consider that th e terms "videos" and "entertainment software" in 
China's Schedule would include services related to th e physical product.  To reach a more definitive 
view, however, we need to proceed further and l ook at the context in which these words are used. 
"distribution services" 
7.1334  With respect to the meaning of "distribution services" in China's entry, we note that the 
parties consider that it covers at least the wholesale and retail of physical products.  Both parties are 
also of the view that rental or leasing of video tapes referred to in CPC 83202 is covered by China's 
                                                     
 
728 Shorter Oxford Dictionary,  5th ed. (Clarendon Press 2002), Vol. I., p. 936. WT/DS363/R 
Page 392  
 
  sectoral entry.
729  We note that China's entry reads "Videos, including  … (CPC 83202), distribution 
services".  The use of the term "including" would indi cate that the rental of video tapes is part of 
video distribution.  In our view, this suggests a br oad scope for "distribution services" in the context 
of this specific entry. 
7.1335  We do not think that the fact that the terms "including (...) CPC 83202" follow the term 
"videos" rather than the term "distribution ser vices" should be interpreted to mean that CPC 83202 
serves only to qualify the type of "videos" that are distributed.  Rather, the inclusion of CPC 83202 in our view means that the service of renting and leasing forms part of the sectoral entry, and both parties agree on this.  However, unlike China, we think that the use of the term "including" (instead of, say, "as well as") means that the activity of leasi ng or rental is comprised within the meaning of 
"Videos (...) distribution services" in this entry.
730   
7.1336  The Panel recalls that the issue before it is  whether the activities subject to the claim – 
wholesale, retail and rental of hard-copy AVHE products – are covered by the entry under 
Audiovisual Services in China's Schedule. While ther e may be different definitions of "distribution 
services", a common activity in the distribution of go ods is reselling, and the most common forms of 
reselling of goods are wholesale and retail.  To the extent that physical products are covered by the 
entry under Audiovisual Services in China's Schedule, the term "distribution services" covers at least 
wholesale and retail.  The reference to CPC 83202 in the entry indicates that the lease or rental of 
video tapes is also within the scope of the entr y.  This suggests that China's entry on "videos, 
including entertainment software and (CPC 83202) , distribution services" does cover the services at 
issue. 
Preliminary view based on ordinary meaning  
7.1337  Based on an analysis of the ordinary meaning of the main terms in China's commitment, we 
take the preliminary view that the distribution of AVHE products is within the sectoral coverage listed 
by China under "videos, includi ng entertainment software and (CPC 83202), distribution services" 
that appears under the sectoral heading of Audiovisu al Services in China's Schedule.  We will now 
analyse whether the contextual elements alter our  reading of the scope of this committed sector. 
Context  
7.1338  We recall that the principles of treaty interpretation direct us to consider the ordinary meaning 
of treaty terms "in their context", and we turn next to consider the context provided by other elements 
in China's Schedule. 
Market access entries 
7.1339  The Panel observes further that, in the mark et access column under Audiovisual Services, 
China has inscribed the following: 
"Upon accession, foreign services suppliers w ill be permitted to establish contractual 
joint ventures with Chinese partners to engage in the distribution of audiovisual 
                                                      
729 However, the parties disagree on whether the rental or leasing of video tapes referred to in CPC 
83202 is part of "distribution services" in Sector 2.D, or is a distinct activity.  That said, they both agree that the 
sectoral entry as a whole covers both rental-leasing as  well as reselling.  See parties' responses to question 
No. 242, as well as the parties' comments on each other's responses to that question.   
730 In Canada — Autos , the panel found that a sectoral entry mentioning only "retailing" did not limit 
the scope of a CPC reference in the same entry that included "wholesale trade" (Panel Report on Canada – 
Autos , para. 10.278-10-282).  This, in our view, underscores the significance of entering a CPC category in a 
Schedule.  WT/DS363/R 
 Page 393 
 
 
  products, excluding motion pictures, without prejudice to China's right to examine the 
content of audio and video products ( see footnote 1)." (footnote omitted) 
7.1340  This limitation introduced by China in its Schedul e refers to the distribution of "audiovisual 
products".  Examining the dictionary  meaning of the term "product", we  note that it refers generally to 
"a thing produced".731  In a trade sense, it is defined as "an article or substance that is manufactured or 
refined for sale (more recently also applied to services)".732  We deduce that the term "product" can 
therefore be a good or a service, depending on the context in which it is used.  Part of the context is the CPC, on the basis of which document W/120 was drawn up, and to which many Members 
including China make reference in their schedules,  is about "products", and these include both goods 
and services.  Turning to the term "audiovisual", we note that it is a composite of "audio" and 
"visual", meaning that it pertains to sound and vision.
733  The term "audiovisual products" as used by 
China to indicate a market access limitation, may theref ore refer to goods with audio or video content, 
as well as to audiovisual services – that is, activities related to audiovisual content. 
Distribution Services (Sector 4 of China's Schedule) 
7.1341  The Panel notes that China's commitments unde r Distribution Services in Sector 4 of its 
Schedule cover the distribution of all goods (that is ,  physical products), except salt and tobacco for 
wholesale, and tobacco for retail.  Accordingly, commitments on the wholesale and retail of audiovisual products in physical form might at first sight be interpreted as being covered under 
Distribution Services in Sector 4, rather than Audiovis ual Services in Sector 2.D, of China's Schedule.  
As we have discussed earlier, these commitments cannot fall under both sectors at once.
734 
7.1342  Accordingly, we find that commitments on th e wholesale and retail of physical audiovisual 
products could fall either under Audiovi sual Services (Sector 2.D.) or Distribution Services (Sector 4)  
in China's Schedule, but not both.  In resolving this  interpretative issue, we note at the outset that the 
commitment at issue – "Videos, including ente rtainment software and (CPC 83202), distribution 
services" – is not, as a whole, referenced to a CPC number.  Nor does the commitment correspond to 
any sub-category under "Audiovisual Services" in document W/120, although the same sector heading 
is used.   
7.1343  We now examine more closely the nature of China's commitments under Distribution 
Services (including explanations referenced in Anne x 2) in Sector 4 of China's Schedule.  These 
commitments seem to cover, in principle, the distri bution of all goods.  The sectoral entries appearing 
under Distribution Services (Commission Agents' Services, Wholesale Trade Services, Retailing 
Services, Franchising and Wholesale or Retail Tr ade Services Away from a Fixed Location) do not 
specify the nature of the goods the distribution of wh ich is subject to a commitment.  By contrast, in 
document W/120 the nature of the goods that are di stributed is specified by including CPC numbers 
of particular physical products.  China has not  included CPC numbers nor otherwise specified under 
the Distribution Services sector of its schedule the nature of the products for which it has made distribution commitments.  That said, China has, in  some cases, made specific reference to the 
coverage of certain products unde r Distribution Services.  Tobacco, for example, is excluded from 
China's commitment on retailing services.   China al so indicates, in Annex 2 of its Schedule that 
"(d)istribution services are generally covered by CP C 61, 62, 63 and 8929".  This suggests to us that, 
while China's commitments in Distribution Services sector appear to cover generally the distribution 
of all goods (except those expressly excluded), at the same time, they do not explicitly indicate 
whether the distribution of goods such as audiovisual products are covered under that sector.   
                                                     
 
731 Oxford English DictionaryOnline , available at http://dictionary.oed.com/entrance.dtl. 
732 Ibid. 
733 Oxford English DictionaryOnline , available at http://dictionary.oed.com/entrance.dtl. 
734 See paragraphs 7.1197, 7.1198 and 7.1205.   WT/DS363/R 
Page 394  
 
  7.1344  We next look at China's commitments under the heading of Audiovisual Services in China's 
Schedule.  In view of the reference to the CPC wh ich brings in video cassettes, China's commitments 
under Audiovisual Services might be viewed as provi ding a more particular and specific treatment of 
commitments with respect to the distribution of audiovi sual goods.  For this reason, it is possible that 
the commitments under Audiovisual Services are inte nded to cover the distribution of the physical 
audiovisual products at issue.  We note that both pa rties agree on this interpretation.  However, as we 
observed above, the coverage of the entry "Video s, including entertainment software and (CPC 
83202), distribution services" may be wider in scope than the distribution of audiovisual products in 
physical form. 
Other sub-sectors within Sector 2.D. 
7.1345  In order to provide further context for the meaning of China's entry on "Videos, including 
entertainment software and (CPC 83202), distributio n services", we now examine the two other sub-
sectors that China has inscribed under Audiovisual  Services – "Sound recording distribution services" 
and "Cinema Theatre Services".  We have found in paragraph 7.1265 that  the scope of "Sound 
recording distribution services" extends to the distribution of non-physical products, and did not 
exclude that the distribution of physical products was also covered, although this last aspect was not 
the subject of the claim.  With respect to "Cin ema Theatre Services", we note that the term is 
undefined in China's Schedule.  It would logically in clude the core activity of cinemas, which is the 
projection of motion pictures mentioned in document  W/120, but would seem broader than that.  The 
wording of China's limitations on market access under mode 3 for this sector indicates that "Cinema Theatre Services" include also certain  construction/ren ovation activities: 
"Upon accession, foreign services suppliers will be permitted to construct and/or 
renovate  cinema theatres, with foreign investment no more than 49 per cent." 
(emphasis added) 
7.1346  The construction/renovation services mentioned in this limitation are however classified in 
document W/120 under Construction Services (Sector 3), not under Audiovisual Services (2,D.).  This 
entry shows that China has chosen, with reference to the classification system generally utilized by 
Members in document W/120), to extend the sc ope of services activities coming within the 
audiovisual sector.  It has done for "Cinema Theatre Services" what it has done for "Videos, including 
entertainment software and (CPC 83202), distribu tion services".  In both cases, China has broadened 
the range of audiovisual services beyond those core services related to "content", to include related 
activities that would normally fall in other sectors in document W/120.  
7.1347  The entry for "Cinema Theatre Services" shows that, like in the case of "Videos, including 
entertainment software and (CPC 83202), distribu tion services", China's Schedule contains services 
commitments that at first sight appear to overl ap.  As noted in paragraph 7.1196, the service of 
constructing cinemas is found, in the CPC, in category 51250.  We already pointed out that China's commitments on construction services (Sector 3 in it s Schedule) contain a specific reference to CPC 
512, which itself contains CPC 51250.  At the same time, in light of the specific reference in the 
market access column, the commit ment on "Cinema Theatre Services"  could also be understood to 
cover the construction of cinemas.  In these cases, a panel needs to determine which entry represents a 
the actual commitment on the relevant services.  This  suggests that China intended in its Schedule to 
group everything to do with audiovisual activities under one heading, supporting the view that "Videos (...) distribution services" is intended to  cover the distribution of physical products. 
Object and purpose
 
7.1348  As we have done previously with respect to China's commitment on "Sound recording 
distribution services", we now verify whether our  interpretation of China's commitment on "Videos  WT/DS363/R 
 Page 395 
 
 
  (...) distributions services" is consistent with the object and purpose of the GATS.  As before, we note 
that the Preamble of the GATS indicates that the Agreement is aimed, inter alia , at establishing "a 
multilateral framework of principles and rules for tr ade in services with a view to the expansion of 
such trade under conditions of transparency and pr ogressive liberalization".  In the light of this 
general object and purpose, the Preamble also provides that commitments negotiated under the 
Agreement should aim at "securing an overall ba lance of rights and obligations" between the 
Members.  We find that our interpretation of China's commitment on "Videos (...) distribution services" is consistent with this object and purpose. 
(ii) Conclusion 
7.1349  We have examined the meaning of China's co mmitment on "Videos, including entertainment 
software and (CPC 83202), distribution services" inscr ibed under Audiovisual Services in China's 
Schedule, based on its ordinary mean ing, in its context, and in light of the object and purpose of the 
GATS.  Based on this analysis, we conclude that China's commitment covers the services at issue – 
the wholesale, retail and rental of physical AVHE pr oducts.   Noting that the parties agree with this 
interpretation, and have not referre d to other means of interpretation to support this view, we do not 
consider there is a need to turn to a separate examination of supplementary means of interpretation 
under Article 32 of the Vienna Convention.  
(b) Whether the measures at issue are inconsiste nt with China's market access commitments 
(Article XVI) 
7.1350  The United States  challenges four measures under this claim.  According to the United 
States, each contains a limitation on the participati on of foreign capital in contractual joint ventures 
engaging in the distribution of AVHE products, inc onsistent with Article XVI:2(f) of the GATS.  
More specifically, the United States points to Article 8 of the Audiovisual (Sub-)Distribution Rule , 
Article VI:3 of the Catalogue of Industries with Restricted Foreign Investment in the Catalogue , 
Article 8 of the Foreign Investment Regulation , and Article 1 of the Several Opinions . 
7.1351  China rejects the US allegation, contending that the US translation and interpretation of the 
relevant provisions in the measures at issue are in correct.  According to China, these provisions refer 
to the rate of profit and loss allocation between Chinese and foreign partners in contractual joint 
ventures, and not to the participation of foreign cap ital.  China argues that since a requirement on the 
rate of profit and loss allocation is not am ong the six types of market access measures under 
Article XVI of the GATS, the measures at issue are not inconsistent with Article XVI. 
(i) Requirements of Article XVI:2(f) 
7.1352  The Panel observes that the market access commitments  by China with respect to the services 
at issue are governed by Article XVI of the GATS, which states in relevant part: 
"1. With respect to mark et access through the modes of supply identified in 
Article I, each Member shall accord se rvices and service suppliers of any other 
Member treatment no less favourable than  that provided for under the terms, 
limitations and conditions agreed and specified in its Schedule. 
2. In sectors where market-access comm itments are undertaken, the measures 
which a Member shall not maintain or adopt either on the basis of a regional 
subdivision or on the basis of its entire te rritory, unless otherwise specified in its 
Schedule, are defined as: 
 ... WT/DS363/R 
Page 396  
 
   (f) limitations on the participation of foreign capital in terms of maximum 
percentage limit on foreign share holding or the total value of individual or aggregate 
foreign investment." (original footnotes omitted) 
7.1353  Paragraph 1 of Article XVI sets out the general principle that a Member must accord to 
services and service suppliers of other Members tr eatment no less favourable than that specified under 
the "terms, limitations and conditions " contained in its schedule.  Para graph 2 is more specific.  It 
defines, in six sub-paragraphs, the measures th at a Member, having inscribed a specific sectoral 
commitment, must not adopt or maintain "unless othe rwise specified in its Schedule".  The six types 
of measures form a closed or exhaustive list, as indicated by the wording of the chapeau to 
paragraph 2 ("the measures … are defined as").  Under Article XVI, a Member undertakes a minimum 
standard of treatment, and is thus free to maintain a market access regime less restrictive than set out 
in its schedule, as confirmed in paragraph 1 whic h refers to a standard of "no less favourable" 
treatment.  Of the six types of measures listed in Article XVI:2, only sub-para graph (f), on limitations 
on the participation of foreign capital, has been inv oked by the United States and is relevant to this 
claim. 
7.1354  The wording of Article XVI indicates that we mu st next examine the precise terms of China's 
Schedule to determine whether, with respect to the services at issue, there is a market access 
commitment and, if so, what are the "terms, limita tions and conditions" entere d with respect to those 
commitments.  We proceed to do so.  
Extent of China's commitments on ma rket access for the services at issue
 
7.1355  The Panel notes that in the market access colu mn under Audiovisual Services (Sector 2.D), 
China has inscribed this limitation: 
"Upon accession, foreign services suppliers w ill be permitted to establish contractual 
joint ventures with Chinese partners to engage in the distribution of audiovisual 
products, excluding motion pictures, without prejudice to China's right to examine the content of audio and video products (see footnote 1)." 
7.1356  This inscription states that foreign service supplie rs are allowed to engage in the distribution 
of audiovisual products, limited however to the est ablishment of contractual joint ventures.  In the 
Panel's view, this limitation falls unde r Article XVI:2(e), which refers to "measures which restrict or 
require specific types of legal entity or joint venture through which a service supplier may supply a service".   A footnote to China's market access limit ation refers to yet another footnote in the 
horizontal section of China's Schedule.  The horizonta l section, together with the referenced footnote, 
describe further characteristics of permissibl e joint ventures, which we now examine. 
7.1357  China's horizontal market acc ess commitment under mode 3 describes three permissible 
forms of foreign-invested enterprise – foreign capita l enterprises (also referred to as wholly foreign-
owned enterprises), equity joint ventures and contract ual joint ventures.  For contractual joint ventures 
– the relevant form under this claim – footnote 1 of China's horizontal commitments states: 
"The terms of the contract, concluded in accordance with China's laws, regulations 
and other measures, establishing a "contractual joint venture" govern matters such as the manner of operation and management of the joint venture as well as the investment or other contributions of the joint venture parties.  Equity participation by 
all parties to the contractual joint venture is  not required, but is determined pursuant 
to the joint venture contract ." (emphasis added)  WT/DS363/R 
 Page 397 
 
 
  7.1358  Footnote 1 of China's horizontal commitments states unequivocally that "[e]quity 
participation by all parties to the contractual joint venture is not required, but  is determined pursuant 
to the joint venture contract."  It is evident that  China's entry neither requires nor sets any particular 
limit on foreign equity participation in a contractual joint venture, leaving that issue to be negotiated 
by the parties to the joint venture contract. 
7.1359  We note that China has made other horizont al market access and national treatment 
commitments for commercial presence.  These refe r to branches, representative offices, existing 
agreements and licences, land usage, and existing subs idies.  The parties have not referred to these 
other horizontal limitations, and we do not c onsider them relevant to this claim. 
7.1360  We observe that the wording of China's commi tments, with respect to market access through 
commercial presence in Audiovisual Services, incl uding applicable horizontal commitments, indicates 
no explicit "limitation on th e participation of foreign equity" in  the sense of Article XVI:2(f).  We 
recall that Article XVI:2(f) stipulates that any such limitations must be "in terms of maximum 
percentage limit on foreign share-holding or the to tal value of individual or aggregate foreign 
investment".  Thus, limitations within the meaning of Article XVI:2(f) would ne ed to take one of two 
forms:  (1) a maximum percentage of capital that can be  held by foreign investors;  or (2) a total value 
of foreign investment, either by an individual inv estor or foreign investors as a whole.  Thus, China 
has committed to allow foreign service suppliers to  establish contractual joint ventures to distribute 
AVHE products, but in doing so has not inscribed in  its Schedule, either under Audiovisual Services 
or in the horizontal section, any form of limitation on the level of foreign equity  participation in these 
contractual joint ventures. 
(ii) The measures at issue 
7.1361  The Panel  will now examine each of the four measures at issue to determine whether they 
constitute "limitations on the partic ipation of foreign capital", within  the meaning of Article XVI:2(f) 
of the GATS, in contractual joint ventures engaging,  through commercial presence, in the distribution 
of AVHE products. 
Audiovisual (Sub-)Distribution Rule (Article 8.4)  
7.1362  The United States  claims that Article 8.4 of the Audiovisual (Sub-)Distribution Rule  is 
inconsistent with China's mark et access obligations under Artic le XVI:2(f) of the GATS because it 
contains a limitation on foreign equi ty participation that is not set out in China's Schedule.  The 
United States translates this provision as: 
"The Chinese co-operator shall hold no less than 51 % equity  in the contractual joint 
venture."  (emphasis added) 
7.1363  China contends that the US translation is incorr ect and that the proper translation of this 
provision should be:  
"The Chinese co-operator shall hold no less than 51 % rights and interests  in the 
contractual joint venture." (emphasis added) 
7.1364  China submits that, in accordance with the  2000 Chinese-Foreign Contractual Joint Venture 
Law, the distribution of profit and allocation of loss in  a contractual joint vent ure is not dependent on 
the ratio of equity participation,  but is determined by the parties in the joint venture contract.  
Referring to footnote 1 of China's Services Schedule,  China indicates that equity is not a required 
term in contractual joint venture.  According to Chin a, when the reference to "rights and interests" is 
made for contractual joint ventures, it does not mean equity participation but share of the profits and WT/DS363/R 
Page 398  
 
  losses.   China therefore maintains that Article 8.4 of the Audiovisual (Sub-)Distribution Rule  refers to 
a limitation on the allocation of profits and losses, wh ich is not inconsistent with Article XVI of the 
GATS.  
7.1365  The United States  responds that Article 8.4 of the Audiovisual (Sub-)Distribution Rule  does 
not contain any textual basis for "profit a nd loss".  Regarding China's reliance on the 2000  Chinese-
Foreign Contractual Joint Venture Law , the United States contends that this law does not negate the 
existence of those other measures identified by the United States, which explicitly provide for a 
limitation on the participation of foreign capita l in contractual joint ventures engaging in the 
distribution of AVHE products.  As to China's re liance on footnote 1 of its Services Schedule, the 
United States points out that it is not alleging a requirement of equity participation, but the limitation 
on the foreign partner's equity par ticipation when it chooses to invest  equity in a contractual joint 
venture.  The United States submits that the term "r ights and interests" is so broad that a limitation 
cast in these terms would appear to be a limitation on every aspect of a foreign firm's participation in the contractual joint venture, including equity, shareholding, and total investment, not just profit.  The United States maintains that China's alternative translation does not support its contention that 
participants in contractual joint ventures are lim ited only in the percentage of profits and losses 
attributed to them. 
7.1366  The Panel  notes at the outset that the parties disagr ee on the proper translation of the original 
Chinese term Quan Yi  appearing in Article 8.4 of the Audiovisual (Sub-)Distribution Rule .  While the 
United States submits that it should be translat ed as "equity", China contends that the proper 
translation of the term should be "rights and interests".  We observe however that the parties do not 
dispute the literal translation of the term Quan Yi  as such.  They agree that Quan Yi  could be 
translated as "rights and interests", since Quan  could mean "rights" and Yi could mean "interests".
735  
This literal translation is confirmed by  the Panel's independent translator.736  What the parties 
fundamentally disagree on is the proper interpretation of this term in the context of Article 8.4 of 
Audiovisual( Sub-)Distribution Rule,  which would determine the cons istency of the provision with 
Article XVI of the GATS. 
7.1367  With respect to the burden of proof in this ma tter, we consider that a party that advances a 
particular legal interpretation of a measure of a Member bears the burden of demonstrating that its 
interpretation is correct.737  This is consistent with the genera l principle whereby the burden of proof 
rests upon the party, whether complaining or defendi ng, which asserts the affirmative of a particular 
claim or defence. 
7.1368  In interpreting the wording of Article 8.4 of the Audiovisual( Sub-)Distribution Rule , both 
parties refer to the terms of the 2000 Chinese-Foreign Contractual Joint Venture s Law.  The 
Audiovisual (Sub-)Distribution Rule  was issued in part based on the 2000 Chinese-Foreign 
Contractual Joint Venture s Law,738 and applies to Chinese-foreign c ontractual joint ventures engaging 
in the distribution of audiovisual products established in China.739 
7.1369  We recall that a contractual joint venture is one  of two permissible forms of joint venture in 
China, the other being equity joint venture.  We note that an equity joint venture is required to take the 
form of a limited liability company where the pa rties shall share the profits, risks and losses in 
                                                      
735 See the United States' and China' s comments on translation issues. 
736 According to the Panel's independent translator, while noting that the term "Quanyi" is given both 
"equity" and "rights and interests" in certain Chinese dic tionaries, there is no compelling reason to depart from 
the more liberal rendering which is "rights and interests". 
737 Appellate Body Report on US – Carbon Steel , para. 157. 
738 Audiovisual (Sub-)Distribution Rule , Article 1 (Exhibit US-18). 
739 Audiovisual (Sub-)Distribution Rule, Article 2 (Exhibit US-18).  WT/DS363/R 
 Page 399 
 
 
  proportion to their respective contribution to the registered capital.740  There are no such legal 
requirements on a contractual joint venture.  We note that a contractual joint venture need not have the status of a juridical person under Chinese law.
741 Article 2 of the 2000 Chinese-Foreign 
Contractual Joint Venture  Law states:  
"In establishing a contractual joint venture, the Chinese and foreign parties shall 
prescribe in their contractual joint venture c ontract such matters as the investment or 
conditions for cooperation, the distribution of earnings or products, the sharing of 
risks and losses, the manners of operation and management and the ownership of the 
property at the time of the termination of the contractual joint venture".   
7.1370  This is consistent with footnote 1 of China's Schedule, which states:  
"The terms of the contract, concluded in accordance with China's laws, regulations 
and other measures, establishing a "contractual joint venture" govern matters such as the manner of operation and management of the joint venture as well as the investment or other contributions of the join t venture parties.  Equity participation by 
all parties to the contractual joint venture is  not required, but is determined pursuant 
to the joint venture contract.".   
7.1371  Based on this evidence, we understand that the par ties to a contractual joint venture set out the 
investment and other conditions on cooperation, including those on the distribution of profits, in their contract establishing the joint venture.  In its answ er to a question from the Panel, China states that, 
according to Article 2 of the 2000  Chinese-Foreign Contractual Joint Venture Law , the share of the 
profits, risks and losses is not required to be in propo rtion to each party's contribution to the registered 
capital, but can be negotiated and prescribed in the contractual joint venture contract.
742  T h i s  
statement appears to us to be straightforward.  However, China then argues that Article 2 of the 2000 
Chinese-Foreign Contractual Joint Venture Law  and footnote 1 of China's Schedule shows that the 
"rights and interests" in Article 8.4 of the Audiovisual (Sub-)Distribution Rule  refer to profits.  We 
have asked China how, based on its own translation,  Article 8.4 can be understood as referring to the 
allocation of profits and losses in contractual joint ventures.  China explained as follows:  
"[E]quity participation in a contractual join t venture is not required.  When reference 
is made to rights and interests in the contractual joint venture, it does not mean equity participation but share of the profits, risks and losses as provided in Article 2 of the 2000  Chinese-Foreign Contractual  Joint Venture Law ." 
743   
7.1372  We note that China appears to argue as follows.  As a general matter, a limitation on "rights 
and interests" could be with respect to equity pa rticipation or share of profits.  But since equity 
participation is not legally require d in a contractual joint venture, the "rights and interests" in a 
contractual joint venture must refer to the share of  profits.  We are not persuaded by this line of 
argument. 
7.1373  In our view, the meaning of "rights and interests"  is broad enough to refer to investors' equity, 
shareholding, total investment, profits, and other right s and interests in an enterprise. As indicated in 
Article 2 of the 2000  Chinese-Foreign Contractual Joint Venture Law  and footnote 1 of China's 
Schedule, the parties to a contractual joint vent ure prescribe in the joint venture contract the 
investment and other conditions on cooperation, in cluding those on the distribution of profits.  In 
                                                      
740 Chinese-Foreign Equity Joint Venture Law , Article 4 (Exhibit CN-48). 
741 2000 Chinese-Foreign Contractual Joint Venture Law , Article 2 (Exhibit CN-49). 
742 China's response to question No. 227. 
743 China's response to question No. 228. WT/DS363/R 
Page 400  
 
  other words, the parties to a contractual joint ventur e determine their various "rights and interests" in 
the contract.  We understand the statement in China's Schedule that "equity participation by all parties 
to the contractual joint venture is not required" as m eaning that equity participation by all parties is 
not mandatory, and not that the joint venture contract cannot prescribe equity participation by all parties.  We therefore do not see how China has arri ved at the conclusion that for a contractual joint 
venture, a limitation on "rights and interests" cannot refer to equity participation but only to the 
distribution of profits. 
7.1374  We note that in asserting that Article 8.4 of the Audiovisual (Sub-)Distribution Rule  cannot be 
understood as a limitation on equity participation, China refers to the 2000  Chinese-Foreign 
Contractual Joint Venture Law .  China appears to argue that the 2000  Chinese-Foreign Contractual 
Joint Venture Law  would preclude other measures from pl acing limitations on equity participation 
because it provides that equity participation is determ ined by the joint venture contract.  We are not 
convinced by this argument, which appears to lack a textual basis.  We note that the distribution of 
profits in a contractual joint venture, like equity par ticipation, is also determined by the joint venture 
contract in accordance with the 2000 Chinese-Foreign Contractual Joint Venture Law .  China does 
not explain how Article 8.4 of the Audiovisual (Sub-)Distribution Rule  can place a limitation on the 
distribution of profits but not on equity participa tion.   We also note that Article 8.1 of the Audiovisual 
(Sub–)Distribution Rule  provides that a Chinese-foreign contractual joint venture engaging in the 
distribution of audiovisual products must have the st atus of a juridical person.  However, as observed 
above, the 2000  Chinese-Foreign Contractual Joint Venture Law  does not require that a contractual 
joint venture be a juridical person.  The parties to  a contractual joint venture may choose to establish a 
juridical person, or not, as they wish.  If the requireme nt for having the status of juridical person is not 
in contradiction with the 2000 Chinese-Foreign Contractual Joint Venture Law , we see no reason 
why in the same measure, Article 8.4 of the Audiovisual (Sub-)Distribution Rule  cannot limit equity 
participation.
744 
7.1375  We further take the view that "rights and inter ests" are abstract and unquantifiable, and that it 
is therefore counterintuitive to relate  a limitation of 51 per cent to this particular concept.  Further, the 
term Quan Yi  used in Article 8.4 of the Audiovisual(Sub-)Distribution Rule  can be translated in some 
senses as "equity", as confirmed by the Panel's indepe ndent translator.  As indicated by the United 
States, Quan Yi  is a compound term used in China's a ccounting system to mean "equity".  For 
example, Article 79 of the Accounting System provides that "owners' Quan Yi  is the economic interest 
in the assets of an enterprise attributable to the ow ners.  The amount is the balance of assets after 
deducting all liabilities."  Article 26 of the Accounting Standards provides that "owners' Quan Yi  is 
the residential interest in the assets of an  enterprise after deducting all its liabilities".  
7.1376  Based on the preceding analysis, we find that Ch ina has failed to rebut the interpretation of 
Article 8.4 of the Audiovisual (Sub-)Distribution Rule  advanced by the United States – namely, that 
the Chinese joint venture partner should hold no less than 51% of any equity in a contractual joint 
venture engaging in the distribution of audiovisual products.  Given this interpretation of the Chinese 
measure, we find that the United States has demonstrated that Article 8.4 of the Audiovisual 
(Sub-)Distribution Rule  contains a "limitation on the foreign equity participation in terms of 
maximum percentage limit on foreign share holding"  under Article XVI:2(f) of the GATS, contrary to 
China's commitments in its Schedule for the services at issue. 
                                                      
744 The contractual joint venture contract submitted by China as an example shows that the joint 
venture is a limited liability company (Exhibit CN – 107).  We note that Article 35 of China's 2005 Company 
Law provides that in the limited liability company, "the shareholders shall distribute dividends in light of the 
percentages of capital contributions actually made by them, unless all shareholders agree that the dividends are 
not distributed on the percentages of capital contributions".  WT/DS363/R 
 Page 401 
 
 
  Catalogue  (Article VI:3) and Foreign In vestment Regulation (Article 8)  
7.1377  The United States  claims also that Article VI:3 of the Catalogue of Industries with Restricted 
Foreign Investment in the Catalogue, and Article 8 of the Foreign Investment Regulation  are 
inconsistent with Article XVI of the GATS.  According to the United States, these two measures place a limit on foreign equity participation, within the meaning of Article XVI:2(f), on service suppliers of 
other Members, contrary to China's commitments in  its Schedule.  The United States points out that 
Article VI:3 of the Catalogue of Industries with Restricted Foreign Investment in the Catalogue reads: 
"Sub-distribution of audiovisual products  (excluding motion pictures) limited to 
contractual joint ventures where the Chinese partner holds majority share ." (emphasis 
added) 
7.1378  According to the United States, this pr ovision is defined by Article 8 of the Foreign 
Investment Regulation , which states that the reference in the Catalogue   
"'have the Chinese party hold majority share'  means the total proportion of investment 
of the Chinese investor in the foreign-invested project is 51% and above " (emphasis 
added) 
7.1379  China contends that the US translation of the a bove provisions is incorrect.  According to 
China, Article VI:3 of the Catalogue  should be translated as: 
 "Distribution of audiovisual products (excluding motion pictures) (limited to 
contractual joint ventures where the Chinese partner holds controlling interest )." 
(emphasis added) 
7.1380  China submits further that Article 8 of the Foreign Investment Regulation  should be translated 
as:  
"Have the Chinese party hold majority share/interest  means the total proportion of 
investment of the Chinese investor in  the foreign-invested projects is 51% and 
above ." (emphasis added) 
7.1381  Repeating its reference to Article 2 of the 2000 Chinese-Foreign Contractual Joint Venture 
Law and footnote 1 of its Schedule, China maintains: 
"When the term of 'majority of the shares' is used for equity joint ventures, it refers to 
majority of equity interest, i.e. contributi on to the registered capital.  When the term 
of 'majority of the shares' is used for contr actual joint ventures, it refers to majority of 
ratio in the share of the profits, risks and losses."
745 
7.1382  The United States  rejects China's argument, contending that Article 8 of the Foreign 
Investment Regulation  governs the translation of Article VI:3 of the Catalogue  and supports the US 
translation.  The United States notes that Article 8 of the Foreign Investment Regulation  indicates that 
the total proportion of investment of the Chinese i nvestor in the foreign-invested projects is 51 per 
cent and above. 
7.1383  The Panel notes that the parties differ on the correct  translation and interpretation of the 
Chinese term Kong Gu  contained in Article VI:3 of the Catalogue . The United States submits that it 
should be translated as "hold majority share", while  China contends that the accurate translation is 
                                                      
745 China's response to question No. 227. WT/DS363/R 
Page 402  
 
  "hold controlling interest".  The Panel's independent translator, on the other hand, states that the 
Chinese term "Kong Gu" literally refers to "hold a c ontrolling number of shares" and that there is no 
indication that control necessarily requires a majority  According to China, sh ares are used in a joint 
stock company whose equity is divided into certain number of shares.  China argues that the concept 
of "shares" is not applicable to contractual join t ventures because equity is not a requirement in a 
contractual joint venture. 
7.1384  We note that the United States argues that Article VI:3 of the Catalogue  imposes a limitation 
on foreign equity participation in the contractual joint venture, while China contends that this 
provision refers to a limitation on the allocation of prof its and losses.   China refers again to Article 2 
of the 2000  Chinese-Foreign Contractua l Joint Venture Law  and footnote 1 of its Schedule to support 
its position.  
7.1385  We are not however convinced by China's argu ment.  China fails to show how, based on its 
translation of Article VI:3 of the Catalogue , the provision refers to a limitation on the allocation of 
profits and losses.  As noted above in our discu ssion on "rights and interests", the meaning of 
"interest" is very broad, and may encompass invest ment, shareholding, profits and other interests.  
Moreover, as also explained, we do not consider that the 2000  Chinese-Foreign Contractual Joint 
Venture Law precludes other measures from imposing a lim itation on equity participation in the 
contractual joint venture.  Further, we are not pe rsuaded by China's contention that "shares" can be 
used only in a joint stock company.  
7.1386  We recall our previous observation that the Foreign Investment Regulation  incorporates the 
Catalogue  by reference and gives legal effect to it.  The interpretation of Article VI:3 of the 
Catalogue  should therefore be consistent w ith the relevant provisions in the Foreign Investment 
Regulation, which is Article 8.  We note that the pa rties do not differ fundamentally on the proper 
translation of Article 8, which states: 
"The Catalogue  of Industries for Guiding Foreign Investment may provide that 
foreign-invested projects 'are restricted to Chinese-foreign equity joint ventures and 
contractual joint ventures', 'have the Chinese party hold majority share', or 'have the 
Chinese party hold relative majority share'. 
'Restricted to Chinese-foreign equity joint ventures and contractual joint ventures' 
means these are the only forms allowed.  'have the Chinese party hold majority share' 
means the total proportion of investment of the Chinese investor in the foreign-
invested projects is 51% and above . 'have the Chinese party hold relative majority 
share' means the total proportion of investme nt of the Chinese investor in the foreign-
invested projects is larger than the proportion of any one foreign investor."
746 
(emphasis added) 
7.1387   We note that, according to this provision, "h ave the Chinese party ho ld majority share" 
(China's translation: "have the Chinese party hold  majority share/interest") means that the total 
proportion of investment of the Chinese investor in the foreign-invested projects is 51% and above.  
Since this definition is not textually limited, it a pplies to both equity joint ventures and contractual 
joint ventures. We note that China does not contest the US argument that Article 8 of the Foreign 
Investment Regulation  provides guidance on the interpretation of Article VI:3 of the Catalogue . 
7.1388  Reading Article VI:3 of the Catalogue  in light of Article 8 of the Foreign Investment 
Regulation , we consider that Article VI:3 is prope rly understood as limiting the distribution of 
                                                      
746 This is the text submitted by the United States.  China does not submit a text of this measure, only 
the translation of the part of Article 8 cited above.  WT/DS363/R 
 Page 403 
 
 
  audiovisual products (excluding motion pictures) to contractual joint ventures in which the Chinese 
party holds a "majority share", meaning that the Chinese party must hold a minimum of 51% of the 
investment.  We find therefore that Article VI:3 of the Catalogue , in conjunction with Article 8 of the 
Foreign Investment Regulation,  is inconsistent with China's co mmitments under Article XVI:2(f) of 
the GATS since these provisions together constitute a " limitation on the foreign equity participation in 
terms of maximum percentage limit on foreign share holding" within the meaning of that provision. 
Several Opinions  (Article 1)  
7.1389  The United States  claims that Article 1 of the Several Opinions  is inconsistent with 
Article XVI of the GATS because it only permits fore ign-invested enterprises to engage in the sub-
distribution of audiovisual pr oducts (excluding motion pict ures) through a Chinese-foreign 
contractual joint venture if the Chinese party holds a majority of the shares.  The United States points 
to Article 1 of the Several Opinions  which provides, according to the US translation: 
"Under the condition where the right of ou r country to examine the content of 
audiovisual products is not harmed, fore ign investors are permitted to set up 
enterprises for the sub-distribution of audiovisual products, with the exception of 
motion pictures, in the form of Chinese-foreign contractual joint ventures where the 
Chinese partner holds the dominant position ".  (emphasis added) 
7.1390   China  does not provide any specific response to th is US argument.  At the request of the 
Panel, China provided its translation of Article 1 of the Several Opinions  as follows: 
"Under the condition where the right of ou r country to examine the content of 
audiovisual products is not harmed, fore ign investors are permitted to set up 
enterprises for the distribution of audiovis ual products, excluding motion pictures, in 
the form of Chinese-foreign contractual joint ventures where the Chinese partner 
holds a dominant position ". (emphasis added) 
7.1391  The Panel , for the purposes of this claim, sees no significant difference between the 
translations of the two parties.  The United States argues that Article 1 of the Several Opinions 
confirms the meaning of Article VI:3 of the Catalogue  and Article 8 of the Foreign Investment 
Regulation , namely that the Chinese party to a contractual joint venture engaging in the sub-
distribution of audiovisual products must hold a majority of shares.  The United States appears to suggest that holding "the dominant position" in a co mpany means holding a majority of the shares of 
the company.  In resolving this interpretative issue, we note that that the United States bears the 
burden of demonstrating that its in terpretation of Article 1 of the Several Opinions is correct.  As the 
Appellate Body in US – Carbon Steel  stated: 
"[A] responding Member's law will be tr eated as WTO-consistent until proven 
otherwise.  The party asserting that anot her party's municipal law, as such, is 
inconsistent with relevant treaty obligati ons bears the burden of introducing evidence 
as to the scope and meaning of such law to substantiate that assertion."
747 
7.1392  In assessing this interpretative issue, we note th at "holding a dominant position" suggests that 
one has a "controlling" position in an entity, while "holding a majority of shares" means simply that one must hold over 50% of the shares.  These notions are not the same.  In an entity in which shares 
are owned by a number of different persons, a single shareholder may, due to the dispersal of ownership interests, have a "dominant position" while holding far fewer than 50 per cent of the 
                                                     
 
747 Appellate Body Report on US – Carbon Steel , para. 157. WT/DS363/R 
Page 404  
 
  shares.  Thus "holding a dominant position" does not necessarily imply "holding a majority of shares" 
in an entity.   
7.1393  We note in this respect that the GATS, in its origin rules for service suppliers of another 
Member, makes a similar distinction between owners hip and control of an entity.  According to 
Article XXVIII(n), a juridical person is "owned" by persons of a Member if more than 50 per cent of 
the equity interest in it is beneficially owned by persons of that Member, while a juridical person is 
"controlled" by persons of a Member if such pers ons have the power to name a majority of its 
directors or otherwise to legally direct its actions.  
7.1394  We consider therefore that the United States h as not advanced sufficien t evidence to establish 
that "holding a dominant position" in Article 1 of the Several Opinions  refers to "holding a majority of 
shares".  It has not been able to show that this  provision constitutes a "limitation on foreign equity 
participation" in the form either of "the maximum percentage of capital that can be held by foreign 
investors" or "the total value of foreign investme nt either by an individual investor or foreign 
investors as a whole", as required under Article XVI: 2(f) of the GATS.  The United States has failed 
to meet its burden of establishing that Article 1 of the Several Opinions  imposes a limitation in the 
form specified in Article XVI:2(f), inconsistently with China's commitments on the services at issue. 
(iii) Conclusion 
7.1395  We recall that we have found that the distribu tion of AVHE products is covered by China's 
commitments under the heading "Videos, incl uding entertainment software and (CPC 83202), 
distribution services" in Sector 2.D. of China's Se rvices Schedule.  We have further found that China 
has not inscribed in its Services Schedule any limits  on the level of foreign equity participation in 
contractual joint ventures engaging in the distribu tion of AVHE products.  Since we have found that 
Article 8.4 of the Audiovisual (Sub-)Distribution Rule  contains a limitation on the participation of 
foreign capital in contractual joint ventures enga ging in the distribution of AVHE products, which 
falls within the scope of Article XVI:2(f) of the GATS, we have concluded that this provision is 
inconsistent with China's ma rket access commitments under Article XVI of the GATS. 
7.1396  We have also found that Article VI:3  of the Catalogue of Industries with Restricted Foreign 
Investment in the  Catalogue, in conjunction with  Article 8 of the  Foreign Investment Regulation,  
contains a limitation on the participation of foreig n capital in contractual joint ventures engaging in 
the distribution of AVHE products, which also fall s within the scope of Article XVI:2(f) of the 
GATS.  Therefore, we arrive at the conclusion that Article VI:3  of the Catalogue of Industries with 
Restricted Foreign Investment in the  Catalogue, in conjunction with  Article 8 of the  Foreign 
Investment Regulation , also falls within the scope of Article XVI:2(f) of the GATS, and that these 
provisions together are inconsistent with China' s market access commitments under Article XVI of 
the GATS. 
7.1397  We do not, however, find that Article 1 of the Several Opinions  constitutes a breach of 
Article XVI of the GATS, because the United States  has not established that it imposes a limitation 
that falls within the scope of Article XVI:2(f) as claimed by the United States. 
(c) Whether the measures at issue are inconsistent  with China's national treatment commitments 
(Article XVII) 
7.1398  The United States  claims that five discriminatory requir ements, with respect to foreign equity 
participation, operating terms, pre-establishment le gal compliance, examination and approval process, 
and decision-making criteria, are inconsistent with  Article XVII of the GATS.  According to the 
United States, these discriminatory requirements are imposed through four measures:  the Audiovisual 
(Sub-)Distribution Rule, the Catalogue, the Foreign Investment Regulation and the Several Opinions.   WT/DS363/R 
 Page 405 
 
 
  7.1399  China  requests the Panel not to consider the requirements concerning "pre-establishment 
legal compliance", "approval process requirements" a nd "decision-making criteria" to be within its 
terms of reference, because they are not specifically mentioned in the panel request.  China also contends that the United States fails to make a prima facie case that the requirements regarding 
foreign equity participation, operating terms and approval process violate Article XVII of the GATS.  
7.1400  The Panel  recalls its finding above that, with resp ect to this US claim, the requirements 
concerning pre-establishment legal compliance, examination and approval process, and decision-making criteria are not within its terms of refere nce.  We will therefore examine only whether the 
alleged discriminatory requirements with respect to  foreign equity particip ation and operating term 
are inconsistent with Article XVII of the GATS. 
7.1401  The Panel  notes that it has previously examined the scope of China's commitments with 
respect to "Videos, including entertainment soft ware and (CPC 83202), distribution services" under 
the heading of Audiovisual Services in its Schedule,  and concluded that the distribution of physical 
AVHE products is covered by this entry. 
(i) Requirements of Article XVII 
7.1402  The Panel recalls its discussion above on the requirements in Article XVII of the GATS.  
Paragraph 1 thereof reads: 
"In the sectors inscribed in its Schedule, and subject to any conditions and 
qualifications set out therein, each Member shall accord to services and service suppliers of any other Member, in respect of all measures affecting the supply of services, treatment no less favourable than that it accords to its own like services and 
service suppliers."
 
7.1403  As previously noted, the wording of Article XVII indicates that we need to determine: 
(a) whether the services at issue are inscribed in China's Schedule, (b) whether the measures at issue 
affect the supply of these services, (c) the extent of  China's national treatment commitment, including 
any conditions or qualifications, w ith respect to these services entered in its Schedule, and (d) whether 
these measure accord less favourable treatment to service suppliers of other Members, in comparison 
to like domestic suppliers. 
Whether the services at issue are within the scope of services listed in China's Schedule  
7.1404  We have already made a finding above that the services at issue – the distribution of AVHE 
products in physical form – are within the scope of "Videos, including entertainment software and 
(CPC 83202), distribution services" inscribed in Chin a's Schedule, and are therefore subject to any 
national treatment commitment that China may have undertaken. 
Whether the measures at issue are "affecting" trade in services  
7.1405  Similarly to what we have found in our exam ination of China's measures with respect to 
sound recording distribution services, we consider that, since the measures at issue (which are 
examined in detail below) directly govern the supplie rs of the services at issue, they "affect" the 
supply of these services in the sense of Article XV II, and the parties have not argued otherwise. 
Extent of China's commitments on national treatment for the services at issue  
7.1406  In order to determine the extent of China's na tional treatment commitments with respect to the 
services at issue, we need now to examine China' s Schedule to see whether there are any limitations WT/DS363/R 
Page 406  
 
  inscribed, in the national treatment column for ser vices supplied through commercial presence, for the 
entry "Videos, including entertainment software and (CPC 83202), distribution services".  We need 
also to  examine the horizontal section of China's sc hedule.  Finally, we need to examine the market 
access column, including any horizontal entries, to th e extent that a limitation there might also be 
discriminatory.   
7.1407  The Panel notes that for the entry "Videos,  including entertainment software and 
(CPC 83202), distribution services" under the heading Audiovisual Services of its Schedule, China has inscribed "None" in the national treatment column, for services supplied through commercial 
presence.  This is an initial indication that there are "no limitations" on national treatment.  In the 
market access column, with respect to the same service and mode of supply, the inscription reads, as 
for sound recording distribution services, as follows: 
"Upon accession, foreign services suppliers w ill be permitted to establish contractual 
joint ventures with Chinese partners to engage in the distribution of audiovisual 
products, excluding motion pictures, without prejudice to China's right to examine the content of audio and video products (see footnote 1)." 
7.1408  This inscription indicates that China has comm itted to allow foreign service suppliers to 
engage in the distribution of audiovisual products  through the establishment of contractual joint 
ventures.  Since this is a limitation that only applies to foreign service suppliers, it is also, by virtue of 
Article XX:2 of the GATS,  a limitation on national treatment. 
7.1409  We have previously examined China's horizontal  commitments with respect to mode 3.  The 
entry in the national treatment column indicat es that China has made no national treatment 
commitments with respect to existing subsidies in  sectors including audiovisual services.  As noted 
above, the entries in the market ac cess column: (a) limit the forms of  foreign-invested enterprises in 
China; (b) specify that no commitment is made on the right of foreign enterprises to establish 
branches, unless specifically mentioned in a service sector entry in a China's schedule;  (c) limit the 
activities of representative offices;  (d) commit that  existing foreign service suppliers will not have 
their conditions of ownership, oper ation and scope of activities made more restrictive;  and (e) limit 
maximum duration on the use of land by enterpris es and individuals.  The first three limitations 
constitute limitations on national treatment as well, because they accord formally different treatment 
to foreign service suppliers. 
7.1410  To summarize China's national treatment commit ment with respect to the services at issue 
supplied through commercial presence, we note that China has undertaken a full national treatment 
commitment, subject to the condition that foreign ser vice suppliers can only engage in the distribution 
of AVHE products through the establishment of c ontractual joint ventures, as well as further 
limitations in its horizontal section that ha ve not been raised in this dispute. 
(ii) Measures at issue 
7.1411  Having determined the level of China's commitme nts with respect to the services at issue, we 
now examine the individual measures to determine wh ether, as claimed by the United States, they are 
inconsistent with China's commitments with resp ect to the supply thro ugh commercial presence of 
"Videos, including entertainment softwa re and (CPC 83202), distribution services".  
Measures limiting foreign equity participation
 
7.1412  At the outset, the Panel  notes that it has already found certain measures containing a foreign 
equity participation limitation inconsistent with Article XVI of the GATS.  These measures are 
Article 8.4 of the Audiovisual (Sub-)Distribution Rule,  and Article VI:3  of the Catalogue of Industries  WT/DS363/R 
 Page 407 
 
 
  with Restricted Foreign Investment in the  Catalogue  (in conjunction with  Article 8 of the  Foreign 
Investment Regulation ).  Based on the principle of judicial economy, we consider that we do not need 
to examine whether these measures are also inc onsistent with Article XVII of the GATS.  
Accordingly, we refrain from offe ring any findings under Article XVII in respect of these measures.  
7.1413  Since we have found, however, that the United St ates has not established that Article 1 of the 
Several Opinions  is inconsistent with Article XVI of the GATS, we now need to examine whether, as 
claimed by the United States, Article 1 is inconsistent with Article XVII.  
7.1414  The United States  claims that Article 1 of the Several Opinions  is inconsistent with 
Article XVII of the GATS as it directly prohibits fo reigners from holding the dominant position in a 
joint venture engaging in the distribution of AVHE pr oducts in China.  The United States submits that 
this measure treats foreign-invested distributors who are services suppliers of other Members less 
favourably than their like, wholly Chinese-owned co mpetitors.  The United States further submits that 
the measure at issue does not fall within the term s, limitations, conditions, or qualifications on 
national treatment that China has specified in its Schedule with respect to the supply through 
commercial presence of the services at issue.   
7.1415  China  rejects the US claim, contending that the measure at issue refers to the rate of 
distribution of profit and allocation of loss in the contractual joint venture, and does not negatively impact the actual conditions of competition of the contractual joint ventures.  
7.1416  The Panel  recalls that Article 1 of the Several Opinions  provides:  
"Under the condition where the right of ou r country to examine the content of 
audiovisual products is not harmed, fore ign investors are permitted to set up 
enterprises for the distribution of audiovis ual products, excluding motion pictures, in 
the form of Chinese-foreign contractual joint ventures where the Chinese partner 
holds the dominant position." 
7.1417  We note that this provision explicitly prohib its foreigners from holding the dominant position 
in a contractual joint venture engaging in AVHE product distribution.  The United States claims that 
this provision as such is inconsistent with Ar ticle XVII of the GATS.  As noted above, under 
Article XVII, we need to determine whether:  (a) China has made national treatment commitments 
with respect to the services at issu e;  (b) the measure at issue affect s the supply of these services;  and 
(c) this measure accords less favourable treatment to service suppliers of other Members, in comparison to like domestic suppliers.  
7.1418  Since we have previously determined that China has made national treatment commitments 
with respect to the distribution of AVHE products, and that Article 1 of the Several Opinions  affects 
the supply of these services, we next examine wh ether this provision accords treatment to service 
suppliers of other Members less favourable than  that accorded to like domestic suppliers.   
7.1419  
We note that the measure at issue concerns a contractual joint venture, which is the only 
permissible form that a foreign-invested enterprise ma y take if it wishes to engage in the distribution 
of AVHE products in China.  We recall our previous  observation that foreign-invested enterprises in 
China qualify as "service suppliers of another Me mber" under the GATS where the entity is owned or 
controlled by natural persons or ju ridical persons of another Member.  As  noted above, we also 
understand that, under the measure at issue, " holding a dominant position" means holding a 
controlling position.   However, those contractua l joint ventures in which the Chinese partner holds 
the dominant position do not qualify as "service suppliers of another Member", since they are not 
controlled by persons of another Member.  In cont rast, we consider that those contractual joint 
ventures where the foreign partner holds the dominan t position qualify as "service suppliers of another WT/DS363/R 
Page 408  
 
  Member" under Article XVII. We note in this respec t that in its answer to a Panel question, China 
agrees that a Chinese-foreign contractual joint ve nture qualifies as a "service supplier of another 
Member" only where it is controlled by persons of another Member.
748   
7.1420  As noted above, Article 1 of the Several Opinions  prohibits those contractual joint ventures 
where the foreign partner holds the dominant position from engaging in the distribution of AVHE 
products.  According to the United States, wholly Chinese-owned enterprises are permitted to supply 
these services.  We note that there is nothing on the r ecord to suggest that those suppliers are subject 
to any restrictions, and China never contested the US  contention.  There is, as a result, a difference of 
treatment as between, on the one hand, contractual jo int ventures in which the foreign partner holds 
the dominant position, and, on the other hand, wh olly Chinese-owned enterprises and contractual 
joint-ventures in which the Chinese partner holds  the dominant position.  We observe that this 
difference of treatment is based exclusively on the na tional origin of the service supplier.  As we have 
observed earlier, there therefore will, or can, be  domestic and foreign suppliers that under the 
measures at issue are "like".  We thus consider that the "like" service suppliers requirement in 
Article XVII is met.  
7.1421  Under the measure at issue, the contractual jo int ventures where the foreign partner holds the 
dominant position – the foreign service suppliers – ar e prevented from engaging in the distribution of 
AVHE products, while like domestic service suppliers (wholly Chinese-owned enterprises) are permitted to supply these services.  The measure at issue thus imposes a discriminatory prohibition on foreign service suppliers, which clearly modifies conditions of competition in favour of domestic 
suppliers.  We therefore consider that the measure at issue – Article 1 of the Several Opinions  –  
accords to foreign service suppliers treatment less  favourable than that acco rded to like domestic 
suppliers.  
7.1422  We note that China's national treatment commit ments for Audiovisual Services under Sector 
2.D. of its Schedule are not subject to a limitati on that only the Chinese partner can hold the dominant 
position in contractual joint ventures.  We  therefore find that Article 1 of the Several Opinions  is 
inconsistent with Article XVII of the GATS. 
Measures requiring an operating term
 
7.1423  The United States  alleges that the operating term require ment contained in Article 8.5 of the 
Audovisual (Sub-)Distribution Rule  is inconsistent with Article XV II of the GATS.  The United States 
notes that in accordance with this provision, the ope rating term of a Chinese-foreign contractual joint 
venture for the distribution of audiovisual products is limited to 15 years.  The United States also 
notes that no such limitation is imposed on whol ly Chinese-owned distributors.  The United States 
submits that foreign-invested distributors thus face greater uncertainty and cost in the continuity of 
their operations in China than w holly Chinese owned distributors.  According to the United States, 
maintaining current business and generating new business becomes more diffi cult when the foreign-
invested distributor cannot guarantee that it will con tinue to be in business after the expiry of its 
operating term.  The United States therefore submits that the operating term requirement has thus 
modified conditions of competition in favour  of wholly Chinese-owned distributors. 
7.1424  China  rejects the US allegation, contending that  the 15-year operating term requirement has 
no impact on actual conditions of competition.  Chin a argues that an expiring operating term can be 
extended pursuant to a non-discretionary, auto matic and simplified procedure and that de facto , 
neither the wholly-Chinese nor the foreign-invested distributor is subject to any actual time-limitation 
for their activity.  China further argues that denying China the right to introduce the requirement on 
                                                      
748 China's response to question No. 111.  WT/DS363/R 
 Page 409 
 
 
  operating terms would undermine Chin a's sovereign right to regulate market access in the field of 
services consistently with its GATS commitments.  
7.1425  The Panel notes that this claim raises the same issues  that were discussed with respect to the 
operating term requirement in the wholesaling of reading materials (see Section X).  The parties have presented similar arguments and counterarguments .  Though this claim involves China's GATS 
commitments for Audiovisual Services under Sector  2.D. of its Schedule, we note that China's 
national treatment commitments in this sector, like t hose for Distribution Services in Sector 4, are not 
subject to a limitation with respect to the oper ating term.  We recall the reasoning presented in 
paragraphs 7.1127-7.1141.  We also note that co mpared to the 30-year operating term requirement 
with respect to the distribution of reading material s, the 15-year operating term requirement is likely 
to bring even greater uncertainty to business opera tions, further altering the conditions of competition 
against the foreign-invested service supplier.   We therefore arrive at the conclusion that the operating 
term requirement provided fo r by Article 8.5 of the Audiovisual (Sub-)Distribution Rule  is 
inconsistent with Article XVII of the GATS.  
(iii) Conclusion 
7.1426  The Panel finds that Article 1 of the Several Opinions  and the operating term requirement 
provided for by Article 8.5 of the Audiovisual (Sub-)Distribution Rule  are inconsistent with 
Article XVII of the GATS. 
7.1427  Since the Panel has found that Article 8.4 of the Audiovisual (Sub-)Distribution Rule,  and 
Article VI:3 of the Catalogue of Industri es with Restricted Foreign Investment in  the Catalogue  in 
conjunction with the  Foreign Investment Regulation , are inconsistent with Article XVI of the GATS, 
the Panel exercises judicial economy with resp ect to the US claim on the same measures under 
Article XVII of the GATS. 
4. Summary of conclusions 
(a) Distribution of reading materials 
7.1428  Article 4 of the Imported Publications Subscription Rule and Article 42 of the Publications 
Regulation  are together inconsistent with China's na tional treatment commitments under Article XVII 
of the GATS as they prohibit foreign-invested enterprises, including service suppliers of other 
Members, from engaging in the wholesale of imported reading materials subject to subscription, while like domestic service suppliers are not similarly prohibited. 
7.1429  Article 2 of the Publications (Sub-)Distribution Rule , in conjunction with Article 16 of the 
Publications Market Rule , is inconsistent with China's national treatment commitments under 
Article XVII of the GATS as it prohibits foreign-inv ested enterprises, including service suppliers of 
other Members, from engaging in the wholesale of imported reading materials subject to sales through the market, while like domestic service suppliers are not similarly prohibited. 
7.1430  In the cases where master distribution involves wholesale or retail services, Article X:2 of the 
Catalogue of Prohibited Foreign Investment Industries of the 
Catalogue,  in conjunction with 
Articles 3 and 4 of the Foreign Investment Regulation,  is inconsistent with China's national treatment 
commitments under Article XVII of the GATS as it prohi bits foreign-invested enterprises, including 
service suppliers of other Members, from engaging in the master distribution of reading materials 
while like domestic service suppliers are not  similarly prohibited.  Article 4 of the Several Opinions is 
inconsistent with Article XVII for the same reasons.  WT/DS363/R 
Page 410  
 
  7.1431  Article 62 of the 1997 Electronic Publications Regulation  is inconsistent with China's 
national treatment commitments under Article XVII of the GATS as it prohibits foreign-invested 
enterprises, including service suppliers of other Members, from engaging in the master wholesale or wholesale of electronic publications while like domestic service suppliers are not similarly prohibited.   
7.1432  To the extent that it is applied to the wholesale of electronic publications, the Publications 
(Sub-)Distribution Rule , together with the Publications Market Rule , is inconsistent with China's 
national treatment commitments under Article XVII of the GATS as the Publications 
(Sub-)Distribution Rule , together with the Publications Market Rule , has the effect of prohibiting 
foreign-invested enterprises, including service s uppliers of other Members, from engaging in the 
wholesale of imported electronic publications while like domestic service suppliers are not similarly 
prohibited.  
7.1433  The Panel does not conclude that the Publications (Sub-)Distribution Rule  is inconsistent with 
Article XVII of the GATS in respect of the master wholesale of electronic publications, as the United States has not established that this measure prohibi ts foreign-invested enterprises, including service 
suppliers of other Members, from engaging in the m aster wholesale of any electronic publications as 
claimed. 
7.1434  The requirements concerning registered capita l and operating term for foreign-invested 
wholesalers, including service suppliers of other Member s, respectively contained in paragraphs 4 and 
5 of Article 7 of the Publications Sub-Distribution Rule  are inconsistent with China's national 
treatment commitments under Article XVII of the GA TS as they accord to service suppliers of other 
Members treatment less favourable than th at accorded to like domestic suppliers. 
(b) Electronic distribution of sound recordings 
7.1435  The Circular on Internet Culture  (Article II), the Network Music Opinions  (Article 8), and the 
Several Opinions  (Article 4), are each inconsistent with China's national treatment commitments 
under Article XVII of the GATS as each prohibits foreign-invested enterprises, including service 
suppliers of other Members, from engaging in the electronic distribution of sound recordings, while 
like domestic service suppliers are not similarly prohibited.  For the same reasons, Article X:7 of the 
Catalogue of Prohibited Fore ign Investment Industries  of the  Catalogue , in conjunction with 
Articles 3 and 4 of the Foreign Investment Regulation,  is also inconsistent with Article XVII of the 
GATS.  
7.1436  The Panel does not conclude that the Internet Culture Rule  is inconsistent with Article XVII 
of the GATS, as the United States has not established that this measure, as implemented, imposes the 
alleged prohibition on the electronic distribution of  sound recordings by service suppliers of other 
Members. 
(c) Distribution of AVHE products 
7.1437  Article 8.4. of the Audiovisual (Sub-)Distribution Rule
 is inconsistent with China's market 
access commitments under Article XVI of the GATS as it contains a limitation on the participation of 
foreign capital in contractual joint ventures enga ging in the distribution of AVHE products, which 
falls within the scope of Article XVI:2 (f).  For the same reasons, Article VI:3  of the Catalogue of 
Industries with Restricted Foreign Investment in the  Catalogue, in conjunction with  Article 8 of the  
Foreign Investment Regulation , is inconsistent with China's market access commitments under 
Article XVI.  WT/DS363/R 
 Page 411 
 
 
  7.1438  The Panel concludes that Article 1 of the Several Opinions  is not inconsistent with 
Article XVI of the GATS, as the United States has not established that this measure imposes a limitation that falls within the scope of Artic le XVI:2(f), as claimed by the United States. 
7.1439  Article 1 of the Several Opinions  and the operating term requirement provided for by 
Article 8.5 of the Audiovisual (Sub-)Distribution Rule  each is inconsistent with China's national 
treatment commitments under Article XVII of the GA TS as each accords to service suppliers of other 
Members treatment less favourable than th at accorded to like domestic suppliers. 
7.1440  Since the Panel has found that Article 8.4 of the Audiovisual (Sub-)Distribution Rule,  and 
Article VI:3 of the Catalogue of Industries with Restricted Foreign Investment of the  Catalogue  in 
conjunction with the  Foreign Investment Regulation , are inconsistent with Article XVI of the GATS, 
the Panel exercises judicial economy with resp ect to the US claim on the same measures under 
Article XVII of the GATS. 
E. US
 CLAIMS UNDER ARTICLE  III:4 OF THE GATT  1994 
1. Article III:4 of the GATT 1994 
7.1441  Article III:4 of the GATT 1994 reads as follows: 
"The products of the territory of any contr acting party imported into the territory of 
any other contracting party shall be accord ed treatment no less favourable than that 
accorded to like products of national origin  in respect of all laws, regulations and 
requirements affecting their internal sale, offering for sale, purchase, transportation, 
distribution or use. (...)" 
7.1442  The Appellate Body has clarified that three elements must be satisfied to establish a violation 
of Article III:4:  (i) the imported and domestic products  at issue are "like products";  (ii) the measure 
at issue is a "law, regulation, or requirement aff ecting their internal sale, offering for sale, purchase, 
transportation, distribution, or use"; and (iii) the imported products are accorded "less favourable" 
treatment than that accorded to like domestic products.749  For Article III:4 to apply two things are 
first required.  First the domestic and imported products must be "like" .  Second, the law, regulation, 
or requirement must "affect" the internal sale, offe ring for sale, purchase, transportation, distribution, 
or use of the like products.  Only once those two elements are established does the obligation to afford 
no less favourable treatment apply.750  
7.1443  Therefore, for each of the three sets of meas ures challenged by the United States as violating 
Article III:4 of the GATT 1994 with respect to r eading materials, sound recordings intended for 
electronic distribution and films for theatrical rele ase we will first examine whether the United States 
has demonstrated that the products are like and whether the measures are laws, regulations, and 
requirements that affect one or all of the enumerated transactions, i.e., internal sale, offering for sale, 
purchase, transportation, distribution or use of the identified products before we analyse whether the 
measures provide for less favourable treatment. 
                                                      
749 Appellate Body Report on Korea – Various Measures on Beef , para. 133. 
750 Panel Report on China – Autos, para. 7.231 citing the Appellate Body's reasoning US – FSC 
(Article 21.5 EC)  that:  
"it is, therefore, not any 'laws, regulations and requirements' which are covered by 
Article III:4, but only those which ' affect ' the specific transactions, activities, and uses 
mentioned in that provision.  Thus the word 'affecting' assists in defining the types of 
measures that must conform to the obligation not to accord 'less favou rable treatment' to like 
imported products, which is set out in Article III:4." (Appellate Body Report on US – FSC 
(Article 21.5 – EC ), para. 208.) WT/DS363/R 
Page 412  
 
  (a) Like products 
7.1444  The Appellate Body has confirmed that the analysis of whether imported and domestic 
products are "like" should be done on a case-by-case basis.
751   
7.1445  The approach for determining "likeness" has, in the main, consisted of employing four 
general criteria:752 "(i) the properties, nature and quality of  the products;  (ii) the end-uses of the 
products;  (iii) consumers' tastes and habits – more  comprehensively termed consumers' perceptions 
and behaviour – in respect of the products;  and (iv) the tariff classification of the products." 753  A 
determination of "likeness" under Article III:4 of  the GATT 1994 is "fundamentally, a determination 
about the nature and extent of a competi tive relationship between and among products."754   
7.1446  We recall relevant WTO jurisprudence which s upports the view that where a difference in 
treatment between domestic and imported products is  based exclusively on the products' origin, the 
complaining party need not necessarily identify sp ecific domestic and imported products and establish 
their likeness in terms of the traditional criteria in  order to make a prima facie case of "likeness".  
Instead, when origin is the sole criterion distingui shing the products, it is sufficient for purposes of 
satisfying the "like product" requirement for a complain ing party to demonstrate that there can or will 
be domestic and imported products that are "like".755   
7.1447  Therefore, the United States may establish that  the imported and domestic products are like 
either by demonstrating that they are "like" by applying the traditional criteria or by demonstrating 
that the measures at issue distinguish between im ported and domestic products solely based on origin 
and that there can or will be imported pr oducts that are "like" domestic products.  
                                                      
751 Appellate Body Report on EC – Asbestos , para. 102. 
752 Appellate Body Report on Japan – Alcoholic Beverages II , p. 21, DSR 1996:I, 97, at 113 and, in 
particular, fn. 46;  Panel Report on US – Gasoline , para. 6.8 (where the approach set forth in the Border Tax 
Adjustment case was adopted in a dispute concerning Article III:4 of the GATT 1994). 
753 The fourth criterion, tariff classification, was not mentioned by the Working Party on Border Tax 
Adjustments , but was included by subsequent panels ( e.g., Panel Reports on EEC – Animal Proteins, para. 4.2; 
Japan – Alcoholic Beverages I , para. 5.6; US – Gasoline; Appellate Body Report on Japan – Alcoholic 
Beverages II , pp. 21-22,  DSR 1996:I, 97, AT 114. 
754 Appellate Body Report on EC – Asbestos , para. 99; Panel Report on India - Autos , para. 7.174-
7.176; Panel Report on China – Autos , para. 7.216. 
755 Panel Report on Indonesia – Autos , para. 14.113; Panel Report on Argentina – Hides and Leather , 
paras.  11.168 -11.170; Panel Report on Canada – Autos , para. 10.74;  Panel Report on India – Autos , 
paras. 7.174-7.176.  In these cases, the panels found that  the "like products" requirement could be established if 
the measures distinguished between imported and domestic products solely based on origin.  The Panel on  
Canada – Wheat Exports and Grain Imports , relying on the ruling by the panel in Argentina – Hides and 
Leather  applied the same reasoning to "likeness" under Article III:4: 
In Argentina – Hides and Leather , in dealing with a claim under Article III:2 of the GATT 
1994, the panel found that where a Member draw s an origin-based distinction in respect of 
internal taxes, a comparison of specific products is not required and, consequently, it is not necessary to examine the various likeness criteria. ...While this finding pertained to 
Article III:2, we consider that the sa me reasoning is applicable in this case mutatis mutandis ." 
(Panel Report on Canada – Wheat Exports and Grain Imports, fn. 246 to para. 6.164)   
We also recall the Panel Report on China – Auto Parts , paras. 7.234-7.235 where the panel reasoned 
that as the scope of "likeness" in Article III:4 is broader than that of Article III:2, if products are "like" under 
Article III:2 they are also "like" with in the meaning of Article III:4.   We also note that other panels have found 
that foreign origin cannot serve as a basis for a determin ation that imported products are "unlike" domestic ones.  
Panel Report on US – FSC  (Article 21.5 – EC II) , para. 8.133.    WT/DS363/R 
 Page 413 
 
 
  (b) "[L]aws, regulations, or requirem ents affecting ... distribution" 
(i) Laws, regulations, or requirements 
7.1448  Panels have found that the term "regula tions" includes "mandatory rules applying 
across-the-board".756  However, a measure need not be mandatory and apply across-the-board to be 
subject to the obligations contained in Article III:4.757  Article III:4 also applies to "requirements", a 
term which has been interpreted by previous pa nels to encompass commitments entered into on a 
voluntary basis by individual firms as a condition to obtaining an advantage758 or a government action 
involving a demand, request or the imposition of a condition.759   
(ii) "[A]ffecting" 
7.1449  In US – FSC (Article 21.5 – EC) , the Appellate Body explained that the meaning of the word 
"affecting" is crucial because it assists in defining the scope of application of Article III:4.760  
Additionally, the word "affecting" "serves as a link between the identified forms of government action 
which are covered by the obligation, i.e. laws , regulations or requirements, and the specific 
transactions, activities and uses relating to products in the marketplace ('internal sale, offering for sale, 
purchase, transportation, distribution or use')".761 
7.1450  The term "affecting" in Article III:4 of the GA TT 1994 has been interpreted to have a "broad 
scope of application,"762 which is wider in scope than such terms as "regulating" or "governing".763  
The word "affecting" covers not only measures which directly regulate or govern the sale of domestic 
and imported like products, but also measures which cr eate incentives or disinc entives with respect to 
the sale, offering for sale, purchase, and use of  an imported product "affect" those activities. 764  
(iii) Distribution 
7.1451  The US claims under Article III:4 all raise the issue of whether China' s measures affect the 
distribution of the imported products.  The partie s disagree about what constitutes "distribution" 
within the meaning of Article III:4 of the GATT 1994.   
7.1452  The United States cites a dictionary definition of distribution as "the action of dealing out in 
portions or shares among a number of recipients; apportionment; allotment; or the dispersal of 
commodities among consumers effected by commerce."765  Based on this definition the United States 
                                                      
756 GATT Panel Report on Canada – FIRA , para. 5.5, which was followed by Panel Report on India—
Autos , para. 7.181. 
757 GATT Panel Report on Canada – FIRA , para. 5.5. 
758 GATT Panel Report on Canada – FIRA, para. 5.4; Panel Report on India - Autos , para. 7.174. 
759 Panel Report on Canada – Autos, para. 10.107. 
760 Appellate Body Report on US – FSC (Article 21.5 – EC) , para. 208. 
761 Ibid. 
762 Appellate Body Report on US – FSC (Article 21.5 – EC) , para. 210;  Panel Report on Canada – 
Autos , para. 10.80; and Panel Report on India – Autos , para. 7.196. 
763 Appellate Body Report on EC – Bananas III , footnote 47, para. 220.  Appellate Body Report on 
Canada – Autos , footnote 56, para. 150 (interpreting the word "affecting" in Article I:1 of the GATS).  Although 
the provision at issue in EC – Bananas III  was Article I:1 of the GATS, we note that the Appellate Body itself 
found the jurisprudence on the identical language in the GATT to be of relevance to its interpretation of the 
GATS and we see no reason why the inverse would not also be true.   
764 Panel Report on EC – Bananas III , para. 7.175; Panel Report on India – Autos , paras. 7.196-7.197; 
Panel Report on Canada – Wheat Exports and Grain Imports , para. 6.267. 
765 United States' response to question No. 250 citing  New Shorter Oxford English Dictionary, p. 709 
(Exhibit US-68). WT/DS363/R 
Page 414  
 
  concludes that "the concept of 'distribution' enco mpasses the range of activities undertaken to move a 
product through the stream of commerce."
766 
7.1453  The United States goes on to argue that distribu tion should not be considered as an entirely 
discrete concept from the other transactions, activities,  and uses identified in Article III:4.  The United 
States maintains that these concepts  often overlap and should be c onstrued in recognition of this 
overlap.  Specifically, the United States then posits that:  
"[D]istribution of a product may involve both purchase of that product and offering 
for sale of that product.  A distributor may purchase the product from an upstream entity and offer it for sale to a downstream entity.  Thus, distribution overlaps with purchase and offering for sale.  Distribution of a product may also involve managing 
the logistics necessary to ensure that a pr oduct gets downstream.  This particular 
distribution activity does not necessarily i nvolve sale or purchase of the product, but 
it could overlap with transportation or use of the product."
767 
7.1454  China , for its part, cites to the panel report on Canada – Wheat Exports and Grain Imports  
which noted that: 
"The New Shorter Oxford English Dictionary defines 'distribution' to mean, inter alia, 
‘the dispersal of commodities among consumer s effected by commerce'. We take this 
to mean that 'distribution' entails, inter alia , the supply of goods to consumers or to 
on-sellers."768  
7.1455  China argues that this definition confirms that distribution within the context of Article III:4 
of the GATT 1994 refers to the supply of  goods to consumers or to on-sellers.769 
7.1456  The Panel notes that the task before us is to dete rmine the ordinary meaning of the term 
"distribution" pursuant to the Vienna Convention.  Dictionaries are useful aids for determining the 
range of possible ordinary meanings of a word or  phrase.  We note that pursuant to the Vienna 
Convention, the relevant ordinary meaning is to be established in light of the context of the term and 
taking into account the object and purpose of the provision and the treaty as a whole. 770   
7.1457  We note that Article III:4 of the GATT 1994 d eals with laws, regulations, or requirements 
affecting the distribution of products in the market place, therefore, the dictionary definitions which 
we think are relevant for our purposes are those which de fine "distribution" as that term is used in the 
marketplace.  We note that the de finition utilized by the panel in Canada – Wheat Exports and Grain 
Imports from the New Shorter Oxford English Dicti onary, does define "distribution" in the 
commercial sense.  That panel's understanding is confirmed by the American Heritage Dictionary 
which defines distribution as "the process of ma rketing and supplying goods, especially to 
retailers."771  And the Random House Dictionary which lists  as the "economics" definition of the term 
"the system of dispersing goods throughout a community."772  Additionally, the Oxford English 
Dictionary defines distribution as "the dispersal among consumers of commodities produced: this 
                                                      
766 United States' response to question No. 250. 
767 United States' response to question No. 247(a). 
768 Panel Report on Canada – Wheat Exports and Grain Imports , para.6.171. 
769 China's response to question No. 138. 
770 Article 31, Vienna Convention. 
771 American Heritage Dictionary , 4th ed. (Houghton Mifflin 2000) available at 
http://www.bartleby.com/61. 
772 Random House Unabridged Dictionary , (Random House 1997) available at 
http://dictionary.infoplease.com/distribution.  WT/DS363/R 
 Page 415 
 
 
  being, as opposed to producti on, the business of commerce"773  Finally, Webster's New Encyclopedic 
Dictionary defines distribution as "marketing or merchandising of commodities."774  
7.1458  We also note that the New Shorter Oxford Eng lish Dictionary defines a "distributor" as "a 
person who distributes something; spec. an agent who markets goods esp. a wholesaler."775  
Additionally, BNET Business Network defi nes a 'distribution channel' as   
"[T]he route by which a product or service is moved from a producer or supplier to 
customers. A distribution channel usually consists of a chain of intermediaries, 
including wholesalers, retailers, and distribut ors, that is designed to transport goods 
from the point of production to the point of consumption in the most efficient way."
776  
7.1459  Based on the above dictionary definitions, we consider that the term "distribution" in 
Article III:4 can be understood as meaning a process or  series of transactions necessary to market and 
supply goods, either directly or through inte rmediaries, from the producer to the consumer.777   
7.1460  This understanding of "distribution" is confir med by the context of Article III:4 of the 
GATT 1994 which deals with laws, regul ations, or requirements which a ffect specific transactions or 
activities relating to products in the marketplace, name ly, the internal sale, offering for sale, purchase, 
transportation, distribution or use.778 
7.1461  We are also mindful that the Appellate Body has stated that "there must be consonance 
between the objective pursued by Article III, as enuncia ted in the "general principle" articulated in 
Article III:1, and the interpretation of the specifi c expression of this principle in the text of 
Article III:4."779  Therefore, we find that the "general prin ciple" set forth in Article III:1 is relevant 
context for our interpretation of the ordinary mean ing of the term "distribution" as it is used in 
Article III:4.  As the Appellate Body  has explained, the "general principle" in Article III  "seeks to 
prevent Members from applying internal taxes a nd regulations in a manner which affects the 
competitive relationship, in the marketplace , between the domestic and imported products involved, 
'so as to afford protection to domestic production.'"780  The focus of Article III:1 on the competitive 
relationship between domestic and imported products in the marketplace confirms to us that the 
relevant ordinary meaning of "distribution" in Ar ticle III:4 is one which takes into account the use of 
the term in the marketplace.   
7.1462  The object and purpose of Article III also demonstrates that the focus on competitive 
conditions in the marketplace is appropriate.  The Appellate Body has explained that:  
"The broad and fundamental purpose of Article  III is to avoid protectionism in the 
application of internal tax and regulatory measures.  More specifically, the purpose of 
Article III 'is to ensure that internal meas ures "not be applied to imported or domestic 
                                                      
773 Oxford English Dictionary Online, available at http://dictionary.oed.com/entrance.dtl. 
774 Webster's New Encyclopedic Dictionary, (Black Dog & Leventhal 1993), p. 293. 
775 New Shorter Oxford English Dictionary , L. Brown (ed.) (Clarendon Press 1993), Vol. I., p. 709. 
776 BNET Business Dictionary available at 
http://dictionary.bnet.com/definition/Distribution+Channel.html 
777 We note that the New Shorter Oxford English Dictionary  defines a "consumer" as "a user of an 
article or commodity, a buyer of goods or services" ( New Shorter Oxford English Dictionary, L. Brown (ed.) 
(Clarendon Press 1993) Vol. I, p. 490).  Webster's New Encyclopedic  defines a "consumer" as "one that buys 
and uses economic goods", ( Webster's New Encyclopedic Dictionary, (Black Dog & Leventhal 1993), p. 215). 
778 Appellate Body Report on US – FSC (Article 21.5 – EC), paras. 208, 215, 221. 
779 Appellate Body Report on EC – Asbestos , para. 98. 
780 Ibid. (emphasis added) ; Appellate Body Report on US – FSC (Article 21.5 – EC) , para. 208. WT/DS363/R 
Page 416  
 
  products so as to afford protection to domestic production'''.
781  Toward this end, 
Article III obliges Members of the WTO to provide equality of competitive conditions for imported products in  relation to domestic products.
782  '[T]he intention 
of the drafters of the Agreement was clearly to treat the imported products in the same way as the like domestic products once th ey had been cleared through customs.  
Otherwise indirect protection could be given'.
783"784 
7.1463  The assurance of equal competitive opportunities is  not solely the purpose of Article III but of 
the international trade regime in  general.  As the panel in Korea – Alcoholic Beverages explained 
"Trade law generally, and Article III in particular, focuses on the promotion of 
economic opportunities for importers thr ough the elimination of discriminatory 
governmental measures which impair fair international trade.  Thus, trade law 
addresses the issue of the potentiality to compete."785   
7.1464  Therefore, given that the context and object  and purpose of Article III:4 of the GATT 1994 is 
to govern the manner in which Members' laws, re gulations or requirements affect the competitive 
relationship between imported a nd domestic like products and this  competition takes place in the 
marketplace786, we find that the context and object and purpose of Article III:4 confirm our 
understanding that the relevant ordinary meaning of th e term "distribution" as it is used in Article III:4 
is one with respect to activities in the marketplace. 
7.1465  We note that Article III:4 of the GATT 1994 only governs laws, regulati ons, or requirements 
affecting the internal  distribution of a product within the importing Member.  As the Appellate Body 
noted in China – Auto Parts,  for purposes of Article III, "internal" means something taking place 
inside the customs territory of the importing Member after importation.787  We also note that 
"importation" has been understood, in the past, to mean "the act of bringing or causing any goods to 
be brought into a customs territory".788  Therefore, for the purposes of Article III:4 of the GATT 1994 
internal "distribution" is the portion of that process or series of transactions from the point of 
importation (i.e., the time when the goods enter the customs territory of the importing Member) until 
the good is received by the consumer.     
(c) Less favourable treatment 
7.1466  The Appellate Body in Korea – Various Measures on Beef  stated: 
"Whether or not imported products are treat ed 'less favourably' than like domestic 
products should be assessed instead by examining whether a measure modifies the 
                                                      
781 (footnote original) Panel Report on US –  Section 337 , para. 5.10. 
782 (footnote original)  Panel Reports on US –  Superfund , para. 5.1.9; and Japan – Alcoholic 
Beverages II , para. 5.5(b). 
783 (footnote original)  GATT Panel Report on Italy – Agricultural Machinery , para. 11. 
784 Appellate Body Report on Japan – Alcoholic Beverages II, p. 16, DSR 1996:I, 97 at 109. 
785 Panel Report on Korea – Alcoholic Beverages , para. 10.81 (we note that this statement was made in 
the course of a discussion of the overlap between trade and competition (antitrust) law.). 
786 Appellate Body Report on EC – Asbestos , para. 98. 
787 Appellate Body Report on China – Auto Parts , paras. 161-163. 
788 Panel Report on China – Auto Parts , para. 7.155 citing WCO, Glossary of International Customs 
Terms , 2006, page 16;  Black's Law Dictionary , 7th ed., B.A. Garner (ed.) (West Group, 1999), p. 759 ("the 
bringing of goods into a country from another country"); and  The Shorter Oxford English Dictionary , 5th ed. 
(Clarendon Press 2002), Vol. I, p. 1331 ("action of importing or bringing in something, spec. goods from 
another country").  WT/DS363/R 
 Page 417 
 
 
  conditions of competition in the relevant market to the detriment of imported 
products."789 (emphasis original) 
7.1467  The Appellate Body has explained that the ex amination of whether a measure involves "less 
favourable treatment" of imported products within the meaning of Article III:4 of the GATT 1994  
"[M]ust be grounded in close scrutiny of th e 'fundamental thrust and effect of the 
measure itself'.  This examination cannot be rest on simple assertion, but must be 
founded on a careful analysis of the contested  measure and of its implications in the 
marketplace.  At the same time, however, the examination need not be based on the 
actual effects of the contested measure in the marketplace.790"791 
7.1468  Essentially, therefore, Article III:4 calls for "effective equality of opportunities for imported 
products in respect of laws, regula tions and requirements affecting the internal sale, offering for sale, 
purchase, transportation, distribution or use of products."792   
7.1469  Not every form of differential treatment  has an impact on competitive opportunities.793  
Therefore, the burden is on the United States to de monstrate, through supporting evidence, that a 
measure adversely affects the competitive opportun ities of imported products in relation to their 
distribution.  Mere assertion is not enough.  At the same time it is necessary to note that although the 
United States must establish a dverse impact on competitive opportun ities, it is not required to 
demonstrate an existing adverse trade effect.   The panel in Canada – Autos  explained: 
"The idea that a measure which distinguishes between imported and domestic 
products can be considered to affect the internal sale or use of imported products only if such a measure is shown to have an impact under current circumstances on 
decisions of private firms with respect to  the sourcing of products is difficult to 
reconcile with the concept of the 'no less favourable treatment' obligation in Article III:4 as an obligation addressed to gove rnments to ensure effective equality of 
competitive opportunities between domestic  and imported products, and with the 
principle that a showing of trade effects is not necessary to establish a violation of 
this obligation."
 794 
7.1470  Additionally, the Appellate Body in US – FSC (Article 21.5 – EC) concluded that a measure 
could be inconsistent with Article III:4 even if  unfavourable treatment did not arise in every 
instance.795   
7.1471  Thus, the burden is on the United States to demonstrate that the challenged measures may 
reasonably be expected to adversely modify the co nditions of competition, not necessarily that those 
measures have actually had an adverse effect or would have one in every instance. 
                                                      
789 Appellate Body Report on Korea –Various Measures on Beef , para. 137. 
790 (footnote original)  Appellate Body Report on Japan – Alcoholic Beverages II,  supra , footnote 116, 
at 110. 
791 Appellate Body Report on US – FSC (Article 21.5 – EC) , paras. 215 and 221. 
792 Panel Report on US – Gasoline , para. 6.10 citing  Panel Report on US – Section 337 , para. 5.11. 
793 Appellate Body Report on Korea – Various Measures on Beef , paras. 135-137 citing Panel Report 
on US – Section 337 , para. 5.11. 
794 Panel Report on Canada – Autos , para. 10.84; see also Appellate Body Report on Japan – Alcoholic 
Beverages II , "[Article III ] protects expectations not of any particular trade volume but rather of the equal 
competitive relationship between imported and domesti c products.")  (Appellate Body Report on Japan – 
Alcoholic Beverages II , p. 16, DSR 1996:I, 97 at 109.) 
795 Appellate Body Report on US – FSC (Article 21.5 - EC) , para. 221.   WT/DS363/R 
Page 418  
 
  7.1472  Demonstrating "less favourable treatment" and thus a breach of Article III:4 implies a 
comparative analysis.   To establish a violation a party must establish the treatment for both imported 
and domestic products.  Less favourable treatment of imported like products may arise from laws, 
regulations, or requirements wh ich provide domestic products more  favourable treatment than 
imported products or from laws, regulations, or  requirements which place additional burdens on 
imported products that are not placed on domestic products.   
7.1473  Whichever the basis for the allegation, a compla inant must specify the difference in treatment 
between imported and like domestic products and indicate why and how there is less favourable 
treatment of imported products.
796   
2. Reading materials 
7.1474  The United States argues that two of China's measures, specifically, the Imported 
Publications Subscription Rule  and the Publications (Sub-)Distribution Rule  are inconsistent with 
Article III:4 of the GATT 1994, because they afford less favourable treatment than that accorded to 
like domestic products by significantly restricting the distributors, distribution channels, and the 
consumers that are available to imported reading materials.797 
7.1475  China contends that the United States' claim with respect to the subscription system applying 
to the "restricted category" of reading materials and the subscription system applying to the non-restricted category of newspapers and periodicals should be rejected because the systems do not result in less favourable treatment for foreign products.  
(a) Like products 
7.1476  The United States  argues that the imported and domestic products share the same physical 
characteristics and commercial uses. The United States goes on to argue, however, that because the 
measures at issue discriminate against imported reading materials on the basis of national origin it is correct to treat imported and domestic reading materials as like within the meaning of Article III:4. 
7.1477  China  provides no argumentation with respect to whether the imported and domestic 
products are "like" within the meaning of Article III:4.
798 
7.1478  The Panel recalls its explanation in pa ragraphs 7.1445-7.1447 above, that there are two ways 
in which a complaining party can demonstrate th at the imported and domestic products are "like" 
within the meaning of Article III:4.  First, they  can establish that the products are like through the 
traditional analysis as explained by the Appellate Body in EC – Asbestos or they can demonstrate that 
the challenged measures differentiate between im ported and domestic products  exclusively based on 
origin and that there can or will be domestic  and imported products that are like.   
(i) Traditional analysis 
                                                      
796 Despite the requirement to demonstrate the differential treatment between domestic and imported 
products, we agree with the finding of the panel in India—Autos , that "the fact that th e measure applies only to 
imported products need not [be], in itself, an obstacle to its falling within the purview of Article III." (Panel Report on India – Autos , para. 7.306.) 
797 We note that in its consultations and panel reque sts the United States refers to China's measures 
governing "publications," and in its submissions the United States refers to China's measures governing "reading materials".  Based on the substantive explanation provided by the United States of what "publications" and 
"reading materials" are (i.e., newspapers, periodicals, books, and electronic publications) we understand that the 
two phrases have substantively the same content. 
798 We note that China maintains that there are no domestic publications which contain prohibited 
content as they cannot be published in China (China's response to question No. 130(c)).  WT/DS363/R 
 Page 419 
 
 
  7.1479  The United States  argues that the imported and domestic products share the same physical 
characteristics and commercial uses.  The United States provides no further elaboration on whether 
imported and domestic reading materials are "like" based on the four traditional criteria in its first 
written submission or in its subse quent submissions to the Panel. 
7.1480  China  provides no argumentation with respect to whether the imported and domestic 
products are "like" within the meaning of Article III:4. 
7.1481  The Panel  notes that other than its mere assertion in its first written submission that the 
imported and domestic products share the same ph ysical characteristics and commercial uses the 
United States has not provided any argumentation or evidence to demonstrate that imported reading 
materials are "like" domestic reading materials.   The United States has not established what the 
physical characteristics and commercial uses of read ing materials are, nor has it addressed the other 
criteria.  Therefore, we conclude that the United States has not established that imported reading materials are "like" domestic reading materials based on the traditional "like products" criteria. 
7.1482  We note that the United States has also argued that the impor ted and domestic products are 
"like" because the challenged measures distinguish be tween them based on origin.  Therefore, we will 
go on to determine whether the United States has estab lished via this alternative route that the "like 
products" requirement is met. 
(ii) The Imported Publications Subscription Rule 
7.1483  According to the United States  foreign origin is the sole criterion used by China in the 
decision to subject imported reading materials, but not domestically produced reading materials, to an onerous subscription-based regime for distribution.   As such, imported and domestic publications 
satisfy the "like products" requirement of Article III:4.  
7.1484   The United States points to Article 1 of the Imported Publications Subscription Rule  as 
evidence that "on its face" the measu re only applies to imported reading materials.  The United States 
also cites Article 3 of the same rule as th e provision which imposes the mandatory subscription 
regime for all imported newspapers and periodical s as well as for books and electronic publications in 
the "limited" category as the sole mechanis m for their distribution within China.  
7.1485  China  provides no argumentation on this point.   
7.1486  Article 1 of the Imported Publications Subscription Rule  reads: 
"These Rules have been drawn up, on the basis of the Regulations on the 
Management of Publications and relevant la ws and regulations, in order to satisfy the 
reading needs of domestic units and indi viduals, foreign organizations in China, 
foreign nationals of enterprises with fore ign investment, and personages from Hong 
Kong, Macao and Taiwan for imported publica tions and reinforce the management of 
imported publications." 
7.1487  The Panel  notes, based on Article 1, that the Imported Publications Subscription Rule  only 
applies to imported reading materials.  However, Article 1 on its own does not set forth any rules or 
requirements that could be said to "distinguish" be tween imported and domestic  products.  Rather, it 
merely defines the scope of application of th e subsequent provisions.  Article 3 of the Imported 
Publications Subscription Rule  contains the requirements which the United States argues apply 
different standards to imported reading material s based solely on their non-Chinese origin.  
Specifically, Article 3 explains that: WT/DS363/R 
Page 420  
 
  "The state manages the distribution of imported publications by categories.  In regard 
to imported newspapers and periodi cals, and imported books and electronic 
publications in the limited distribution category, they shall be distributed under subscription to subscribers, and supplie d by categories.  Imported books and 
electronic publications in the non-limited distribution category shall be distributed by 
sales through the market.  
Imported newspapers and periodicals are divi ded into the two categories of limited 
distribution and non-limited distribution. 
Types of imported newspapers, periodicals,  books and electronic publications in the 
limited distribution category shall be dete rmined by the General Administration of 
Press and Publications." 
7.1488  According to China, this mean s that there are two different subscription systems for imported 
reading materials (i.e., the one applicable to th e limited category of reading materials and the one 
applicable to the non-limited category of newspapers and periodicals).   
7.1489  The United States also asserts that China im poses no such regime on domestic publications.
799  
In that regard, we take note of China 's statement in its first written submission that its subscription 
rules for newspapers and periodicals as well as books in the limited category are "different from the 
rules applicable to domestic like products."800   
7.1490  The Panel  understands, as set forth in Article 3 of the Imported Publications Subscription 
Rule, that there are two categories of publications in  China:  the limited and non-limited.  Newspapers 
and periodicals in the non-limited category are required , by virtue of Article 3, to be sold through 
subscriptions to subscribers.  A dditionally, newspapers, periodicals, and books in the limited category 
are also required to be sold th rough subscriptions to subscriber s.  Therefore, the subscription 
requirements set forth in Article 3 of the Imported Publications Subscription Rule  apply to all 
imported newspapers and periodicals,  whether in the "limited" or "non-limited" categories, whereas 
the subscription requirements only apply to books whic h are in the "limited" category.  We also recall 
that China does not dispute that domestic newspape rs and periodicals are not likewise regulated.   
7.1491  The Imported Publications Subscription Rule , specifically Article 3 thus makes a distinction 
in treatment between imported and domestic newspa pers and periodicals that is exclusively based on 
their origin.  Thus, as a result of the origin-based distinction contained in Article 3, even domestic 
newspapers and periodicals that are identical to im ported ones in all respects except for origin would 
not be subject to the requirements contained in Ar ticle 3. We note that China does not dispute that 
there will, or can, be domestic and imported newspa pers and periodicals that are the same except for 
origin.  Therefore, we consider that with rega rd to newspapers and pe riodicals the like products 
requirement in Article III:4 of the GATT 1994 is satisfied. 
7.1492  For books, the situation is somewhat different, however.  We note that Article 3 does not 
require that all imported books be subject to a su bscription requirement, but rather only those books in 
the "limited" category are required to be sold th rough subscription.  Books in the "non-limited" 
category are sold through the market sales system, which is the distribution system applicable to 
domestic books.   
7.1493  China  argues that the "limited" category is made  up of reading materials with prohibited 
content.  According to China, because of the nature  of the content of reading materials within the 
                                                      
799 See e.g. United States' response to question No. 122(b). 
800 China's first written submission, para. 539.  WT/DS363/R 
 Page 421 
 
 
  "limited" category, subscription to such reading ma terials is limited to cer tain government agencies 
and institutions for research purposes.   China argues that they are th erefore not "distributed" within 
China.801  China informs the Panel that there are appr oximately 1,000 titles of imported publications 
in the "limited" category.802  China also informs us that ther e are no domestic publications in the 
"limited" category because "no domestic publication with prohibited content can be published in 
China and made available for distribution."803     
7.1494  The United States  argues that it cannot be correct that the "limited" category contains reading 
materials with prohibited content, as distribu tion of prohibited content is illegal in China.804  T h e  
United States also notes that it is unclear what titles are in the "limited" category and whether titles 
can be released from this category. 
7.1495  The Panel  takes note that both parties agree that th ere is a difference in treatment between 
imported and domestic books.  All domestic books may be distributed through the market sales 
system.  Imported books, however, are divided into tw o categories, a "limited" category that is subject 
to the subscription requirements set forth in Article 3 of the Imported Publications  Subscription Rule 
and a "non-limited" category which may be sold thro ugh the market sales system in the same manner 
as domestic books.  This indicates to us that so me imported books are treated differently from 
domestic books while others are not.  Therefore, there is a factor other than the foreign origin of the books which is the basis of the differe ntial treatment in the measure.   
7.1496  We note  the disagreement between the parties as to why a book might be designated by the 
GAPP to fall within the "limited" category and whet her the provision of such a book to a limited 
group of subscribers approved by the GAPP constitut es "distribution" within  China.  China has 
explained, that the limited category contains pub lications with prohibite d content and we see no 
reason to question China's explanation.  The Unite d States has not demonstrated any other basis for 
the distinction between limited and non-limited publi cations in Chinese law.  Additionally, the US 
argument regarding the fact that distribution of proh ibited content is illegal in China would appear to 
bolster, rather than detract from, China's explanati on of the "limited" category.  As China explains, it 
is precisely because of the general ban on the distribu tion of publications with  prohibited content that 
the Chinese Government created an exception, via Article 3 of the Imported Publications Subscription 
Rule, so that certain entities – approved by GAPP – could have access to those publications.   
7.1497  The United States, therefore, has identified in Article 3 of the Imported Publications 
Subscription Rule  a difference in treatment between domes tic and imported books with no prohibited 
content, on the one hand, and imported books w ith prohibited content on the other hand.  For 
example, China has told the Panel that one title in  the "limited" category is  a book published in Hong 
Kong titled "World Sexual Customs" which China h as concluded contains obscene material.  This 
                                                     
 
801 China's first written submission, paras. 538-54 5; China's response to question No. 130(c). 
802 China, in response to question No. 130(b), explained that the EPOCH TIMES, a Falun Gong 
publication is the type of publication that is in the limited category.  In response to question No. 264, China 
further explained:  
GAPP determines whether a publication falls within th e restricted distribution category on the basis of 
criteria set forth in Arts. 26 and 27 of [ Publications Regulation ]. For example, a book under the name "World 
Sexual Customs" published in Hong Kong was categorized into restri cted category because it contains obscene 
content and only sexual cultural research institutions can be allowed to subscribe it. Another example is a book 
named "China: Friend or Foe" published by Icon Books in 2006 in Britain. It was categorized into restricted 
category because it contains contents related to Tibet wh ich is considered to jeopardize the solidarity of the 
nationalities and territorial integrity of the nation. 
803 China's response to question No. 130(d). 
804 We note that both China and the United States agr ee that the same content requirements apply to 
both domestic and imported reading materials (see United States' response to question No. 139;  China's 
response to question No. 139). WT/DS363/R 
Page 422  
 
  book is subjected to the subscription requirements in Article 3 of the Imported Publications 
Subscription Rule .  By contrast, both an imported book with no obscene content – perhaps a children's 
book or cookbook – and domestic books whic h cannot contain prohibited content
805 would not be 
subject to the subscription requirement.  As impor ted books without prohibited content are treated in 
the same way as domestic books, the difference in treatment between importe d books in the "limited" 
category and domestic books in Article 3 of the Imported Publications Subscription Rule  is not 
exclusively based on the foreign origin of the imported books, but rather is based on whether the 
imported book contains prohibited content.        
7.1498  As the United States has not demonstrated that the challenged measure creates a distinction in 
treatment between imported and domestic books exclus ively based on origin, we do not think that it 
would be appropriate, in the case of books, to u se the above-mentioned simplified "likeness" analysis 
as an alternative to the traditional likeness analysis.  We recall, our conclusion above that the United 
States has likewise not established through an analys is of the traditional criteria that imported and 
domestic books are "like."  Therefore, the United States has not established that imported books are 
"like" domestic books.  As such, the United States ha s not demonstrated that China's obligations under 
Article III:4 are engaged with respect to the regulation of books under the Imported Publications 
Subscription Rule . 
(iii) Publications (Sub-)Distribution Rule 
7.1499  The United States also argues that only imported reading materials find themselves blocked 
from distribution channels in China available throug h foreign-invested enterprises.  According to the 
United States, Chinese reading materials can use both Chinese and foreign-invested enterprises for 
distribution within China.  The United States contends  that this distinction satisfies the requirement to 
demonstrate that the imported and domestic reading materials are "like" within the meaning of Article III:4.   
7.1500  The United States argues that pursuant to Article 2 of the Publications (Sub-)Distribution 
Rule, the measure applies only to books, newspapers  and periodicals published in China, providing 
that only these products may be sub-distributed by  foreign-invested enterprises.  Imported books, 
newspapers and periodicals, howev er, may not be sub-distributed by foreign-invested enterprises, 
whether pursuant to this or any other Chinese legal in strument.  Foreign origin is therefore the sole 
criterion used by China to restrict foreign books , newspapers and periodical s, but not domestic books, 
newspapers and periodicals, to the more limited set of Chinese distributors.
806   
7.1501  The Panel  notes that Article 2 of the Publications (Sub-)Distribution Rule  states: 
"These Rules are applicable to FIE inside China engaged in the sub-distribution of 
books, newspapers and periodicals. 
Books, newspapers and periodicals as me ntioned in these Rules refer to books, 
newspapers and periodica ls published by a publishing unit approved by the 
publishing administration under the State Council. 
Sub-distribution as mentioned in these rul es refers to the wholesale and retail of 
books, newspapers and periodicals. 
                                                      
805 We note that under China's measures governing publications books with prohibited content are not 
permitted to be published within China. 
806 United States' response to question No. 122(h).  WT/DS363/R 
 Page 423 
 
 
  FIE for the sub-distribution of books, news papers and periodicals as mentioned in 
these Rules refer to foreign enterprises, ot her economic organizations, or individuals 
(hereinafter referred to foreign investor for short) which, after being approved by 
relevant Chinese government departments acco rding to law, together with Chinese 
enterprises or other economic organizations  (hereinafter referred to as Chinese 
investor for short) set up inside China a Chinese-foreign equity or contractual joint 
venture for the sub-distribution of books, newspapers and periodicals on the basis of 
equality and mutual benefit, as well  as book, newspaper and periodical sub-
distribution enterprises set up by the forei gn investor wholly with foreign capital 
inside China. 
Participation of a foreign investor by shar e holding or by merger and acquisition of a 
book, newspaper and periodical sub-dist ribution enterprise funded by Chinese 
investment is one way of setting up a foreign-invested enterprise for sub-distribution of books, newspapers and periodicals.  When a foreign investor engages in share holding or merger and acquisition of a Chinese invested book, newspaper and 
periodical sub-distribution enterprise, the enterprise concerned shall process 
necessary procedures as contained in these Ru les to change into a foreign-invested 
enterprise." 
7.1502  We note that Article 2 of the Publications (Sub-)Distribution Rule  sets forth that the Rule 
applies to foreign-invested enterp rises in China engaged in the sub-distribution of books, newspapers 
and periodicals and that any references to books, ne wspapers and periodicals in  subsequent provisions 
of that Rule refer to domestically published books , newspapers, and periodi cals.  Therefore, like 
Article 1 of the Imported Publications Subscription Rule , Article 2 simply sets forth the scope of the 
application of the rest of the provisions in the Publications (Sub-)Distribution Rule . 
7.1503  The United States explains that reading this provision in the context of the other measures 
governing distribution of reading materials in China demonstrates that China only grants permission 
to foreign-invested enterprises to sub-distri bute books, domestically publ ished newspapers and 
periodicals. 
7.1504  Specifically, the United States notes that the Imported Publications Subscription Rule  only 
permits imported newspapers a nd periodicals as well as books and electronic publications in the 
limited category to be distributed via subscription.   The United States also notes that the same rule 
explains that only enterprises designated by the GA PP to import reading materials – i.e., Chinese 
wholly state-owned enterprises pursuant to Article 42 of the Publications Regulation  – can engage in 
the distribution, including both wh olesale and retail, of these products.
807  
7.1505  The United States also cites to Article 16 of the Publications Market Rule  which specifies that 
the Publications (Sub-)Distribution Rule  governs foreign-invested enterp rises seeking to engage in the 
sub-distribution – i.e., wholesale and retail – of books, newspape rs and periodicals.808  According to 
the United States, as China has promulgated no additional measures granting foreign-invested 
enterprises the right to engage in the distri bution of reading materials in China, the Publications 
(Sub-)Distribution Rule  represents the complete set of rights gr anted to foreign-invested enterprises.  
7.1506  The Panel, reading the Publications (Sub-)Distribution Rule  in the context of the other 
Chinese measures governing the distribution of publi cations, concludes that any foreign-invested 
enterprise ("FIE") which wishes to sub-distribute books, newspapers, and periodicals must comply 
with the Publications (Sub-)Distribution Rule .  We note our finding above that Article 2 limits the 
                                                      
807 United States' response to question No. 61. 
808 Ibid. WT/DS363/R 
Page 424  
 
  scope of the Publications (Sub-)Distribution Rule  to domestically publishe d books, newspapers and 
periodicals.  Therefore, we find that the Publications (Sub-)Distribution Rule  creates a difference in 
treatment between domestic and im ported books, newspapers and periodicals in the sense of the types 
of enterprises that may distribute them, exclus ively on the basis of the origin of the books, 
newspapers, and periodicals.  Thus, as a resu lt of the origin-specific nature of the Publications 
(Sub-)Distribution Rule , which is set forth in Article 2,  even imported books, newspapers and 
periodicals that are identical to domestic ones in all respects except for origin could not be sub-
distributed by foreign-invested enterprises.  We al so note that China does not dispute that there will, 
or can, be domestic and importe d books, newspapers and periodicals that are the same, except for 
origin.  Therefore, we consider that with regard to  the US claim in respect of the inconsistency of the 
Publications (Sub-)Distribution Rule  with Article III:4 of the GATT 1994, the "like products" 
requirement is satisfied.  
(b) Laws, regulations, or requirements affecting  ... distribution 
(i) Laws, regulations, or requirements 
7.1507  The United States  maintains that both the Imported Publications Subscription Rule  and the 
Publications (Sub-)Distribution Rule  are "laws, regulations, or requirements" within the meaning of 
Article III:4 of the GATT 1994. 
7.1508  In its first written submission, the United States argues that the Imported Publications 
Subscription Rule  regulates and governs the internal sale, offering for sale, purchase, distribution or 
use of imported reading materials in Ch ina.  The United States avers that the Publications 
(Sub-)Distribution Rule  clarifies that only books newspapers and periodicals published in China may 
be sub-distributed by foreign-invested enterprises.  
7.1509  The United States explains that within Ch ina's legal system the two measures are 
"departmental rules" which were promulgated by order signed by the head of the issuing agency.
809  
The United States explains that "departmental rule s are legally binding legal instruments issued by 
government agencies to enforce the laws, administrati ve regulations, decisions and orders of the State 
Council."810 
7.1510  The United States argues that all the challenged measures constitute "regulations" as that term 
is used in Article III:4 of the GATT 1994.  The United States also argues, relying on the panel report in Canada – Autos, that if the Panel were to find that they were not "regulations" they are nevertheless 
"requirements" because the challenged measures involve a demand, request or the imposition of a condition on imported products.
811 
7.1511  China  provides no argumentation on this point. 
7.1512  The Panel  recalls that, the phrase "laws, regulations, or requirements" encompasses a variety 
of government measures, from mandatory rules wh ich apply across the board to government action 
that creates voluntary incentives or disincentives.   
7.1513  The Imported Publications Subscription Rule  contains provisions which require that all 
imported newspapers and periodicals to be distri buted through only one particular distribution 
                                                      
809 United States' response to question No. 121  citing  China's Legislation Law , Article 76 (Exhibit US-
72); See also  Working Party Report, para. 66 (Exhibit US-3); and  Trade Policy Review of the People's Republic 
of China , Report by the Secretariat , WT/TPR/S/161, circulated 28 February 2006, paras. 18-22 (Exhibit US-4). 
810 Ibid  citing China's Legislation Law , Article 71 (Exhibit US-72). 
811 United States' response to question No. 121 citing Panel Report, Canada – Autos , para. 10.107; also 
United States' response to question No. 122(h).  WT/DS363/R 
 Page 425 
 
 
  channel.  In this sense the provisions are mandatory  and apply across the board to all importers and 
distributors of these reading materials.  Therefore,  regardless of its legal form within China, the 
Imported Publications Subscription Rule , fits squarely within the defi nition of the term "regulation" 
as used in Article III:4 of the GATT 1994.   
7.1514  The Publications (Sub-)Distribution Rule  sets forth mandatory rules applicable to foreign-
invested enterprises that wish to sub-distribute domes tically published reading materials.  Therefore, 
for the same reasons as those we have mentioned in respect of the Imported Publications Subscription 
Rule above, the Publications (Sub-)Distribution Rule  is a "regulation" within the meaning of 
Article III:4 of the GATT 1994. 
(ii) Affecting ... distribution 
7.1515  The United States  argues that Articles 3-8 of the Imported Publications Subscription Rule  
have a direct impact on how these products are distributed.  Specifically, the United States contends that Article 3 requires all imported publications, w ith the exception of imported books and electronic 
publications on the non-limited distribution list, to be  distributed on a restrictive subscription basis; 
Article 4 establishes the limited set of entities pe rmitted to engage in the distribution of these 
publications; and Articles 5 through 8 address who may subscribe to these publications. 
7.1516  The Panel  notes that with respect to books and electr onic publications in the limited category, 
it has determined that the United States did not est ablish that books in the li mited category are "like" 
domestic books (see paragraph 7.1497) .  Additionally, we also reca ll our finding in paragraph 7.147, 
that electronic publications are outside our term s of reference with respect to the claim under 
Article III:4 of the GATT 1994.  
7.1517  With respect to the Publications (Sub-)Distribution Rule  the United States argues that it fulfils 
the "affecting" requirement as it regulates and govern s the distribution of domestic books, newspapers 
and periodicals by foreign-invested enterprises.  Specifically, the United States alleges that, by 
imposing discriminatory limits on how imported books, newspapers a nd periodicals may be obtained, 
i.e., from only a sub-set of all those entities permitted to distribute domestic reading materials, the 
Publications (Sub-)Distribution Rule  affects reading materials by implementing the regime that limits 
the channels through which the im ported products may be acquired. 
7.1518  China  objects to the inclusion of the requirements on subscribers set forth in Articles 5 
through 8 of the Imported Publications Subscription Rule  in the Panel's terms of reference.  The Panel 
dealt with this objection in Section VII.B.4(c) supra . 
7.1519  China provides no argumentation about whethe r the two challenged measures "affect" the 
distribution of reading materials within the meaning of Article III:4 of the GATT 1994. 
7.1520  The Panel recalls its determination in paragraph 7.1513, above that Article 3 of the 
Imported 
Publications Subscription Rule  imposes mandatory subscription requirements on all imported 
newspapers and periodicals.    
7.1521  Article 4 of the Imported Publications Subscription Rule  requires that subscriptions placed by 
subscribers for imported newspapers and periodical s "shall be handled by publication import business 
units designated by the General Administration of  Press and Publication."  We note that for the 
definition of "publication import business units" Article 2 of the Imported Publications Subscription 
Rule refers to the Publications Regulation .  In that regard, Article 41 of the Publications Regulation  
states that publication import entities established in  compliance with those regulations and designated 
by the publication administration under the State C ouncil (i.e. GAPP) may engage in the business of 
importing newspapers or periodi cals.  Article 42(2) of the Publications Regulation  requires that to WT/DS363/R 
Page 426  
 
  establish a publication import entity the applicant be a wholly state-owned enterprise.  Therefore, 
Article 4 of the Imported Publications Subscription Rule  limits those who may handle subscriptions 
for imported newspapers and periodicals to wholly state-owned enterprises.     
7.1522  As Articles 3 and 4 of the Imported Publications Subscription Rule  directly govern the 
manner in which imported newspapers  and periodicals may be distributed (i.e., subscription channel) 
and who may distribute them (i.e., wholly state-ow ned enterprises) they "affect" the distribution of 
imported newspapers and periodicals within the meaning of Article III:4 of the GATT 1994.    
7.1523  With respect to the Publications (Sub-)Distribution Rule , we recall our conclusion that any 
FIE which wishes to sub-distribute books, newspape rs, and periodicals within China must comply 
with the Publications (Sub-)Distribution Rule .  Therefore, the Publications (Sub-)Distribution Rule  
directly governs who may distribute books, newspapers  and periodicals within China.  We also note 
that Article 2 of the Publications (Sub-)Distribution Rule  limits the scope of the provisions in the 
Rule, including those with respect to foreign-inv ested enterprises receiving approval to sub-distribute 
reading materials, to domestically publishe d books, newspapers and periodicals.  As the Publications 
(Sub-)Distribution Rule  sets forth rules which determine which enterprises may be available to sub-
distribute imported books, newspapers , and periodicals, it "affects" the distribution of imported books, 
newspapers and periodicals within the mean ing of Article III:4 of the GATT 1994.     
7.1524  As we have concluded that there will, or can, be imported and domestic products that are like 
(newspapers and periodicals with resp ect to the US claim regarding the Imported Publications 
Subscription Rule  and books, newspapers and periodicals w ith respect to the US claim regarding the 
Publications (Sub-)Distribution Rule ) within the meaning of Article III:4 and that the challenged 
measures are "laws, regulations, or requirements" which affect the internal distribution of the like 
products China is obligated, pursuant to Article  III:4 of the GATT 1994 to afford the imported 
products no less favourable treatment than that afford ed to the domestic like products.  Therefore, we 
will now turn our analysis to whether Ch ina has complied with this obligation. 
(c) Less favourable treatment 
7.1525  Article III:4 of the GATT 1994 requires China to provide "effective equality of opportunities 
for imported products in respect of laws, regulati ons and requirements affecting the internal sale, 
offering for sale, purchase, transportatio n, distribution or use of products."
812 
7.1526  The United States  argues that imported reading mate rials cannot compete with domestic 
reading materials on an equal footing, because they face significantly reduced opportunities for 
distribution and for sale in the Chinese market. 
7.1527  The United States maintains that the two m easures confine most categories of imported 
reading materials to a single distribution cha nnel and limit which enterprises are permitted to 
distribute imported reading materials.  The United States points out that, domestic reading materials 
do not face these restrictions.  According to the Un ited States, these measures severely disadvantage 
imported reading materials vis-à-vis  domestic like products and are thus  inconsistent with Article III:4 
of the GATT 1994. 
7.1528  The United States also maintains that the two measures provide less favourable treatment by 
denying imported reading materials access to the wi de array of distributors that are available to 
domestic reading materials. Specifically, the United States argues that the Imported Publications 
Subscription Rule  restricts all imported newspapers and periodicals as well as books in the limited 
category to distribution by Chinese wholly state-owned distributors, while the Publications 
                                                      
812 Panel Report on US – Gasoline , para. 6.10 citing  Panel Report on US – Section 337 , para. 5.11.  WT/DS363/R 
 Page 427 
 
 
  (Sub-)Distribution Rule  restricts all imported books in the non-limited category to wholly Chinese-
owned distributors. 
7.1529  China  maintains that its measures do not provide for less favourable treatment of imported 
reading materials.  Specifically, China argues that subscription for non-limited newspapers and 
periodicals subscription is granted more or less automatically and that:  
"[T]he potential restrictions that such a subscription system could entail would not 
significantly alter the number of readers that would be likely to buy foreign newspapers, and thus do not actually aff ect the conditions of competition between 
foreign and domestic product.   
It follows that the subscription system a pplied for [non-limited] foreign newspapers 
and periodicals does not result in a less favourable treatment for foreign products."
813 
7.1530  China admits that, in China, there are two distribution systems for imported publications  
whereby imported newspapers and periodicals (whether  in the limited category or in the non-limited 
category) and books and electronic publications in th e limited category are subject to the subscription 
system and imported books and electronic publications  in the non-limited category are subject to the 
market sales system. 
7.1531  China does not deny that contra ry to the systems for imported reading materials, domestic 
newspapers and periodicals are available through both the market sales and subscription systems.  
China also does not dispute that the choice of distri butors for imported reading materials is limited by 
the measures.  China's only argument seems to be th at the formally different distribution channel for 
newspapers and periodicals ( i.e., subscription vs. any channel) does not significantly  alter the 
competitive opportunities of imported reading materials.  
7.1532  The Panel  is mindful that the Appellate Body in Korea – Various Measures on Beef found 
that a "formal difference in treatment between im ported and like domestic products is thus neither 
necessary, nor sufficient, to show  a violation of Article III:4."814  The focus of the analysis must 
remain on the substantive question of wh ether a challenged measure modifies the conditions of 
competition in the relevant market to the detriment of imported products.815 
7.1533  Following the Appellate Body's guidance, we will examine whether, in respect of the 
distribution of reading materials in China, the m easures at issue modify th e conditions of competition 
in China's market to the detrimen t of imported reading materials. 
(i) Imported Publications Subscription Rule 
7.1534  With respect to whether the restrictions in Articles 3 and 4 of the Imported Publications 
Subscription Rule  result in China affording less favourable treatment to imported newspapers and 
periodicals we recall that it is undis puted that domestic newspapers a nd periodicals may be distributed 
through multiple channels to consumers, where as their imported counterparts are limited to one 
channel – i.e., subscription.  Moreover, importe d newspapers and periodicals can only be moved 
along that single channel by Chinese wholly state- owned enterprises.  Domestic newspapers and 
periodicals, however, reach consumers through a variety of distributors, including foreign-invested 
enterprises, Chinese privately-held enterprises and Chinese wholly state-owned enterprises.  Thus, 
                                                      
813 China's first written submission, paras. 547-548; also China's responses to question 
Nos. 130(e), 131. 
814 Appellate Body Report on Korea – Various Measures on Beef , para. 137. 
815 Ibid. WT/DS363/R 
Page 428  
 
  Articles 3 and 4 of the Imported Publications Subscription Rule  place restrictions on who may 
distribute imported newspapers and periodicals and th e method in which they may be distributed that 
are not faced by like domestic products. 
7.1535  With respect to the mandatory subscription requirements in Article 3 of the Imported 
Publications Subscription Rule , we note that this means that a distributor of domestic newspapers and 
periodicals can distribute individual issues to cons umers via newsstands, bookstores, and other shops, 
as well as via subscription, while a distributor of imported newspapers and periodicals may only 
distribute its products through a subscription to every issue of that publication. Although both domestic and imported newspapers and periodicals ma y be subscribed to, distributors of domestic 
newspapers and periodicals also  have the opportunity to distribute their products through other 
channels which enable them to reach a greater numb er of consumers.  Additionally, distributors of 
imported newspapers and periodical s cannot distribute their products through channels that would 
place them in front of consumers in direct comp etition with domestic publications, for example an 
enterprise distributing imported newspapers and peri odicals cannot distribute them to a newsstand or 
bookstore where they would be displayed alongsid e domestic newspapers and periodicals.   
7.1536  In view of the preceding analysis, this limita tion in the manner in which imported newspapers 
and periodicals may be distributed in our view not  only constitutes formally different treatment, but 
also treatment which can reasonably be concluded to modify the conditions of competition to the 
detriment of imported newspa pers and periodicals.   
7.1537  We note China's argument that because cons umers can easily buy non-limited newspapers 
and periodicals by subscription, the United States ca nnot establish that China affords less favourable 
treatment to imported newspapers a nd periodicals.  However, we cannot agree with China that a lack 
of "significant" alteration in the conditions of co mpetition would mean that China has fulfilled its 
obligation to treat the imported products no less fa vourably than the like domestic products. We note 
that the phrase "treatment no less favourable" is not qualified by a de minimis  standard.  Accordingly, 
any less favourable treatment of imported products via laws, regulations, or requirements which affect 
their internal sale, offer for sale,  purchase, transportation, distribution or use is contrary to the 
obligation in Article III:4, provi ded such treatment modifies the conditions of competition to the 
detriment of imported products.
816   
7.1538  Additionally, Article 4 of the Imported Publications Subscription Rule , read in light of the 
definition of an import business unit provided in Ar ticle 2 of the same measure, limits who may 
handle subscriptions for imported newspapers and periodicals to w holly state-owned enterprises.  
Through this provision China has created a lim itation on who may distribut e imported newspapers 
and periodicals which does not exist for the domestic like products.  This means that those wishing to 
distribute their newspapers and periodicals within Ch ina have different distributors available to them 
depending on the origin of their products.  An ente rprise wishing to distribute an imported newspaper 
or periodical must distribute its product through a wholly state-owned company regardless of whether 
a private enterprise might have been a more compet itive distributor in terms of undertaking more or 
better efforts at marketing the news paper or periodical. By contrast, an  enterprise wishing to distribute 
a domestically published newspaper or periodical may select from any distributor it wishes, based on which distributor will provide the best competitive advantage for its products.   
7.1539  Therefore, the restrictions on the distribution ch annels available set forth in Article 3 and the 
limitations on the type of distributors av ailable set forth in Article 4 of the Imported Publications 
Subscription Rule  may reasonably be expected to adversel y modify the conditions of competition in 
the marketplace between imported and domestic like pr oducts.  In our view, Articles 3 and 4 are thus 
                                                     
 
816 In this respect, we find the reasoning of the Appellate Body in Japan – Alcoholic Beverages II  
instructive.  WT/DS363/R 
 Page 429 
 
 
  inconsistent with China's obliga tion in Article III:4 of the GATT 1994 to afford no less favourable 
treatment to the like imported products.  
(ii) Publications (Sub-)Distribution Rule 
7.1540  The United States has also identified the Publications (Sub-)Distribution Rule  as a measure 
which gives rise to an inconsistency with Article  III:4 of the GATT 1994.  Although the United States 
refers to the measure as a whole in its submissions , the only provision specifically identified by the 
United States as giving rise to an inconsiste ncy with Article III:4 is Article 2 of the Publications 
(Sub-)Distribution Rule .   
7.1541  As noted above, Article 2 of the  Publications (Sub-)Distribution Rule  does not itself prohibit 
foreign-invested enterprises from engaging in wholesaling of any importe d books, newspapers and 
periodicals.  Rather, Article 2 establishes the scope of the Publications (Sub-)Distribution Rule.  It 
makes clear that the Rule applies to foreign-invested enterprises engaged in the distribution of books, 
newspapers and periodicals published in China.  It says nothing about whether foreign-invested 
enterprises may engage in distribu ting imported books, newspapers a nd periodicals.  Therefore, we 
consider that Article 2 cannot, by itself, give rise to an inconsistency with WTO obligations. 
7.1542  We also note that the United States has argued that the import of the provisions of the 
Publications (Sub-) Distribution Rule  must be determined in light of the Publications Regulation  and 
the Publications Market Rule  which are China's other measures governing the distribution of books, 
newspapers and periodicals. 
7.1543  In response to questions from the Panel, the Un ited States specifically refers to Article 16 of 
the Publications Market Rule817, which was drawn up on the basis of the Publications Regulation .  
Article 16 provides: 
"To set up a book, newspaper and periodical sub-distribution enterprise, a Chinese-
foreign equity joint venture, contractual jo int venture, or a foreign capital enterprise 
shall follow the [Publication (Sub-) Distribu tion Rule] jointly drawn up by the GAPP 
and the Ministry of Foreign Trade and Economic Cooperation". 
7.1544  We note in this connection the US statem ent that no Chinese measures other than the  
Publications (Sub-)Distribution Rule  authorize foreign-invested enterprises to engage in the 
distribution of reading materials.  China does not  contest the US statement.  Therefore, the  
Publications (Sub-)Distribution Rule  appears to be the sole regulation governing the establishment of 
foreign-invested enterprises engaging in the dist ribution of books, newspa pers and periodicals.  
Reading the limitation of the scope of the Publications (Sub-)Distribution Rule  to domestically 
published books, newspapers and periodicals which is set forth in Article 2 in conjunction with the 
requirement in Article 16 of the Publications Market  Rule for foreign-invested enterprises seeking to 
distribute any books, newspapers or periodicals to follow the Publications (Sub-)Distribution Rule  
leads to the conclusion that foreign-invested  enterprises are excluded from engaging in the 
distribution of any imported books, newspapers and periodicals. We also note that China confirms 
that, by virtue of Article 2 of the  Publications (Sub-)Distribution Rule , foreign-invested enterprises 
are prevented from wholesaling imported reading materials.818   
7.1545  Consequently, Article 2 of the  Publications (Sub-)Distribution Rule , read in conjunction with 
Article 16 of the Publications Market Rule,  limits the type of sub-distributors available to imported 
books, newspapers, and periodicals by excluding fore ign-invested enterprises from the potential pool 
                                                      
817 United States' responses to question Nos. 61, 74 and 122(h). 
818 China's response to question No. 78. WT/DS363/R 
Page 430  
 
  of sub-distributors.  This means that domestic publications have a wide r range of possible sub-
distributors than their imported counterparts.  An enterprise wishing to sub-distribute an imported book, newspaper or periodical may not distribute its  product through a foreign-invested enterprise, 
regardless of whether the foreign-invested ente rprise might have been a more competitive sub-
distributor for the book, newspaper or periodi cal in question than th e wholly Chinese-owned 
enterprise which is available.  By contrast, an enterprise wishing to sub-distribute a domestically 
published book, newspaper or periodical may select from any sub-distributor it wishes based on which 
sub-distributor will provide the best competitive a dvantage for its products.  Therefore the limitations 
set forth in Article 2 of the Publications (Sub-)Distribution Rule  regarding the type of enterprises that 
may sub-distribute imported books, newspapers, and periodicals, together with the provisions of 
Article 16 of the Publications Market Rule , may reasonably be expected to adversely modify the 
conditions of competition in the marketplace betw een imported and like domestic products and are 
thus inconsistent with China's obligation in Article III:4 of the GATT 1994 to provide no less 
favourable treatment to the like imported products.  
3. Sound recordings 
7.1546  The United States  also claims that China's measures wh ich provide for a content review of 
imported hard-copy sound recordings before they can  be digitalized and distributed electronically are 
inconsistent with China's obligations under Ar ticle III:4 of the GATT 1994.  The United States 
maintains that these measures affect the distribu tion and use of the hard-copy sound recording in 
China and that the additional delays and burdens asso ciated with the content review regime, which are 
not applicable to domestic products, provide less favourable treatment to the imports. 
7.1547  The United States  argues that contrary to the obligation set forth in Article III:4 of the 
GATT 1994 China's measures (both the Network Music Opinions  and the 2001 Audiovisual Products 
Regulation ) impose a more onerous content-review regi me on imported sound recordings intended for 
electronic distribution than for like domestic record ings.  The United States also argues that the only 
criterion for determining whether a sound recordin g intended for electronic distribution must go 
through these more onerous content review process is the national origin of the product.  According, 
to the United States, this means that China accords less favourable treatment to imports of these 
products than to domestic like products. 
7.1548  China argues that contrary to what the United States is alleging, the distribution of sound 
recordings imported in hard copy, but intended fo r so-called "electronic distribution", cannot be 
scrutinized under the rules governing trade in goods.  China maintains that so-called "electronic 
distribution" does not refer to distribution in the sense of Article III:4 of the GATT 1994 insofar as it 
does not involve the distribution of physical goods.  
7.1549  China also argues that the 2001 Audiovisual Products Regulation  and the Audiovisual 
Products Importation Rule  are outside the Panel's terms of reference.  In the alternative, China 
contends that the measures do not affect the so -called "electronic distribution" of the sound 
recordings.  China maintains that  the two measures govern the import of sound recordings in physical 
form and not their internal distribution.  
7.1550  The United States, in its first oral statemen t and second written submission, argues that China 
misunderstands the US cl aim which only applies to measures affecting imported hard-copy media 
containing sound recordings that are intended for electronic distribution and does not include a challenge to any measure's treatment of services or service suppliers involved in the electronic 
distribution of sound recordings.  
7.1551  China however, responds in its second written submission and second oral statement that a 
close reading of the US panel request and first written submission will demonstrate that what the  WT/DS363/R 
 Page 431 
 
 
  United States is actually targeting is electronic di stribution.  China maintains that the challenged 
measures provide for a content review to be applie d to digitalized content (i.e., the digital data 
extracted from the hard copy and subsequently tran sformed into a format suitable for transmission 
over the Internet). Therefore, according to China,  the measures identified by the United States do not 
affect the distribution of hard copies.  
7.1552  Additionally, China argues that the formally different treatment identified by the United 
States does not affect the "distribution" of hard copies and can therefore not be scrutinized under 
Article III:4 of the GATT 1994.  According to Chin a, what the United States suggests should be 
compared is the allegedly different treatment app lied to digitalized products.  China believes that 
following the United States' logic would entail majo r systemic implications, insofar as it would 
amount to applying rules on trade in goods to services provided over the Internet.  China also argues 
that by redefining the target of its claim as bei ng the imported hard-copy sound recording, the United 
States is in fact arguing that the Chinese measures affecting the content of imported hard-copy sound recordings should also be considered as measures affecting "the internal sale, offering for sale, 
purchase, distribution or use of" hard-copy sound re cordings and thus fall under Article III:4 of the 
GATT 1994.  China contends that following this er roneous logic of the United States, would mean 
that GATT rules would apply to any measure regula ting services related to – intangible – content as 
long as there exists a physical carrier capable of being traded, since such a measure would always 
have the alleged effect on its carrier.  
(a) Like products 
7.1553  The United States  argues that all sound recordings, whether domestic or imported, are 
fundamentally the same in all relevant aspects:  they  can contain the same kinds of music, can appeal 
to the same audiences or target markets, and can be  equally suitable for distribution digitally.  The 
United States maintains that China's regulatory regi me for sound recordings intended for electronic 
distribution uses purely nationality and origin-based criteria to determine which of the two sets of 
content review rules will apply. 
7.1554  With respect to the Internet Culture Rule , the United States avers that while Article 16 of the 
Internet Culture Rule  provides that imported internet cultu ral products "shall be reported to the 
Ministry of Culture for examination of their contents", the same provi sion only requires that 
companies circulating domestically produced Internet cultural products "shall file with the Ministry of 
Culture within 60 day of officially beginning circul ation and shall display the Ministry of Culture 
filing number in a prominent place on the products."  The United States also notes that Article 26 of 
the Internet Culture Rule  which sets forth penalties for failure to comply with content review 
requirements maintains this distinction between  imported products which are "approved" by and 
domestic products which are "filed" with the MOC. 
7.1555  Specifically, the United States contends that the Network Music Opinions  subjects imports of 
these products to a much more onerous content re view regime than domestic products, which only 
need to be registered with MOC.  Like wise, the United States contends that the 2001 Audiovisual 
Products Regulation  makes clear that imported products mu st be submitted to MOC for approval 
while domestic sound recordings are subject to th eir publisher's own editorial responsibility system. 
7.1556  
China  does not present any argumentation on wh ether imported and domestic hard-copy 
sound recordings intended for electronic distribution ar e "like" within the meaning of Article III:4 of 
the GATT 1994. 
7.1557  The Panel  notes its finding, in para.7.82, that the 2001 Audiovisual Products Regulation  and 
Audiovisual Products Importation Rule  are outside our terms of reference with respect to the US 
claim on whether China's treatment of hard copy so und recordings intended for electronic distribution WT/DS363/R 
Page 432  
 
  is consistent with Article III:4 of the GATT 1994.  Therefore, we will make no finding as to whether 
these measures distinguish between domestic and impor ted products solely based on origin, or indeed 
whether they are laws, regulations, or requirements affecting the distribution of the products in a 
manner that affords the imported products less favourab le treatment.  Therefore, our analysis will be 
limited to the Internet Culture Rule  and the Network Music Opinions  which were properly identified 
in the US panel request. 
(i) Traditional analysis 
7.1558  The United States  argues that all sound recordings, whether domestic or imported, are 
fundamentally the same in all relevant aspects:  they  can contain the same kinds of music, can appeal 
to the same audiences or target markets, and can be  equally suitable for distribution digitally.  The 
United States provides no further elaboration on  whether imported and domestic sound recordings 
intended for electronic distribution are "like" based on the four traditional criteria in its first written 
submission or in its subsequent submissions to the Panel.   
7.1559  China  provides no argumentation with respect to whether the imported and domestic 
products are "like" within the meaning of Article III:4. 
7.1560  The Panel  notes that other than its assertion in its  first written submission that the imported 
and domestic products are fundamental ly the same in all relevant aspects the United States has not 
addressed through argumentation and evidence the proper ties, nature and quality of the products,  the 
end-uses of the products, consumers' tastes and hab its  in respect of the products,  and the tariff 
classification of the products.  Therefore, we conc lude that the United States has not established that 
imported hard-copy sound recordi ngs intended for electronic distribution are "like" domestic hard-
copy sound recordings intended for electronic dist ribution based on the traditional "like products" 
criteria. 
7.1561  We note that the United States has also argued that the impor ted and domestic products are 
"like" because the challenged measures distinguish be tween them based on origin.  Therefore, we will 
go on to determine whether the United States has estab lished that the products are "like" via this 
route. 
(ii) Internet Culture Rule 
7.1562  With respect to the Internet Culture Rule , the United States  has identified Article 16 as the 
provision which distinguishes between imported an d domestic hard-copy sound recordings intended 
for electronic distribution exclusively based on origin.
819 
7.1563  Article 16 provides: 
"Importing of Internet cultural products sh all be carried out by commercial Internet 
cultural units that have obtained a Ne twork Cultural Business Licence, and the 
products shall be reported to the Ministry  of Culture for examination of their 
contents. 
The Ministry of Culture shall, within 20 business days (not including the time 
required for specialist evaluation) of receipt  of an application for examination of 
contents, make a decision on whether or not  to approve the application.  If the 
application is approved, an approval document  shall be issued: if the application is 
not approved, the reasons shall be clearly stated. 
                                                      
819 United States' response to question No. 252.  WT/DS363/R 
 Page 433 
 
 
  Units that obtain approval for the import of In ternet Culture products shall display the 
Ministry of Culture approval number in a prominent place on the products, and shall not alter program names or add to or dele te program contents on their own.  If a 
product is not put into circulation within  one year of approval, the importing unit 
shall file with the Ministry of Commerce to f ile this fact and clearly state the reasons.  
When it is decided to end import of the pr oduct, the Ministry of Culture will cancel 
the approval number. 
Internet cultural units that circulate domes tically produced Internet cultural products 
that need to be filed as required by relevant  provisions shall file with the Ministry of 
Culture within 60 days of officially beginning circulation and shall display the 
Ministry of Culture filing number in  a prominent place on the products." 
7.1564  The United States contrasts the treatment of im ported Internet cultural products in Article 16 
with domestic ones in Article 19 of the Internet Culture Rule .  Specifically, the United States notes 
that pursuant to Article 19 domestic Internet cultura l products are to be reviewed by their domestic 
distributor's internal content examination system. 
7.1565  The Panel notes that on its face, Article 16 sets fo rth a content review process for imported 
Internet cultural products which must be approved by  the MOC.  By contrast, Article 19 refers to a 
requirement for domestically produced Internet cultu ral products to be "filed" with the MOC which 
can happen after circulation of the product has alre ady begun.  The only distinction contained in the 
measure for determining which requirement must be fo llowed, content review or filing, is the origin 
of the Internet cultural product.  Therefore, the Internet Culture Rule  establishes a difference in 
treatment between domestic and imported Internet cultural products.  Thus, as a result of this 
difference in treatment, even imported Internet cu ltural products that are identical to domestic ones 
(except for origin) would be subject to government  content review while th eir domestic counterpart 
would only need to be filed with the Ministry.  In  our view, it is clear that there will, or can, be 
domestic and imported Internet cultural produc ts that are the same, except for origin.
820  
7.1566  However, we note that Article 16 does not refer to hard-copy sound recordings intended for 
electronic distribution, rather it refers to "Interne t cultural products".  Therefore, before we can 
determine whether Article 16 creates a difference in treatment between th e imported and domestic 
products which are the subject of this dispute based exclusively on their origin we must determine whether Article 16 applies to the imported product identified by the United States, i.e., hard-copy 
sound recordings intended for electronic distribution. 
7.1567  We note that Article 2 of the Internet Culture Rule states that the "Internet cultural products" 
as used in the Rule. 
"refer to the cultural products produced, disseminated, and circulated through the 
Internet, primarily consisting of: 
 (1) Internet cultural products produced sp ecially for dissemination over the Internet 
such as network audiovisual products (inc luding VOD, DV), network games, network 
performances (drama), network works of ar, and animated cartoons (including 
FLASH); and 
                                                     
 
820 For instance it is possible that both an imported and domestically produced Internet cultural product 
could contain the same recording of a song sung by a particular artist.   WT/DS363/R 
Page 434  
 
  (2) Audiovisual products, game products , performances (drama), works of art, 
animated cartoons, and other Internet cultura l products produced or reproduced by the 
use of certain technological means to disseminate over the Internet."
821 
7.1568  The United States contends that Article 2(2) means that the Internet Culture Rule covers, inter 
alia, all audiovisual products including those in hard-c opy format intended for electronic distribution.  
China, on the other hand, maintain s that the challenged measures provi de for a content review to be 
applied to digitalized content (i.e. the digital da ta extracted from the hard copy and subsequently 
transformed into a format suitable for transmissi on over the Internet) before its transmission over 
Internet. 
7.1569  The United States is correct that Article 2(2) Internet Culture Rule  refers to "audiovisual 
products" which, as defined in Article 2 of the Audiovisual Products Importation Rule  would include 
audio and video CDs which have recorded c ontents.  However, Article 2(2) of the Internet Culture 
Rule refers to audiovisual products "produced or reproduced by th e use of certain technological means 
to disseminate over the Internet".  It is not cl ear to us that these two groups of products are 
synonymous and the United States has provided no argum entation with respect to the meaning of this 
qualifying phrase.  Likewise, China has not sp ecifically addressed the US interpretation of 
Article 2(2), nor has it explained why subparagraph 1 of Article 2 refers to "network audiovisual 
products" and subparagraph 2 of Artic le 2 refers to audiovisual products "produced or reproduced by 
the use of certain technological means to disseminate over the Internet".  
7.1570  Therefore, it is less than clear what types of products are governed by the Internet Culture 
Rule.  Because the United States is arguing that the imported and domestic products are "like" because 
the Internet Culture Rule makes distinctions between the two gr oups of products exclusively based on 
origin, understanding whether Article 16 applies to hard-copy sound recordings intended for 
electronic distribution is essential to a determinati on of whether the imported product (i.e., the hard-
copy sound recording intended for electronic distribution) is "like" the domestic product.  If the Panel cannot determine whether the measure treats importe d and domestic products differently exclusively 
based on origin, we cannot determine whether the imported and domestic pr oducts are "like" on the 
basis asserted by the United States.   
7.1571  We note, however, that the "like products" requi rement is only one of the elements which 
must be proven to establish an Article III:4 claim.  A definitive determination on likeness is only necessary if the United States establishes that the measures affect the distribution of the imported 
products in a manner which affords less favourable tr eatment.  Therefore, we will defer our analysis 
of the "like products" element and proceed with our analysis on the assumption that Article 16 applies 
to imported hard-copy sound recordings intended for electronic distribution.  If we find that the United States has demonstrated that the measures affect the distribution of the imported hard-copy 
sound recordings intended for electronic distributi on in a manner which affords less favourable 
treatment to the imported products then we will retu rn to the question of whether the "like products" 
requirement is met because the measures establish different treatment for imported and domestic 
products exclusively based on their origin.   
(iii) Network Music Opinions 
7.1572  According to the United States , the Network Music Opinions  implements and reinforces the 
same discriminatory content review regime set up by the Internet Culture Rule .   According to the 
United States, the Network Music Opinions  simply provides more detail regarding the content review 
regime set forth in the 
Internet Culture Rule .   
                                                      
821 Article 2, Internet Culture Rule  (Exhibit – US 32).  WT/DS363/R 
 Page 435 
 
 
  7.1573  The United States identifies Article 9 as the provision which distinguishes between imported 
and domestic hard-copy sound record ings intended for electronic distribution exclusively based on 
origin. 
7.1574  Article 9 provides: 
"(9) Instituting a system for examining the content of network music products.  
Network music products transmitted inside the People's Republic of China must be 
approved by the Ministry of Culture for im portation or filed with the Ministry of 
Culture.  Imported network music products can  only be used after the Ministry of 
Culture examines their content.  Impor ted music products transmitted over the 
network, even if the Ministry of Culture has already examined their content, should 
be processed according to law by internet cultural units (see appendices for related 
requirements).  The business of importing network music can only be handled by 
internet cultural units approved by the Mi nistry of Culture.  Anyone who transmits 
imported network music on its own will be investigated and punished accordingly by 
the Ministry of Culture according to law, while at the same time, it will be requested 
that telecommunications management de partments deal with related websites 
according to law.  Domestically produced music products that are to be exclusively transmitted over the network shall be filed with the Ministry of Culture." 
7.1575  The Panel notes that, just as with the Internet Culture Rule , Article 9 sets up a content review 
process for imported network music products whereas domestically produced network music products 
are not subjected to the same procedures, but ra ther must be "filed" with the MOC.  The only 
distinction contained in the measure for determin ing which requirement must be followed, content 
review or filing, is the origin of the network music product.  Therefore, the Network Music Opinions  
establishes a difference in treatment between dom estic and imported network music products, which 
include hard-copy sound recordings intended for electr onic distribution.  As a result of this difference, 
even an imported network music product which was id entical in all respects to a domestic one would 
be subject to Government content review while its domestic counterpart would only need to be filed 
with the Ministry.  In our view, it is clear that there will, or can, be dom estic and imported network 
music products that are the same, except for origin. 
7.1576  However, we note that the Network Music Opinions , which is based on the Internet Culture 
Rule, does not define "network music products".  Therefore, before we can determine whether 
Article 9 creates a difference in treatment between  the imported and domestic products which are the 
subject of this dispute based exclusively on their or igin we must determine whether Article 9 applies 
to the imported product identified by the United Stat es, i.e., hard-copy sound recordings intended for 
electronic distribution. 
7.1577  The United States points out that the Network Music Opinions  implements and is based on the 
Internet Culture Rule.  The United States, therefore, concludes that the product coverage in both 
measures is the same.  Essentially, the United States contends that the definition of "network music 
product" in the Network Music Opinions is the same as that of "audiovisual products" in the Internet 
Culture Rule , which it believes includes hard-copy sound recordings imported in physical form 
intended to be distributed in China for eventual tr ansmission over a network, e.g., the Internet or a 
mobile telecommunications network.   
7.1578  China, for its part, maintains that the content review provided for in the Network Music 
Opinions  applies to the digitalized version of th e music previously embedded on the imported 
hardcopy.  According to China this content review is primarily aimed at verifying whether the content 
of the digitalized version remains the same as  the hard-copy, therefore, it is the digitalized version WT/DS363/R 
Page 436  
 
  (that is ready to be put on-line) that is subject to content review, not the hard-copy format in which the 
sound recording is embedded.
822 
7.1579  China relies on Article I of Appendix 2 of the Network Music Opinions  which sets forth the 
type of materials that should accompany the co ntent examination application for "imported 
audiovisual products (including those officially published and distributed) whose content has already 
been examined by the Ministry of  Culture and are to be transmitted over the information network."  
These materials are 
 "1. Form for the Examination of Imported Network Music Products; 2. Duplicate or 
copy of letter of authorization to transm it over the Information network and a draft 
product circulation agency agreement (in Ch inese and foreign language versions), and 
certificate of original copyright; 3. Ministry of Culture Letter of Approval for Import 
of Audiovisual Products; 4. Copies of the Network Culture Business Licence and Business Licence of the applying unit; 5. Applying unit's website, IP address, music 
product registration and recording account num ber and corresponding codes; and 6. 
Other documents as needed for content examination." 
7.1580  The Article also notes that after receiving the application the MOC will make an approval 
decision within 20 business days. 
7.1581  However, China does not refer to Article II of A ppendix 2, which is cited by the United States 
as setting forth content review procedures applicab le to imported hard-copy sound recordings 
intended for electronic distribution.
823 That article provides that:  
"[A]part from Article I of this attachment , commercial internet culture units which 
wish to import network music products for transmission through the information 
network shall apply to the Ministry of Culture and submit the following documents 
and materials:  
1.  Form for the Examination of Imported Ne twork Music Products; 2.  Drafts  of the 
copyright trading agreement including transmission right or circulation agency 
agreement (Chinese and foreign language vers ions); original certificate of copyright; 
copy or duplicate of the Letter of Authorization to Transmit Over the Information Network; 3.  CD of the program (including Chinese and English lyrics); 4.  Copies of the Network Cultural Business Licence and Business Licence of the applying unit; 5.  
Applying unit's website, music product re gistration and recording account number 
and corresponding codes; and 6. Othe r documents as needed for content 
examination." 
7.1582  The Article also notes that after receiving the application, the Examination Committee of the 
MOC shall examine the contents and draw up an opinion, and that the MOC, based on that opinion shall within 20 business days (not including the time for special evaluations) make an approval 
decision.   
7.1583  The Panel  notes that the United States relies on the Internet Culture Rule for its 
understanding that "network music products" referred to in the Network Music Opinions is equivalent 
to the definition of "audiovisual products" set forth in Article 2(2) of the Internet Culture Rule.   
However, we recall our finding in paragraph 7.1570, above that it is unclear whether the audiovisual 
                                                     
 
822 China's  response to question No. 274(a). 
823 United States' response to question No. 245, citing United States' first written submission, 
paras. 190-195.  WT/DS363/R 
 Page 437 
 
 
  products described in that Article are synonymous with hard-copy sound reco rdings.  We also note 
once again that, the United States' and China's explan ations with respect to what is submitted to the 
MOC for content review have not left us with  a sufficiently clear understanding of the factual 
situation.824 
7.1584  Specifically, it is unclear from the argumenta tion presented by the United States and China 
what exactly the MOC reviews pursu ant to the procedures in Article 9 and Appendix 2.  China asserts 
that a digital copy is reviewed, but does not address the ambiguity raised by the terms in Article II of 
Appendix 2.  The United States tells the Panel th at it "understands" that the MOC reviews the 
imported hard-copy sound recording but provides no substantiation for this assertion.  Because the 
United States is arguing that the imported and domestic products are "like" because the Network 
Music Opinions make distinctions between the two groups of products exclusively based on origin, 
understanding whether Article 9 a nd Appendix 2 apply to hard-copy sound recordings intended for 
electronic distribution is essential to a determinati on of whether the imported product (i.e., the hard-
copy sound recording intended for electronic distribution) is "like" the domestic product.  If the Panel cannot determine whether the measure treats importe d and domestic products differently exclusively 
based on origin, we cannot determine whether the imported and domestic pr oducts are "like" on the 
basis asserted by the United States.   
7.1585  We recall, that the "like products" requirement is only one element which must be proven to 
establish an Article III:4 claim.  A definitive dete rmination on likeness is only necessary if the United 
States establishes that the measures affect the dist ribution of the imported products in a manner which 
affords less favourable treatment.  Therefore, we will defer our analysis of the "like products" element 
and proceed with our analysis on the assumption that the Network Music Opinions  applies to imported 
hard-copy sound recordings intended for electronic distribution.  If we find that the United States has demonstrated that the measures affect the distribut ion of the imported hard-copy sound recordings 
intended for electronic distribution in a manner wh ich affords less favourab le treatment to the 
imported products then we will return to the ques tion of whether the impor ted and domestic products 
are "like products" requirement is met because th e measure establishes different treatment for 
imported and domestic products exclus ively based on their origin.   
(b) Laws, regulations, or requirements affecting  ... distribution 
(i) Laws, regulations or requirements 
7.1586  The United States  argues that the Network Music Opinions  governs the conditions that must 
be met in order to distribute sound recordings intended for electronic distribution by making content 
review and approval by MOC a prerequisite fo r the electronic distribution of imported sound 
recordings.  
7.1587  With respect to the Internet Culture Rule , the United States contends that Article 2(2) 
provides that audiovisual products in hard copy that have been transformed in order to be 
disseminated over the Internet are within the purview of the Rule, while Article 3(1) lists the Internet 
cultural activities governed by the rule as including the wholesaling, retailing and renting of Internet 
cultural products.  
7.1588  The United States goes on to argue that the 2001 Audiovisual Products Regulation  and the 
Audiovisual Products Importation Rule s regulate and govern the distribution of all audiovisual 
products in China, including sound recordings.   
                                                     
 
824 United States' responses to question Nos. 262(d) and 274(a) and (b); China's response to question 
No. 274(a) and (b). WT/DS363/R 
Page 438  
 
  7.1589  In response to question No. 121 the United States identifies the 2001 Audiovisual Products 
Regulation  as an "administrative regulation", the Internet Culture Rule  and the Audiovisual Products 
Importation Rule  as "departmental rules", and the Network Music Opinions  as "other regulatory 
documents". 
7.1590  The United States maintains that each of th ese measures falls within the definition of 
"regulations" as that term is used in Article III:4 and that the departmental rules and other regulatory 
documents also fit within the scope of the term  "requirements" in Article III:4 of the GATT 1994. 
7.1591  China  does not present argumentation on whether the Internet Culture Rule  and the Network 
Music Opinions  are "laws, regulations, or requirements". 
7.1592  The Panel recalls that the phrase "laws, regulations, or requirements" encompasses a variety 
of government measures, from mandatory rules wh ich apply across the board to government action 
that creates voluntary incentives or disincentives.   
7.1593  With respect to the Internet Culture Rule , Article 16 of the Internet Culture Rule  requires that 
the importing of internet cultural products shall be carried out by Internet cultural units which have 
obtained a Network Cultural Business Licence and that the products shall be reported to the MOC for 
examination of their contents.  Article 16 also pr ovides that the MOC will conduct an examination of 
the contents of the products and provides that Inte rnet cultural units must display their MOC approval 
number in a prominent place on the products, and shall not alter the program names or add to or delete 
program contents on their own.  We also note that Article 26 provides for monetary fines for non-compliance with the requirement to display the MOC approval or filing number, whichever is 
required.   
7.1594  The Network Music Opinions  states that it is "based" on the Internet Culture Rule  and 
provides more detailed procedures for obtaining MO C content approval for imported internet cultural 
products.  First, Article 9 reiterates that  "[i]mported network music products can only be used after the 
Ministry of Culture examines their content." Addition ally, Appendix 2 lists the materials that need to 
be provided to the MOC as part of the appli cation for approval for such imported products.
825  
7.1595  The Internet Culture Rule  and the Network Music Opinions  together create the process by 
which imported sound recordings intended for electr onic distribution are subjected to content review 
by the MOC.   These procedures must be complied w ith if an Internet Culture Provider ("ICP") or 
/Mobile Content Provider ("MCP") wants to tran smit the content on the imported hard-copy sound 
recording in digital format over a network or the In ternet.  If the procedures set forth are not followed, 
penalties can be imposed by the Government of Chin a.  We therefore, find that they are mandatory 
rules applying across the board and as such are "regul ations" within the meaning of Article III:4 of the 
GATT 1994 regardless of their legal form within China.  
  
(ii) Affecting ...  
7.1596  China  argues that in its answers to the Panel' s questions and its second written submission the 
United States has impermissibly enlarged its cl aim under Article III:4 of GATT 1994.  Specifically, 
China maintains that in the pane l request the United States only iden tified an alleged inconsistency 
with respect to China's laws, regula tions, or requirements affecting the distribution  of imported sound 
                                                     
 
825 Preamble, Article 9, Appendix 2:I and II, Network Music Opinions  (Exhibit US-34).  WT/DS363/R 
 Page 439 
 
 
  recordings intended for electronic distribution.  China,  therefore, contends that any subsequent claims 
with respect to China's laws, regula tions, or requirements affecting the use of those products are 
outside the Panel's terms of reference. 
7.1597  The United States in its second oral statement and in response to a specific question from the 
Panel, maintains that it made a cl aim with respect to Article III:4 in toto  and that any argumentation 
that the relevant measures affect the use of the im ported products is covered by the US claim with 
respect to Article III:4. 
7.1598  Part IV of the US panel request is entitle d "Sound Recordings Distribution".  The United 
States then provides a narrative description of its complaint: 
"The United States considers that China is acting inconsistently with its obligations 
under the GATT 1994 and the Accession Protocol by providing distribution 
opportunities for sound recordings imported in to China in physical form that are less 
favourable than the distribution opportun ities for sound recordings produced in 
China .  
China appears to require that sound recordings imported into China in physical form 
but intended for digital distribution must undergo content review by the Chinese 
Government prior to such distribution within China.  However, domestically produced sound recordings appear not to be subject to this requirement, but can instead be digitally distributed immediately.   It thus appears that sound recordings 
imported into China in physical form are treated less favourably than sound 
recordings produced in China in physical form." (emphasis added)  
7.1599  The United States then identifies the specific meas ures it is concerned with and concludes that 
"the measures at issue therefore appear to be inconsistent with China's obligations under Article III:4 
of the GATT 1994."
826 
7.1600  The United States' only arguments in its fi rst written submission with respect to the 
consistency of China's measures governing sound reco rdings intended for electronic distribution with 
Article III:4 of the GATT are contained in a sec tion entitled "China's Meas ures Regarding Product 
Distribution Are Inconsistent With China's Oblig ations Under Article III:4 of the GATT 1994".  The 
title of the section indicates that the only inconsiste ncy the United States is concerned with is in 
respect of China's measures regarding the distribution of hard-copy sound recordings intended for 
electronic distribution.  
7.1601  In its first written submission, the United States does refer to the measures as laws, 
regulations or requirements "affecting the internal sa le, offering for sale, purchase, distribution or use  
of sound recordings intended for electronic dist ribution within the meaning of Article III:4."827  
However, in its description of the measures the Un ited States refers to the Network Music Opinion as 
governing "the conditions that must be met in or der to distribute sound recordings intended for 
electronic distribution."828  Likewise, with respect to the Internet Culture Rule , the United States 
asserts that it "regulates and governs the distribut ion of sound recordings  intended for electronic 
distribution in China."829  The United States, in its first written submission does not present any 
argumentation on any of the other various activities described in Article III:4 of the GATT 1994, such 
as sale, offer for sale, purchase, transportation or use.  
                                                      
826 United States' panel request, WT/DS363/5. 
827 United States' first written submission, paras. 379 - 380. 
828 Ibid., para. 379. 
829 Ibid., para. 380. WT/DS363/R 
Page 440  
 
  7.1602  In response to a question from the Panel ask ing the United States to explain how the 
challenged measures affect the "distribution" within  China of sound recordings imported in physical 
form (as opposed to the distributio n of the content subsequently transmitted in digital form via the 
Internet),
830 the United States restates Article III:4 of the GATT 1994 and then maintains that 
"distribution is only one of the elements that a measure  can "affect" in order to fall within the scope of 
Article III:4 of the GATT 1994."831  The United States then argues: 
"The Panel's question appears to be focused on whether the distribution of the 
physical copy of the sound recording is 'affected' by the relevant Chinese measures 
because the sound recording is ultimately tr ansformed into a form that can be 
distributed electronically.  However, for th e reasons set forth above, the United States 
considers that this is not the situation pr esented by this dispute because the relevant 
measures affect the 'use' of the hard-cop y sound recordings intended for electronic 
distribution."832   
7.1603  We agree with China that in its response to the aforementioned question from the Panel, and 
through its subsequent submissions833, the United States altered its focus from whether the measures 
affected the distribution of imported hard-copy so und recordings intended for electronic distribution 
to whether the measures affected their use.  The issue then beco mes whether this shift in focus 
amounts to the United States raising a new claim th at is not within our terms of reference. 
Is "use" within the Panel's terms of reference?  
7.1604  The United States  maintains in its response to the second set of Panel questions 
"[t]he c laim is that the relevant measures accord  less favourable treatment to imported 
products in contravention of Article III:4.  Whether the relevant measures affect the 
use or distribution of the imported product – or both – are arguments  in support of the 
claim, not separate claims.  Thus the US claim itself has not changed." (emphasis original)
834 
7.1605  The Appellate Body has clarified that a "claim " in the context of WTO dispute settlement is 
"a claim that the respondent party has violated, or nullified or impaired the benefits arising from, an 
identified provision of a particular agreement," wh ich is to "be distinguished from arguments adduced 
by a complaining party to demonstrate that the responding party's measure does indeed infringe upon 
the identified treaty provision."835   Arguments in support of a claim may be set out and progressively 
clarified in the first written submissions, the rebuttal submissions and the first and second panel 
meetings with the parties.836  However, a party may not use its submissions to "cure" a deficient panel 
request.837    
                                                      
830 question No. 126. 
831 United States' response to question No. 126. 
832 United States' response to question No. 126. 
833 United States' response to question No. 126; Un ited States' second written submission, para. 195; 
United States' second oral statement,  para. 61; United States' response to question No. 246; United States' 
response to question No. 247(a); United States' response to question No. 257. 
834 United States' response to question No. 246. 
835 Appellate Body Report on Korea – Dairy , para. 139. (emphasis original;  internal citations omitted)     
836 Appellate Body Report on EC – Bananas  III, para. 141. 
837 Ibid., para. 143; see also Appellate Body Report on  United States – Carbon Steel , para. 127.  WT/DS363/R 
 Page 441 
 
 
  7.1606  Claims made in WTO dispute settlement must be explicit.  Only in this way will a panel, 
other parties, and third parties understand that a specific claim has been made, be aware of its 
dimensions, and have an adequate oppor tunity to address and respond to it.838 
7.1607  As noted above, Article III:4 of the GATT 1994 requires Members to provide no less 
favourable treatment to imported like products in  respect of measures affecting a variety of  specific 
transactions , activities, and uses  relating to products in the marketplace.839   
7.1608  The reference to this variety of transactions, activities, and uses in Article III:4 was not an 
accident.  We recognize that there could be overl ap between the various transactions governed by 
Article III:4 of the GATT 1994, in the sense that a regulation affecting sale might in some circumstances also affect purchase.  We note, howev er, that the information necessary to prove that a 
law, regulation, or requirement affects transporta tion might very well be different from that necessary 
to prove that the same measure also  affected use.  Therefore, a comp lainant, in its panel request, when 
making a claim of inconsistency with Article III: 4 of the GATT 1994 must allege that a measure 
affects the identified transactions, activities, and us es and also provides less favourable treatment to 
the imported like products with respect to that tr ansaction, activity, or use.  A complainant could 
accomplish this task in three ways: first a complain ant could simply reference Article III:4, second, a 
complainant could list all the various transactions, activities, and uses subject to the obligation in 
Article III:4, or a complainant could identify the specific one(s) which it is claiming the respondent 
Member's measures affect.  
7.1609  The United States in its panel request did not make an allegation with respect to several of the 
various transactions, activities, and uses nor did it bri ng an allegation with respect to all of them.  The 
United States, in its panel request, specifically mentioned distribution and distribution alone.  To 
recall, the US panel request states in relevant part  that "China is acting inconsistently with its 
obligations under the GATT 1994 and the Accession Protocol by providing distribution opportunities 
for sound recordings imported into China in phy sical form that are less favourable than the 
distribution opportunities for sound reco rdings produced in China".  We find that this is a statement of 
a claim.  As we see it, the United States claims that certain action taken by China – the provision of 
allegedly less favourable distribution opportunities – is inconsistent with the GATT 1994, and, more 
specifically, Article III:4.   We do not find convi ncing the US contention that the reference to 
"distribution" is an argument in support of a claim.   Indeed, if the reference to "distribution" were 
considered a mere argument, it would then be uncl ear from the panel request what measure, i.e. the 
action attributable to China is the subject of th e US claim.  Therefore, we cannot accept the United 
States' contention that its references to distribution in  the panel request are not part of its claim.  At 
any rate, even accepting, arguendo , that the reference to "distribu tion" constitutes an argument, we 
note that there is no indication in the text of the panel request that any other argument might possibly be pursued.  For example, the panel request does not say that China is acting inconsistently with its 
WTO obligations " inter alia  by providing distribution opportunities".  Thus, in view of how the panel 
request is drafted, we think that China would reas onably infer in good faith that the United States was 
providing additional clarification and delimiting the scope of the case China would have to answer 
and, more particularly, that the United States would present a case before the Panel that relates 
exclusively to distribution.   
7.1610  Therefore, we find that the United States, in its panel request, did not make a claim with 
respect to whether China's laws, regulations or requirements affecting the internal use of hard-copy 
sound recordings intended for electronic distribution afforded less favourable treatment to imported 
like products in a manner inconsistent with Article  III:4 of the GATT 1994.  Consequently, we will 
not consider the US claim with respect to the "use" of hard-copy sound recordings intended for 
                                                     
 
838 Appellate Body Report on Chile – Price Bands , para. 164. 
839 Appellate Body Report on US – FSC (Article 21.5-EC) , para. 208. WT/DS363/R 
Page 442  
 
  electronic distribution in determining whether Chin a has acted inconsistently with its obligations 
under Article III:4 of the GATT 1994.   
7.1611  However, even though the United States shifte d its argumentation to support a claim with 
respect to "use" we note that it did not drop the claim with respect to "distribu tion" and this is still 
before us.  A claim with respect to whether Chin a's challenged "laws, regul ations, or requirements" 
affect the distribution  of imported hard-copy sound recordings intended for electronic distribution 
within China is before us and, as we understand  it, still being pursued by the United States.  
Therefore, we will proceed to determine whether the United States has established that the challenged 
measures affect the internal distribution of imported hard-copy sound recordings intended for 
electronic distribution. 
Distribution
 
7.1612  The United States argues that "distribution" covers a wide variety of transactions, 
encompassing the broad range of activities involved in moving a product through the chain from production to consumption. According to the United States, this includes the transfer of hard-copy 
sound recordings from the importer to the ICP or MCP,  submission of the sound recording for content 
review by the ICP or MCP, and c onversion of the sound recording into a format suitable for electronic 
submission. According to the United States, distri bution of a product may involve both purchase of 
that product and offering for sale of that product. 
7.1613  The United States argues that the content review  procedures in China's measures affect the 
internal distribution of hard-copy sound recordings  intended for electronic distribution and provide for 
less favourable treatment of the imported produc ts vis-à-vis their domestic competitors. 
7.1614  Specifically, with respect to the Internet Culture Rule , the United States maintains that 
Article 2(2) and Article 3(1) demonstrate that it ap plies to the wholesaling, retailing, and renting of 
audiovisual products in hard-copy to  be disseminated over the internet.  The United States argues that 
the content review requirements, set forth in Article 16 of the Internet Culture Rule  affect the 
distribution of the hard-copy sound recording and wh en read together with Article 19, which provides 
that domestic hard-copy sound recordings may be examined "in house" by an Internet Culture unit 
without waiting for MOC approval, provide less favourable treatment to imported hard-copy sound recordings.  
7.1615  The United States, likewise argues that the Network Music Opinions  only requires that 
domestic sound recordings be registered with th e MOC and does not require any official content 
review and approval by MOC prior to any distributi on.  By contrast, pursuant to Article 9 of the 
Network Music Opinions , imported sound recordings must satisfy the burdensome requirements 
created by the MOC content review and approval pro cess.  The United States asserts that this content 
review process is set forth in Appendix 2, Articles I and II of the Network Music Opinions .  
7.1616  The United States also argues that the 2001 Audiovisual Products Regulation  and Audiovisual 
Products Importation Rule  "echo" this discriminatory content review requirement.  Specifically, the 
United States notes that Article 16 of the 2001 Audiovisual Products Regulation  provides that a 
domestic sound recording is subject to its publisher's own internal editorial responsibility system; 
whereas Article 28 requires that both finished a nd unfinished imported sound recordings must be 
submitted to MOC for content review and approval.  The United States contends that Article 16 of the 
Audiovisual Products Importation Rule  confirms that that imported sound recordings intended for 
distribution over networks are subject to the same  content review requirements as hard copy sound 
recordings.   WT/DS363/R 
 Page 443 
 
 
  7.1617  China  argues that its measures do not affect the distribution of imported hard-copy sound 
recordings intended for electronic distribution.  First, China contends that Article 28 of the 2001  
Audiovisual Products Regulation  as well as Articles 14 and 16 of the Audiovisual Products 
Importation Rule  establish a content review requirement at the importation stage and can therefore in 
no way be considered as affecting the distribution of products that have alread y been imported.  China 
then goes on to argue that the distribution allegedl y affected by the content review requirement does 
not relate to the hard-copy, which is the good actuall y being imported, but to the digitalized contents 
and can therefore not be scrutinized under Article III:4 of the GATT 1994.  
7.1618  Finally, China contends that even should the broad definition of distribution provided by the 
United States be accepted, the product that the IC P's activities aim at moving downstream is not the 
hard copy, but the digitalized content.  
7.1619  The Panel  recalls that before any analysis of Ch ina's compliance with Article III:4 can be 
conducted, we must determine whether Article III:4 is applicable to the ch allenged measures.  The 
Appellate Body has explained that the "fundamental structure and logic" of a covered agreement may 
require panels to determine whether a measure falls within the scope of a particular provision or 
covered agreement before proceeding to assess the consistency of  the measure with the substantive 
obligations imposed under that provision or covered agreement.840  We also agree with the panel in 
China – Auto Parts  that such an analysis is consistent w ith our duty under Article 11 of the DSU to 
determine the applicability of the provisions invoke d by the complaining party as the basis for its 
claims with respect to the measures at issue.841       
7.1620  As noted above, for Article III:4 to be applicable there must be (i) like imported and domestic 
products and (ii) laws, regulations, or requirement s affecting one of the listed transactions in the 
"internal" market.  Therefore, if the challenged la ws, regulations, or requirements are not "internal" 
measures they are not subject to the obligation to provide national treatment contained in Article III:4 
of the GATT 1994.   
7.1621  As the United States has satisfied its burden with respect to whether the domestic and 
imported products are like, what remains for the Unite d States to prove in order to satisfy its burden of 
proof that Article III:4 is applicable is that China's measures operate in such a way that they affect the 
internal distribution of the hard-copy sound recordin g intended for electronic distribution, which is the 
imported product that is the subject of the US claim.   We believe the United States must, therefore, demonstrate that the challenged measures are "inter nal" measures within the meaning of Article III 
and that the measures in fact operate in a manner which affects the distribution of the imported hard-
copy sound recordings within China.    If the Unite d States cannot so demonstrate, then it cannot show 
that the measures are subject to the national treat ment obligation in Article III:4 of the GATT 1994. 
Whether the measures are "internal" measures 
7.1622  In response to the United States' claim that its measures requiring government content review 
of hard-copy electronic sound recordings prior to  distribution in China are inconsistent with 
Article III:4 of the GATT 1994, China  argues that the 2001 Audiovisual Products Regulation  and the 
Audiovisual Products Importation Rule  apply prior to importation and therefore do not affect the 
imported hard-copy sound recordings or their distributi on within China.  China itself, however, notes 
that the Internet Culture Rule  and the Network Music Opinions , which it contends review the digital 
content extracted from the hard-copies, apply after importation.   
                                                     
 
840 Appellate Body Report on China – Auto Parts , para. 139; also Appellate Body Report on Canada – 
Autos , para. 151 (quoting Appellate Body Report on US – Shrimp, para. 119);  and Appellate Body Report on 
US – Gasoline , p. 22, DSR 1996:I, 3, at 20. 
841 Panel Report on China – Auto Parts , footnote 270 to para. 7.105. WT/DS363/R 
Page 444  
 
  7.1623  The United States  argues that, given the ad Note  to Article III of the GATT 1994 the fact that 
the measures apply upon importation does not remove  them from the ambit of Article III:4 of the 
GATT 1994 so long as they affect  the internal distribution of the imported product.  Specifically, the 
United States argues that the m easures at issue impose content review-related legal requirements on 
both imported and domestic hard copy CDs that they must fulfil before distribution inside China.  
According to the United States the fact that the legal hurdles facing the imported hard-copy CDs are 
administered at the Chinese border, while domestic g oods must meet their obligations prior to internal 
distribution does not transform the measure into a border measure. 
7.1624  The Panel  agrees with the United States that the Ad Note  clarifies that merely because a 
measure is applied at the border does not mean that  it is outside the scope of Article III of the 
GATT 1994.  The Ad Note to Article III states that Article III shall apply to any law, regulation, or 
requirement affecting the internal sale, offer for sale, purchase, transportation, distribution, or use 
even if such law is enforced with  respect to the imported product at the time or point of importation. 
We, therefore, concur with the ruling of the panel in India – Autos that "the fact that a requirement is 
imposed as a condition on importation is not necessar ily in itself an obstacle to its falling within the 
scope of Article III:4."
842  However, we note that China's argu ments with respect to the contested 
measures being "border measures" relate to the 2001 Audiovisual Products Regulation and the 
Audiovisual Products Importation Rule , which are not within our terms of reference with respect to 
this claim.   
7.1625  Therefore, the task before us  is to determine whether the Internet Culture Rule and the 
Network Music Opinions  are "internal measures" such that th ey are subject to the obligations in 
Article III of the GATT 1994.  To that end,  we note the Appellate Body's decision in China – Auto 
Parts that in determining whether a charge was "int ernal" and subject to Article III:2 or a border 
measure "a panel must thoroughly scrutinize the me asure before it, both in its design and in its 
operation, and identify its principal characteristics.   Having done so, the panel must then seek to 
identify the leading or core features of the measure at issue, those that define its  'centre of gravity' for 
purposes of characterizing the charge that it imposes as an ordinary customs duty or an internal 
charge."843  We see no reason why such an analytical ex ercise would not also be appropriate in 
determining whether a law, regulati on or requirement affects "internal"  factors and is therefore subject 
to Article III:4.  We also note the Appellate Body 's reasoning that a charge is "internal" if the 
obligation to pay it accrues because of some in ternal factor that occurs after importation.844  We find 
this instructive for purposes of an analysis of whet her a "law, regulation, or requirement" relates to the 
internal distribution of a good.  Th erefore, we will analyse whether the Internet Culture Rule  and the 
Network Music Opinions  apply internally based on this guidance from the Appellate Body.  
7.1626  Therefore, we now turn to identify the principal characteristics of the Internet Culture Rule  
and the Network Music Opinions  to determine whether the obligation to comply with the content 
review requirements is triggered by some internal factor after the hard-copy sound recording intended 
for electronic distribution is imported into China. 
7.1627  We note that Article 16 of the Internet Culture Rule  refers to "the importing" of Internet 
cultural products, which suggests that the measure a pplies as part of the process of importation.  
However, unlike other measures which govern importation, such as the 2001 Audiovisual Products 
Regulation , there is no reference in the Internet Culture Rule  to a subsequent completion of customs 
procedures.845  Additionally, Article 9 of the Network Music Opinions  states that "[i]mported network 
                                                      
842 Panel Report on India – Autos , para. 7.306 ( internal citation omitted) . 
843 Appellate Body Report on China – Auto Parts , para. 171. 
844 Ibid. 
845 For example, Article 28 of the 2001 Audiovisual Products Regulation  provides: "[a]n entity which 
imports audiovisual products for publishing and a business entity which imports finished audiovisual products  WT/DS363/R 
 Page 445 
 
 
  music products can only be used after the Ministry of Culture examines their content." (emphasis 
added).  This indicates that the Network Music Opinions  is interested in the use of the product once it 
is inside China rather than the process of appr oving the product for importation.  Article 9 and 
Article I of Appendix 2 also explain that the cont ent review requirement applies to imported music 
products "even if the Ministry of Culture has alrea dy examined their content".  Indeed, Article I of 
Appendix 2 lists as one of the materials that should be  submitted as part of the application for content 
examination the "Ministry of Culture Letter of A pproval for Import of Audiovisual Products".   
7.1628  The United States explains to the Panel that the general operation of the measures is that an:  
"[Internet Culture Provider] or [Mobile Content Provider] must submit the imported 
hard-copy sound recording for content review  prior to converting the sound recording 
into a format that can be transmitted elect ronically.  Accordingly, the United States 
understands that the imported hard-copy so und recording is submitted for content 
review after importation but before it is converted into a digitally transmittable 
format."846 
7.1629  We note that China itself contends that the Internet Culture Rule and the Network Music 
Opinions apply after importation and are thus internal.847 China maintains that the content review 
requirements in these two measures apply to the digi talized versions of the sound recordings and not 
to the imported hard-copies which have alread y undergone content review pursuant to the 2001 
Audiovisual Products Regulation  and the Audiovisual Products Importation Rule .848  Indeed, China 
argues that the United States cannot prove that Chin a's  measures affect the process "from importation 
to consumption" of the hard-cop y sound recordings because that pr ocess ends prior to the stage at 
which the measures apply.849  
7.1630  In our assessment the principal characteristics of  the measures are to require content review 
prior to transmission over the information network which is not specifically linked to the process of 
bringing the hard-copy sound recording into the custom s territory of China.  Indeed, what triggers the 
application of the Internet Culture Rule  and the Network Music Opinions  is the desire to distribute a 
digital version of an imported sound recording thro ugh transmission over the information network.  
The content review requirements in the measures appl y even if the product has already been imported.  
Therefore, it seems that the application of these meas ures is triggered by an internal factor separate 
from importation. 
7.1631  We, therefore, conclude that the United States has established that these measures apply 
internally.  The burden of establishing the applicab ility of Article III:4 is not yet satisfied, as the  
United States must still establish precisely how the measures affect the internal distribution of the 
imported products. 
                                                                                                                                                                     
shall bring approval documents issued by the cultural administration under the State Council to process import 
procedures at Customs" (Exhibit US-17) 
846 United States' response to question No. 274(a). 
847 China's responses to question Nos. 274(a) and (b);  China's comments on th e United States' response 
to question Nos. 247(c), 262(a) and 274(b) ("What is ch allenged in this dispute (and targeted by the United 
States in its answer to this question) is the content re view that takes place "after importation", i.e. the content 
review imposed by the Network Music Opinions ."). 
848 China's response to question No. 274(a). 
849 China's comment on the United Stat es' response to question No.  247(a). WT/DS363/R 
Page 446  
 
  Whether the Internet Culture Rule  and the Network Music Opinions  affect the 
distribution, within China, of the imported hard-copy sound recording  
7.1632  The United States  relies on the reasoning of the panel in Mexico – Taxes on Soft Drinks that 
the term "affecting" "covers not onl y laws or regulations which dir ectly govern the conditions of sale 
or purchase but also any laws or regulations wh ich might adversely modify the conditions of 
competition between domestic and imported products."
850   According to the United States, the 
relevant Chinese measures adversely modify the conditions of competition in favour of domestic 
sound recordings intended for electronic distribu tion by exempting them from the content review 
requirement that is applicable to imported sound reco rdings intended for electronic distribution.  The 
United States argues that a finding that a measure that accords less favourable treatment to imports 
does not "affect" the distribution of the importe d like product merely because there is further 
processing of the product downstream would undermine the discipline of Article III:4 by allowing a 
loophole in the national treatment obligation.    
7.1633  China  argues that despite the broad interpretation of the term "affect" in previous WTO 
jurisprudence, the United States' a ttempt in this case to expand the meaning of the word "affect" so 
that measures regulating the digitalized product, i.e., content control applied prior to the uploading of 
the music on the Internet, "affect" the internal distri bution of the hard-copy carrying the content to be 
uploaded on the Internet, is not acceptable a nd would lead to absurd implications.851  
7.1634  The Panel  does not disagree that measures might aff ect the distribution of an imported like 
product without directly governing it.  We recall the finding of the panel in India – Autos, that "[t]he 
fact that a provision is not necessarily primarily aime d at regulating the offering for sale or use of the 
product on the domestic market is ... not an obstacle to its "affecting" them."852  H o w e v e r ,  a  
complaining party would still have to demonstrate th at the measure affected the internal distribution 
of the imported like product, e.g. by affecting who may distribute the imported like product or how it 
may be distributed. 
7.1635  We recall that the ordinary meaning of "distrib ution" in the context of Article III:4 of the 
GATT 1994 and in light of its object and purpose includes a process or series of transactions,  whose 
ultimate end is the marketing or supply of a good fro m producers to consumers, either directly or 
through intermediaries.  Also, since Article III:4 appli es to "internal" distribution, the "distribution" at 
issue in Article III:4 is the portion of that chain of  transactions which occur from the time or point of 
importation to the receipt of the good by the consumer , i.e., all relevant transactions that take place 
within the customs territory of the importing Member.   
7.1636  The United States confirms that its claim applies only to measures affecting imports of hard-
copy sound recordings that are intended for electronic distribution after importation.  The United States made clear that its claim is not challenging th e measures at issue on the grounds that they affect 
the transmission of content over the Internet.
853   
                                                      
850 Panel Report on Mexico – Taxes on Soft Drinks, paras. 8.107-8.113. 
851 China's response to question No. 270. 
852 Panel Report on India – Autos , para. 7.305; also Appellate Body Report on China – Auto Parts , 
para. 194. 
853 United States' responses to questions Nos. 247(b)  and 262(a); United States' first oral statement, 
para. 78 ("the US claim applies only to measures affecting imports of hard-copy media containing sound 
recordings that are intended for el ectronic distribution after importation.  The claim does not deal with the 
provision of electronic distribution services."); United States' second written submission, para. 188 ("China misunderstands the US claim, which only applies to measures affecting imported hard-copy media containing 
sound recordings that are intended for el ectronic distribution."); United States' s econd oral statement, para. 55.     WT/DS363/R 
 Page 447 
 
 
  7.1637  The United States maintains that "distribution"  is a broad term and can encompass the broad 
range of activities involved in a moving a product th rough the chain from production to consumption.  
As noted above, we do not disagree that "distribut ion" can generally cover the range of transactions 
from production to consumption and in the contex t of Article III:4 of the GATT 1994 cover those 
transactions from the time or point of importation to  consumption.  Therefore, the United States must 
establish that the challenged measure s affect the process or series of transactions through which the 
hard-copy sound recording intended for electronic distribution is moved from the time or point of importation to the consumer.   
7.1638  The United States  explains the process or series of transactions from importation to 
consumption, with respect to imported hard-copy sound recordings as follows:  
"[O]nce the hard-copy sound recording is im ported, it is provided to the ICP or MCP, 
submits the hard-copy sound recording to the Ministry of Culture for content review, makes an additional copy of the hard-copy sound recording, and engages in a series 
of activities necessary to move the importe d product downstream.   After receiving 
content review approval, the ICP/MCP th en uses the hard-copy sound recording to 
create a version of the sound recording that  can be distributed electronically.  Thus, 
the hard-copy sound recording moves downs tream.  The ultimate retail consumer 
may receive the sound recording distributed electronically.  However, the hard-copy 
sound recording moves downstream in earlie r stages of the stre am of commerce."
854 
7.1639  The United States, in response to a specific qu estion from the Panel about where the imported 
hard-copy sound recording intended for electronic distribution is "consumed", explained that: 
"[i]n the case of hard copy sound recordings in tended for electronic distribution, when the 
Internet Culture Provider ("ICP") or Mobile Content Provider ("MCP") is supplied with the 
hard copy sound recording intended for electroni c distribution, the ICP/MCP is acting as the 
consumer of that product.  The ICP/MCP uses (i.e ., consumes) the hard-copy sound recording 
as part of its process for moving the product dow nstream.  The ICP/MCP may also be said to 
be acting as a distributor in moving the product further downstream."855   
7.1640  The United States goes on to argue that the steps involved in moving the product from 
importation to the next stage (i.e., from importation to  the ICP or MCP, then to the MOC for content 
review, and then back to the ICP or MCP) are part of the distribution of the product.  According to the 
United States:  
"[T]he transfer of the sound recording from the importer to the ICP or MCP is one of 
the activities involved in the distribution of the product.  Similarly, the ICP or MCP 
engages in certain activities – including submitting the sound recording for content 
review, and converting it into a format suitable for electronic transmission – to be 
                                                      
854 United States' response to question No. 262(c). 
855 United States' response to Panel question No. 247(c) .  We note that in its response to question No. 
247(c) the United States refers, on the one hand, to the hard-copy sound recording being "consumed" and, on the 
other hand, to that hard-copy sound recording being used as part of a process to move the "product" further downstream.  We recall that the only "product" which is  the subject of the United St ates' claim is the imported 
hard-copy sound recording.  We also recall the United States' explanation in response to question No. 126 that 
"the hard-copy sound recording is often provided to an Internet Culture Provider ('ICP') or Mobile Content Provider ('MCP') who makes an additional copy in hard-copy format of the sound recording, transforms the 
sound recording into a format that can be transmitted electronically, and then transmits the reformatted sound 
recording electronically."  Reading these two responses together, we understand that the hard-copy sound recording is "consumed" in the proce ss of making the electronic sound re cording which accord ing to the United 
States is what is subsequently moved downstream by the ICP/MCP. WT/DS363/R 
Page 448  
 
  able to move the product further downstream.  These activities are also part of the 
distribution process. Accordingly, by impos ing an administrative hurdle on only the 
imported products before the ICP or MCP can move the product further downstream, 
the relevant Chinese measures adversely aff ect the conditions of competition for the 
imported product."
856 
7.1641  We cannot agree with the United States assessment of what is included in the distribution of 
the imported product.  As noted above, the United St ates confirms that the hard-copy sound recording 
is consumed by the ICP or MCP.  Thus, we consid er that the distribution of the imported product at 
issue, i.e., the hard-copy sound recording intended for electronic distribution, ends when the ICP or 
MCP receives it.  The United States, therefore, is required to demonstrate that the Internet Culture 
Rule and the Network Music Opinions affect the process or series of transactions from the time or 
point of importation to receipt by the "consumer", wh ich the United States has confirmed is the ICP or 
MCP.   
7.1642  The argumentation the United States presents to support its claim that the Internet Culture 
Rule and the Network Music Opinions  affect the internal distribution of the imported like product, 
which is the subject of its claim, has not been focused on the distribution of the imported hard-copy 
sound recording from the time or point of importation to the ICP or MCP (i.e., the consumer).  When 
the United States describes the "effects" of the me asures, the United States does not clearly link these 
effects to the internal distribution of the importe d hard-copy sound recording intended for electronic 
distribution.  We note that, in its submissions, the United States seems to use the term "the product" 
interchangeably to refer both to the imported like pr oduct as defined in its claim as well as to what it 
refers to as the "downstream" or "further proces sed" product which is the electronic content.  This 
lack of precision blurs the distinction between the ha rd-copy sound recording, which the United States 
argues is the subject of its claim, and electronic s ound recordings.  In response to a question from the 
Panel, the United States argues that the delay and ad ministrative burden that the ICP or MCP must go 
through before distributing a sound recording electro nically affects the movement of "these imports" 
through the process from importation to consumption.857  In response to another question from the 
Panel the United States refers to the product being consumed by the ICP/MCP and then suggests that 
the same product is subsequently move d further downstream by the ICP/MCP.858  The United States 
continues in the same vein when it states that the ICP/MCP engages in activities to move the imported 
hard-copy sound recording further downstream and that "China's discriminatory content review 
regime affects these activities, and therefore the product's distribution."859 
7.1643  This creates some confusion as to why and how the United States believes the measures affect 
the internal distribution of the imported product,  which we recall the United States has confirmed is 
the imported hard-copy sound recording intended for electronic distribution.  To recall, it is only if the 
challenged measures affect the internal distributi on of the imported hard-copy sound recordings at 
issue that they trigger the obligation in Article III:4 to provide no less favourable treatment to that 
product vis-à-vis  the like domestic product.860   
7.1644  The United States has argued that the requireme nt of mandatory government content review 
prior to electronic distribution "affects" the importe d product.  However, the effects described by the 
United States relate to the delay or administ rative burden in distributing the electronic sound 
recording.   
                                                      
856 United States' second oral statement, para. 59. 
857 United States' responses to  question No.126. 
858 United States' response to question No. 247(c). 
859 United States' response to question No. 250. 
860 Panel Report on China – Autos, para. 7.231 citing Appellate Body Report on US – FSC (Article 21.5 
– EC ),  para. 208.  WT/DS363/R 
 Page 449 
 
 
  7.1645  For example, in its first written submis sion, the United States argues that the Network Music 
Opinions affects the internal sale, offeri ng for sale, purchase, distribution or use of sound recordings 
intended for electronic distribution because it "m akes content review and approval by MOC a 
prerequisite for the electronic distribution of impor ted sound recordings" while not requiring the same 
mandatory pre-condition for distribution for  domestic sound recordings. 861 
7.1646  Furthermore, when specifically asked to explain how the challenged measures affect the 
"distribution", within China, of sound recordi ngs imported in physical form (as opposed to the 
distribution of the content subsequently transmitted in digital form via the Intern et),  the United States 
argued that the challenged measures affect the dist ribution of the imported product because,  "before 
distributing a sound recording electronically , the ICP or MCP must go through the delay and 
administrative burden of a content review process be fore electronic distribution that the ICP or MCP 
need not go through for domestic like products."862 (emphasis added).  This type of argumentation 
was repeated in various US submissions.863  We note that in the immediately following sentence in its 
answer to the Panel's question, the United States stated that: 
"The Panel's question appears to be focused on whether the distribution of the 
physical copy of the sound recording is 'affected' by the relevant Chinese measures 
because the sound recording is ultimately tr ansformed into a form that can be 
distributed electronically.  However, for th e reasons set forth above, the United States 
considers that this is not the situation pr esented by this dispute because the relevant 
measures affect the 'use' of the hard-cop y sound recordings intended for electronic 
distribution".864 
7.1647  We have already discussed whether the United Stat es had properly raised a claim with respect 
to the "use" of the imported hard-copy sound recordi ngs intended for electronic distribution in      
paragraphs 7.1604-7.1611, above  and do not intend to repeat that analysis here.  We only cite this 
response here to emphasize that the United States di d not relate the effects the challenged measures 
have on the electronic distribution of sound recordin gs (such as delay and administrative burdens) to 
the "distribution" of the imported hard-copy sound re cording.  For instance, the United States has not 
demonstrated that these delays and administrative bu rdens with respect to the electronic distribution 
of sound recordings have an effect on how the im ported hard-copies can be distributed or who can 
distribute them.  Instead, when asked specifically to explain the relationship between the challenged 
measures and the "distribution" of the imported ha rd-copy sound recordings, the United States shifts 
its argumentation to another of the el ements set forth in Article III:4.  
                                                      
861 United States' first written submission, para. 379. 
862 United States' response to question No. 126.  Th is impression is reinforced by the US in its 
second oral statement when it argues that: 
"In the case of hard-copy sound recordings intended for electronic distribution, the relevant measures affect the imported products within the meaning of Article III:4.  Specifically, 
before the Internet Culture Provider (ICP) or Mobile Content Provider (MCP) can distribute 
an imported product electronically, it must submit the sound recording for content review, a requirement not faced by domestic sound recordings  intended for electroni c distribution.  This 
requirement creates an extra administrative hurdle and delay for imported products before they 
may be distributed.  These obstacles can be es pecially disadvantageous to imports in a hit-
driven industry – such as th e recording industry where speed  to the market is critical.  
Accordingly, the relevant measures affect the sa le, offering for sale, purchase, transportation, 
distribution, or use of the imported product."  (United States' second oral statement, para. 58;  This is also consistent with the United States ' second written submission, paras. 186-187.    
863 United States' first written submission, paras. 379, 390-391; United States' response to question No. 
123(e); United States' second written submission, paras. 187,  195; United States' second oral statement, para. 58; 
United States' response to question No. 247(a). 
864 Ibid. WT/DS363/R 
Page 450  
 
  7.1648  The United States does argue that: 
"[A]n imported hard copy sound recording th at is not submitted for content review 
and approved by the Ministry of Culture has no distribution opportunities in China, nor does such a product have opportunities fo r sale or use in China.  Instead, an 
imported product that has not been through th e required content review procedures 
cannot move anywhere in the chain from im portation to consumption, is effectively 
stuck in some early stage of the chain of distribution, and has no real commercial opportunities in China's market."
865 
7.1649  However, as the United States has itself stated that it is the ICP or MCP that submits the 
imported hard-copy sound recording to MOC for cont ent review, the limitations on the distribution of 
an imported product that has not been through the re quired content review process referred to by the 
United States relate to distribution after  the ICP or MCP has received the product, not the distribution 
of the product from the time or point of importation to the ICP or MCP.  Given that the ICP or MCP is the consumer of the hard-copy sound recording inte nded for electronic distribution and the end of the 
distribution chain, we infer that the restriction on distribution opportunities the United States is 
referring in the above-quoted statement are those concerning the electronic sound recording rather 
than the imported hard-copy sound recording intended for electronic distribution.   
7.1650  Consistent with the findings of the panels in India – Autos  and Mexico – Taxes on Soft 
Drinks , the fact that the Chinese measur es at issue directly affect the distribution of electronic sound 
recordings does not preclude that they could also affect the distribution of the imported hard-copy 
sound recording.  However, this is for the Unite d States to establish.  The United States has not 
argued, let alone demonstrated, that the measures ha ve an effect on whether and how an importer can 
provide the hard-copy sound recording to the ICP or MCP.   
7.1651  As noted above, the United States has focused its argumentation on the delay and 
administrative burden that the ICP or MCP might experience from the time it receives the hard-copy sound recording until it may electronically distribute a sound recording derived from the content that 
was embedded in the hard-copy.  The United Stat es has not offered an adequate and convincing 
explanation as to how this alleged delay impact s upon the "distribution" of the hard-copy sound 
recording intended for electronic distribution.  We consider, therefore, that the United States has not 
satisfied its burden to establish, through evidence and argumentation, the elements of its claim. 
7.1652  As the United States has not established that the Internet Culture Rule  and the Network Music 
Opinions  affect the distribution of the imported hard-copy sound recording intended for electronic 
distribution, it has likewise not established that Article  III:4 is applicable to those measures.  As  the 
United States has not established that Article III:4 is applicable to the measures, it cannot establish 
that these measures are inconsistent with Article III:4. 
7.1653  Finally, we recall our decision in paragr aphs 7.1571 and 7.1585 above to defer a 
determination on whether the "like pr oducts" requirement is satisfied in the case of this claim because 
the Internet Culture Rule  and the Network Music Opinions  distinguish between imported and 
domestic products hard-copy sound recordings intended for electronic distribution exclusively on 
origin until we had determined that the other two constituent elements of a claim under Article III:4 of 
the GATT 1994 had been established.  Given that we  have found that the United States has not 
demonstrated that the Internet Culture Rule  and the Network Music Opinions  affect the distribution of 
imported hard-copy sound recordings intended for elect ronic distribution we see no reason to return to 
the analysis of whether the imported and domest ic products are "like" within the meaning of 
Article III:4 of the GATT 1994. 
                                                     
 
865 United States response to question No. 247(a).  WT/DS363/R 
 Page 451 
 
 
  7.1654  Based on the above considerations, we therefore conclude that the United States has not 
established that the Internet Culture Rule  and the Network Music Opinions  are inconsistent with 
Article III:4 of the GATT 1994. 
4. Films for theatrical release 
7.1655  The United States argues that the Film Regulation , the Film Enterprise Rule  and the Film 
Distribution and Exhibition Rule  together are laws, regulations or requirements affecting the 
distribution of films for theatrical release which pr ovide less favourable treatme nt of imported films in 
a manner inconsistent with Article III:4 of the GATT 1994.  Article III of the Film Distribution and 
Exhibition Rule  provides that imported films may only be distributed by two state-controlled 
enterprises.  Articles 5 and 30 of the Film Regulation  and Article 16 of the Film Enterprise Rule  
provide the legal framework that underpins China's dual distribution regime for films for theatrical 
release. 
7.1656  China argues that the United States' claims lack any legal basis, since yet again they are 
based on the false assumption that motion pictures fo r theatrical release are goods.   China goes on to 
say that, in the event the United States' claim we re to be addressed under Article III:4 of the GATT 
1994, the United States fails to establish the existence of a less favourable treat ment of foreign motion 
pictures. 
7.1657  Additionally, China presents an argument, wh ich it describes as demonstrating that the 
measures do not provide less favourable treatment, which we believe goes more to the heart of 
whether the measures themselves are what "affects" the distribution of imported hard-copy cinematographic films.  Specifically, China argu es that the measures do not operate the way the 
United States believes and that they do not create the "duopoly" which the United States contends 
"affects" the distribution of the measures and provide s for less favourable treatment to imported hard-
copy cinematographic films.   
7.1658  The Panel believes the points raised by Chin a raise the question of whether the "duopoly" 
which the United States contends is adversely modifying the conditions of competition between 
imported and domestic films is attributable to China,  such that it is a measure which can be brought 
before the panel under Article 3.3 of the DSU.  As  noted above in paragraph 7.170, whether what is 
before the Panel is a "measure" goes to the heart of our mandate and must be addressed regardless of whether the parties specifically raise the issue.  Therefore, we will first analyse whether the "measure" 
identified by the United States is one within the meaning of Article 3.3 of the DSU. 
(a) What creates the "duopoly" for the distribu tion of imported films for theatrical release? 
7.1659  The United States  argues that there is a film distributi on "duopoly" in China which results in 
discriminatory treatment of imported films for theatrical release.  Specifically, the United States maintains that the Film Regulation , the Film Enterprise Rule  and the Film Distribution and Exhibition 
Rule
 permit only two state-owned enterprises China Film Distribution Company and Huaxia Film 
Distribution Company to distribute imported films for theatrical release.  In contrast, the United States 
contends that domestic films may be distributed by these two distributors as well as all other film 
distributors in China, including a film's domestic producer.  In addition, the United States argues that 
the Domestic Film Distribution and Exhibition Rule , which post-dates the Film Regulation , the Film 
Enterprise Rule  and the Film Distribution and Exhibition Rule , confirms that China Film Group and 
Huaxia are the only two distributors of imported films in China.866 
                                                      
866 United States' second written submission, para. 202 and United States' response to question No. 248 
citing  Articles III.1 and IV.II.1 of the Domestic Film Distribution and Exhibition Rule . WT/DS363/R 
Page 452  
 
  7.1660  China  admits that the distribution of foreign motion pictures in Chinese movie theatres is 
carried out by companies approved by SARFT an d that there are currently only two approved 
distributors, China Film Distribution Company and Huaxia Film Distribution Company.  However, it maintains that "contrary to what the United St ates pretends, Chinese regulations do not establish a 
'duopoly' and they do not in any way limit the number of companies that can be approved by 
SARFT."  
7.1661  China contends that the small number of di stributors of imported films is due to the 
limitation, set forth in its GATS schedule, that only 20 motion pictures may be imported on a revenue sharing basis.  China argues that nothing in the me asures identified by the United States creates this 
"duopoly".   
7.1662  According to China, the Film Regulation s establish a licensing system for the activity of 
distribution of motion pictures for theatrical release, but do not provide any quantitative restriction on the companies that may be approved.  In this resp ect, the number of distributors of imported films is 
not limited to two, neither by the Chinese laws and re gulations nor by SARFT.  China argues that the  
"the Domestic Film Distribution and Exhibition Rule " (Exhibit US-40), quoted by the United States to 
support its arguments, only reflects the fact that at the present time, only two companies have applied 
and been approved to become distributors of imported motion pictures. China maintains that nothing in the Chinese measures provides that on ly these two companies may be approved. 
7.1663  In response to a specific question from the Pane l on the process to become approved to be a 
distributor of imported films for theatrical release, China informs us that foreign-invested enterprises 
are prohibited from distributing films in China, but  that "private wholly Chinese-owned companies 
and other state-owned companies can apply to be  distributors of imported films and SARFT shall 
examine their application and make approva l decisions based on Regulations on Film
867"868. 
7.1664  China responded to the Panel's questioning that so far there have been no applications to 
become a distributor of imported films.  China pos its that the attendant costs and risks may deter 
distributors from attempting to enter the market of distributing imported films.869 
7.1665  The United States  argues that China's contention that th ere is no mandatory duopoly does not 
withstand scrutiny.  According to the United States, the Film Distribution and Exhibition Rule  
expressly provides for such a duopoly.870   The United States also argu es that in reality, because only 
two entities are currently designated to distribute su ch films, regardless of whether this duopoly is 
mandatory, it is discriminatory nonetheless. 
7.1666  Additionally, in response to a question from th e Panel, the United States, argues that China's 
contention that any wholly Chinese-owned or st ate-owned companies may apply to distribute 
imported films and have simply been uninterested in doing so, is based on a flawed premise.  The 
                                                      
867 (footnote original)  Arts. 36 and 37 of the Film Regulation  (Exhibit CN-11). 
868 China's response to question No, 273. 
869 In response to question No. 136, China stated:  
"China is not aware of any interest on the part of Chinese motion picture distributors in 
becoming distributors of foreign motion pictures. However, we note that distribution of foreign motion pictures also involves significant financial input and market risks. Up to date, 
no Chinese distributors, other than the two currently approved ones, have ever applied for 
approval to become distributor of foreign motion pictures." (China's  response to question No. 136). 
870 The United States relies upon Article III of the Film Distribution and Exhibition Rule  (Exhibit 
US-21) which states that its purpose is to, "[o]pen up major channels owned by the State and establish two imported film distribution companies.  Maintain the original China Film Group Imported Film Distribution 
Company while establishing another imported film distribution company based on the shareholding system."  WT/DS363/R 
 Page 453 
 
 
  United States argues that no other firms have applied to distribute imported films because they 
cannot.871   
7.1667  In its comment on the US reply to that  question, China maintains that the Film Regulation , 
which is higher in hierarchy than the Film Distribution and Exhibition Rule and the  Film Enterprise 
Rule provide for the application requirements and proce dures to establish a film distribution enterprise 
and these provisions do not limit to domestic produced motion pictures.  
7.1668  The "measure" challenged by the United States in its Article III:4 claim with respect to films 
for theatrical release is the distribution "duopoly " which it claims provides for discriminatory and 
therefore less favourable treatment to  imported films for theatrical rel ease.  The United States alleges 
that this duopoly is created through the operation of  the three Chinese administrative acts it identified 
in its panel request, the Film Regulation , the Film Enterprise Rule , and the Film Distribution and 
Exhibition Rule .  China however, argues that this "duopoly" is not created by the operation of its 
administrative acts but by the simple fact that no one other than the two currently approved companies 
has expressed an interest in becoming an approved distributor of imported films for theatrical release.  
7.1669  The United States in response to the Panel's ques tions, maintains that regardless of whether 
the duopoly is "mandatory" it is nevertheless discri minatory.  Specifically, the United States contends 
that even if the Panel were to find that there is no de jure  duopoly, the United States has 
demonstrated, and China has verified, that a de facto duopoly exists which accords imported films less 
favourable treatment than that accord ed to domestic films.  Therefore, as they are applied, China's 
measures likewise would be inconsistent  with Article III:4 of the GATT 1994.  
7.1670  Therefore, the question before the Panel  is whether the alleged "duo poly" is attributable to 
China, either on its face or through its applicati on of those measures, such that it engages China's 
obligations in Article  III:4 of the GATT 1994. 
7.1671  As noted above in paragraph 7.166, Members may only challenges "measures" of another 
Member before the WTO dispute settlement system .  A "measure" of another Member has been 
defined as an act or omission that is a ttributable to the government of a Member872 that sets forth rules 
or norms that have general and prospective application.873  Such acts or omissions are, "in the usual 
case, the acts or omissions of the organs of th e state, including those of the executive branch.874"875  
7.1672  In this case, the United States has alleged that  an administrative regulation promulgated by 
the State Council as well as a "departmental rule " and an "other regulatory document" operate 
together to create a de jure  distribution duopoly.  In the altern ative, the United St ates argues that 
China's measures create a de facto  distribution duopoly.  Given China's objections to the implication 
that its legal acts have created the alleged discrim inatory distribution duopoly, we must first satisfy 
ourselves that what the United States seeks findings on is, in fact, a measure within the meaning of 
Article 3.3 of the DSU such that it is properly befo re this Panel.  We believe the United States has 
presented two alternative understandings of how China' s distribution duopoly is a measure.  First, that 
China's regulation, departmental rule, and other regulatory document, governing the distribution of 
films for theatrical release create a de jure  duopoly.  Second, if the regulation, departmental rule, and 
                                                      
871 United States' response to question No. 258. 
872 Appellate Body Report on US – Corrosion-Resistant Steel Sunset Review , para. 81. 
873 Appellate Body Report on US – Corrosion Resistant Sunset Review , para. 82 and footnote 87. 
874 (footnote original ) Both specific determinations made by a Member's executive agencies and 
regulations issued by its executive branch can constitute ac ts attributable to that Member.  See, for example, the 
Panel Report in  US – DRAMS , where the measures referred to the panel included a USDOC determination in an 
administrative review as well as a regula tory provision issued by USDOC.   
875 Appellate Body Report on US – Corrosion-Resistant Steel Sunset Review , para. 81. WT/DS363/R 
Page 454  
 
  other regulatory document do not create a de jure  duopoly, that nevertheless China has created a de 
facto  duopoly which is attributable to it.  We address each contention in turn. 
(i) Do China's rules and regulations crea te a de jure distribution duopoly? 
7.1673  The original thrust of the US claim is that the Film Regulation , the Film Enterprise Rule  and 
the Film Distribution and Exhibition Rule  together establish a distribution duopoly, whereby only two 
companies are permitted to distribute imported films for theatrical release.  China, on the other hand, 
argues that there is no de jure limitation on how many companies may be approved to distribute 
imported films.  We therefore, must determine whether the three measures operating together limit the number of imported film distributors in China to  two, namely China Film Group and Huaxia.   
7.1674  The Film Regulation , which was promulgated in Decemb er 2001 by the State Council of the 
People's Republic of China and apply to "the produc tion, import, export, distribution and screening of 
films within the territory of the People's Republic  of China, including feature films, documentary 
films, science and educational films, animation films, and special topic films."
876   
7.1675  Chapter V of the Film Regulation  deals with distribution and screening of films.  Article 36 of 
the Film Regulation   requires that companies which wish to establish a film distribution entity or film 
screening entity have:  (i) a name and articles of as sociation for the film distribution entity or film 
screening entity; (ii) a well-defined scope of busin ess; (iii) an organization and specialized personnel 
suited to the needs of its scope of business; (iv) fundi ng, sites, and equipment suited to the needs of its 
scope of business; and (v) other conditions stipulat ed in laws and administrative regulations.   
7.1676  Article 37 of the same regulation provides that: 
"Applications to establish a film distribution entity shall be submitted to the film 
administration under the people's government in the province, autonomous region, or 
municipality directly under the Central Gove rnment where the applicant is located.  
The application for the establishment of a film distribution entity covering different 
provinces, autonomous regions or muni cipalities directly under the Central 
Government shall be submitted to the radio, film, and television administration.  The 
film administration under the people's government in the province, autonomous 
region or municipality directly under the Central Government where the applicant is located, or the radio, film, and television administration under the State Council shall, 
within 60 days of receiving an application,  make a decision on approval or rejection 
of the application and shall notify the appli cant.  If the application is approved, a 
Permit to Distribute Films shall be issued to  the applicant, which shall register the 
Permit to Distribute Films with the admi nistrative department for industry and 
commerce and obtain a business licence in compliance with the law.  If the application is rejected, the reason for rejection shall be clearly stated."  
7.1677  The provision refers to a Permit to Distribute Films being issued pursuant to approval of the 
application.  There is no indication that the permit is  limited to a particular type of film, i.e. domestic 
versus  imported. 
7.1678  The Film Distribution and Exhibition Rule  was also issued in December 2001
877, this time 
jointly by the SARFT and the MOC.  The purpose of  the rule is to accomplish the reform of film 
distribution and projection mechanisms.  As both Ch ina and the United States have explained to us, 
                                                      
876 Article 2, Film Regulation  (Exhibit US-20). 
877 The version of the rule supplied by the United States does not contain the exact date of issuance, 
instead listing just 2001, but the Chinese translation lists the date as 18 December 2001.  WT/DS363/R 
 Page 455 
 
 
  according to China's Legislation Law , both the Film Distribution and Exhibition Rule  and the Film 
Enterprise Rule  implement and are secondary to the Film Regulation .878   
7.1679  Article III of the Film Distribution and Exhibition Rule  states that the major state-owned 
channels be opened up and that two imported film distribution co mpanies be established.  The 
Article goes on to state that the latter goal will be  accomplished by the maintenance of the original 
China Film Group Imported Film Distribution Company while the State establishes another imported 
film distribution company based on the shareholdi ng system.  Article III then describes how the 
imported film distribution companies will operate. 
"For the first year, the two imported film  distribution companies shall separately 
distribute imported films they have acquired through a combination of allocation and 
competition (in principle each should comprise 50%).  For subsequent years, the 
number of imported films distributed will be determined based on the previous year's 
achievements in distribution and projec tion of domestically produced films, 
especially that of domestically produced films recommended by the State.  The regulations on distribution ratios between imported films and domestically produced 
films shall be conscientiously followed, and the production, distribution, and 
projection of domestically produced films shall be actively supported."
879  
7.1680  In 2004, the SARFT and the Ministry of Commerce (MOFCOM) issued the Film Enterprise 
Rule.  As China has explained, as the rule issued later in time, the Film Enterprise Rule , to the extent 
that there is any conflict with the earlier Film Distribution and Exhibition Rule , would prevail.880  
Article 1 of the Film Enterprise Rule  indicates that it was issu ed in accordance with the Film 
Regulation .  Chapter III of the Film Enterprise Rule  is entitled Film Distribution and Projection.  
Article 10 encourages companies, enterprises an d other economic organizations inside China 
(excluding FIE) to establish companies exclusivel y for the distribution of domestically produced 
films.  The Article also sets forth the follow ing qualifications and procedures for applying: 
"(A) The registered capital shall be no less than ¥500,000; 
(B) The applicant has been authorized by a film production unit to distribute two 
films or has been authorized by a tele vision show production unit to distribute two 
television dramas;. (C) The application, copy of the busin ess licence issued by the industrial and 
commercial administration, notification of pre-approval of the company's name, and proof of being authorized to represent the distribution of films or television shows 
shall be submitted. 
(D) If an applicant meets the requirements in Items A, B, and C and applies to 
SARFT for establishing a company exclusively for distribution of domestically produced films, the SARFT shall, within 20 business days, i ssue the 'Licence to 
Distribute Films' which permits the dist ribution of domestically produced films 
throughout the country.  When an applicant applies to the local film administration at 
the provincial level to establish a company exclusively for distribution of domestically-produced films, the local film administration shall, within 20 business days, issue the 'Licence to Distribute Films' in the province (autonomous region or municipality) which permits exclusive distri bution of domestically produced films.  
The applicant shall take the approval docume nt issued by the film administration to 
the local industrial and commercial ad ministration and go through relevant 
                                                     
 
878 United States' response to question No. 13, China's response to question No. 135. 
879 Article III, Film Distribution and Projection Rule  (Exhibit US-21). 
880 China's response to question No. 135. WT/DS363/R 
Page 456  
 
  procedures.  If approval is not granted, a written reply shall be made to explain the 
reasons."  
 7.1681  Meanwhile, Chapter IV of the Film Enterprise Rule  is entitled "Film Import and Export" and 
contains Article 16 which states that "the distri bution of imported films nationwide shall be carried 
out by distribution companies that are approved by SARFT and have the right to distribute imported 
films nationwide ."
881 (emphasis added) 
7.1682  Article 19 of the Film Enterprise Rule , in the Chapter entitled "Supplementary Provisions" 
provides that "[m]atters that are not covered by these Provisions shall be handled according to the "Regulations on the Management of  Films" and relevant provisions."
882 
7.1683  We understand that the Film Distribution and Exhibition Rule  establishes two enterprises to 
distribute imported films for theatrical release and im plies that they will each be responsible for the 
total market of imported films.  However, we also  understand that to the extent that there is any 
inconsistency between it and the Film Enterprise Rule , which was issued three years later, the Film 
Enterprise Rule  prevails.  The Panel notes that the United States asserts that the Domestic Film 
Distribution and Exhibition Rule  confirms the existence of the duopoly.  The United States has, 
however, provided no specific submission as to how the Domestic Film Distribution and Exhibition 
Rule confirms the alleged duopoly.  Instead the argume ntation of the United States with respect to this 
measure has been focused on confirming the alleged discriminatory treatment given to imported films 
for theatrical release.   
7.1684  We note that the Domestic Film Distribution and Exhibition Rule  deals with the promotion of 
the distribution and exhibition of domestic movies and the evaluation and reward system SARFT had 
instituted to further that goal.  The United States,  without elaboration, cites to Articles III.1 and 
IV.II.1 of the Domestic Film Distribution and Exhibition Rule  as those that "confirm" the alleged 
duopoly.  These articles set forth the basis for the evaluation of China Film Group and Huaxia, 
specifically the number of domestic films and recommended titles the entities should distribute as 
well as the rewards to be granted for achieving cer tain levels of box office receipts for domestic 
films.883  We also note that Article V.1 of the Domestic Film Distribution and Exhibition Rule  lists as 
a penalty for either China Film Group and "the ot her entity" failing the evaluation the deduction of 
one import revenue-sharing film from their respective quotas. 
7.1685  These three articles reflect the fact that Ch ina uses incentives and penalties to encourage 
China Film Group and Huaxia to distribute domestic films and that China can control the number of 
films China Film Group and Huaxia distribute.  Ho wever, the United States has not demonstrated how 
this measure "confirms" that China would not permit any other entity to obtain a licence to distribute imported films  Also we see nothing that prevents China from amending the Domestic Film 
Distribution and Exhibition Rule  if and when additional entities were approved by SARFT to 
distribute imported films for theatrical release.  As noted below in paragraph 7.1689 while this 
regulatory structure may be different from other syst ems, this is not sufficient to demonstrate that 
China has, through its actions, created an imported film distribution duopoly.      
7.1686   The United States points out that the Film Enterprise Rule , in Article 10, provides for 
procedures to apply to become a distributor of domes tic films.  The United States reasons that the lack 
of any such specific procedures for distributors of imported films means that the companies approved by SARFT that have the right to distribute importe d films nationwide referred to in Article 16 of the 
Film Enterprise Rule  can only mean China Film Group and Huax ia.  However, the Panel notes that, 
                                                     
 
881 Article 16, Provisional Film Rule  (Exhibit US-22). 
882 Article 19, Provisional Film Rule  (Exhibit US-22). 
883 Domestic Film Distribution and Exhibition Rule, Articles III.1 and IV.II.1.  WT/DS363/R 
 Page 457 
 
 
  the United States neglects Article 19 of the Film Enterprise Rule  which states that any matter not 
covered by these Provisions shall be handled according to the Film Regulation . 
7.1687  Article 37 of the Film Regulation  sets forth application procedures to become a distributor of 
films which makes no distinction between imported a nd domestic films.  According to Article 19 of 
the Film Enterprise Rule  this provision is still operative and woul d therefore permit applications from 
enterprises wishing to include within their scope of business the distribution of imported films.  
Therefore, contrary to the United States' argume nts, China's measures do not "as such" establish a 
distribution duopoly that would prevent enterprises  other than China Film Group and Huaxia from 
applying for and receiving a licence to distribute films which would include the right to distribute imported films.   
7.1688  We note that the United States also argues that even if the duopoly is not mandatory it is 
nevertheless discriminatory and that "that a de facto  duopoly exists which accords imported films less 
favourable treatment than that accorded to domestic films."
884  We therefore, turn to the question of 
whether through the operation of the Film Regulation , Film Distribution and Exhibition Rule , and 
Film Enterprise Rule , China has created a de facto distribution duopoly for imported films for 
theatrical release.   
(ii) Do China's rules and regulations create a de facto distribution duopoly?   
7.1689  We begin our analysis by recalling that for a measure to be subject to dispute settlement 
review it need not be in written form.  Acts of a government whether pursuant to specific legislation 
or other authorization are nevertheless "measures" so  long as they are attributable to the Member and 
set forth rules or norms of general and prospective application. 
7.1690  We recall that the United States ' claim is not with respect to a licensing regime, or about the 
prohibition on foreign investment in film distributorsh ips in China, but rather that China's regulations 
and rules prevent any company other than those two designated in the Film Distribution and 
Exhibition Rule .  Therefore, to sustain its claim the United States must demonstrate that China 
through the operation of its regulations and rules creates a de facto  distribution duopoly by preventing 
distributors other than China Film Group and Huaxia from participating in the market.   
7.1691  The United States asserts that China's explanati on of how its regulations and rules work does 
not make sense.  The United States poses some questi ons it believes demonstrate the inconsistency in 
China's argument that any wholly-own ed Chinese entity (whether private or state-owned) can apply to 
be an distributor of imported films.  First the United States wonders, why China has not designated 
every one of the distributors that is available for domestic films.  Second, the United States asks why 
permission to distribute domestic films does not au tomatically entail permission to distribute imported 
ones.  The United States asserts that China has no good answers to these questions.  Additionally, the 
United States posits that the reason domestic dist ributors other than China Film Group and Huaxia 
have not applied to distribute the lucr ative imported films, as China suggests, ( see China's answers to 
the first set of Panel questions, question No. 136), is because they all recognize China Film Group and 
Huaxia are the exclusive distributors of imported films. 
7.1692  Although China's regulatory structure may not seem logical to the United States and the 
United States' questions may point out inefficienci es in China's methods, the United States has not 
demonstrated that these rise to the level of China a pplying its regulati ons and rules in such a way as to 
prevent distributors other than China Film Group an d Huaxia from entering the market of distributing 
imported films.  The United States has submitted no evidence that China has a practice of rejecting 
requests for licences to distribute from businesses that in tend to distribute imported films.  Indeed the 
                                                      
884 United States' response to question No. 258. WT/DS363/R 
Page 458  
 
  United States has not demonstrated that any enterpri se has even attempted to apply for such a licence.  
Therefore, we find that the United States has not put forth a prima facie  case that via the operation of 
the Film Regulation, Film Distribution and Exhibition Rule, and the Film Enterprise Rule , China has 
created the " de facto " discriminatory duopoly its claim is concerned with. 
7.1693  The United States has not been able to demonstr ate that China's regulation and rules either de 
jure or de facto create the distribution duopoly.  In other words, the United Stat es has not established 
that the distribution duopoly is attributable to China.   As the duopoly is not attributable to China it is 
not a "measure" of another Member that can be  challenged before the WTO dispute settlement 
system. 
7.1694  As we have no jurisdiction to rule on a challe nge to anything other than a measure taken by 
another Member, we decline to make any findings  with respect to the US claim on whether the 
alleged discriminatory distributio n duopoly in China is inconsiste nt with Article III:4 of the 
GATT 1994. 
5. Summary of conclusions  
(a) Reading materials 
7.1695  Articles 3 and 4 of the Imported Publications Subscription Rule  as they are applied to 
newspapers and periodicals are in consistent with China's obligati ons under Article III:4 of the 
GATT 1994 in that they apply to like products, affect  the internal distribution of newspapers and 
periodicals, and provide less favourable treatment to imported newspapers  and periodicals than to like 
domestic products.   
7.1696  The United States has not established that Articles 3 and 4 of the Imported Publications 
Subscription Rule  as they are applied to books in the lim ited category are inconsistent with China's 
obligations under Article III:4 of the GATT 1994 as it has not established that the domestic and 
imported products are "like". 
7.1697  Article 2 of the Publications (Sub-)Distribution Rule , read in conjunction with Article 16 of 
the Publications Market Rule , affords less favourable treatment to imported books, newspapers, and 
periodicals than their domestic counterparts because it limits the type of enterprises that they can be 
sub-distributed through. 
(b) Sound recordings 
7.1698  The United States has not established that China h as acted inconsistently with Article III:4 of 
the GATT 1994 as it has not demonstrated that the Internet Culture Rule  and the Network Music 
Opinions  affect the distribution, within China, of the hard-copy sound recording intended for 
electronic distribution. 
(c)
 Films for theatrical release 
7.1699  The United States has not established that the alleged discriminatory "duopoly" for film 
distribution within China is attributable to China.  As such the United States has not demonstrated that 
the "duopoly" is a measure taken by another Memb er which could be subject to challenge under the 
Dispute Settlement Understanding.  WT/DS363/R 
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  F.  THE US CLAIM ON PARAGRAPHS 5.1 AND 1.2 OF THE ACCESSION PROTOCOL   
1. Whether China's measures are inconsistent with paragraphs 5.1 and 1.2 of the 
Accession Protocol 
7.1700  The United States  argues that in light of its demonstration that the Imported Publications 
Subscription Rule , the Publications (Sub-)Distribution Rule , the Network Music Opinions , the Internet 
Culture Rule , the 2001 Audiovisual Products Regulation , the Audiovisual Products Importation Rule , 
the Films Regulation, the Film Distribution and Exhibition Rule , and the Film Enterprise Rule  are 
inconsistent with Article III:4 of the GATT 1994 and that the three-year transition period in 
paragraph 5.1 has passed, they are also inconsistent with paragraph 5.1 of China's Accession Protocol.   
7.1701  Additionally, the United States argues that an inconsistency with Article III:4 of the 
GATT 1994 of the above-referenc ed measures would also rende r them inconsistent with 
paragraph 1.2 of Part I of China's Accession Protocol  to the extent that paragraph 1.2 incorporates 
commitments in paragraph 22 of the Working Party Report. 
7.1702  China did not present argumentation on the consistency of the Imported Publications 
Subscription Rule  or the Publications (Sub-)Distribution Rule  with the Accession Protocol.  With 
respect to the Network Music Opinions , the Internet Culture Rule , the 2001 Audiovisual Products 
Regulation , the Audiovisual Products Importation Rule , the Films Regulation, the Film Distribution 
and Exhibition Rule , and the Film Enterprise Rule  China reiterates its arguments that electronic sound 
recordings and films for theatrical release are not goods and are therefore not subject to China's commitments relating to trade in goods, including paragraphs 5.1 and 1.2 of the Accession Protocol. 
7.1703  Paragraph 5.1 of the Accession Prot ocol reads in relevant part: 
"[W]ithin three years after accession, all ente rprises in China shall have the right to 
trade in all goods throughout the customs te rritory of China, except for those goods 
listed in Annex 2A which continue to be subject to state trading in accordance with 
this Protocol.  Such right to trade shall be the right to import and export goods.  All 
such goods shall be accorded national trea tment under Article III of the GATT 1994, 
especially paragraph 4 thereof, in respect to  their internal sale, offering for sale, 
purchase, transportation, distribution or u se, including of their direct access to end-
users .  For those good listed in Annex 2B, China shall phase out limitation on the 
grant of trading rights pursuant to the sche dule in that Annex.  China shall complete 
all necessary legislative procedures to implement these provisions during the transition period." (emphasis added) 
7.1704  Paragraph 1.2 of the Accession Protocol provides: 
"The WTO Agreement to which China acced es shall be the WTO Agreement as 
rectified, amended or otherwise modified  by such legal instruments as may have 
entered into force before the date of accessi on.  This Protocol, which shall include the 
commitments referred to in paragraph 342 of  the Working Party Report, shall be an 
integral part of the WTO Agreement." 
7.1705  Paragraph 342 of the Working Party Report includes the commitments contained in 
paragraph 22 of the Working Part y Report.  Paragraph 22 states: 
"The representative of China confirmed that  the full respect of all laws, regulations 
and administrative requirements with the principle of non-discrimination between domestically produced and imported products would be ensured and enforced by the WT/DS363/R 
Page 460  
 
  date of China's accession unless otherwise provided in the Draft Protocol or Report.  
The representative of China declared that , by accession, China would repeal and 
cease to apply all such existing laws, regul ations and other measures whose effect 
was inconsistent with WTO rules on national treatment.  This commitment was made in relation to final or interim laws, administrative measures, rules and notices, or any 
other form of stipulation or guideline.   
The Working Party took no te of these commitments." 
7.1706  The Panel  notes that paragraphs 5.1 and 1.2 merely  reiterate China's obligation to comply 
with the "no less favourable treatment" oblig ation it undertook when it became bound by the 
provisions of the GATT 1994 upon accession to the WTO.  Therefore, a finding of inconsistency with 
Article III:4 is a necessary pre-requisite to a finding  of inconsistency with either paragraph 5.1 or 
paragraph 1.2.   
7.1707  To the extent that we have made findings in  Section VII.E above that China's measures are 
inconsistent with its obligations in Article III:4 of GATT 1994, we consider that additional findings 
on paragraph 5.1 or paragraph 1.2 of the Accessi on Protocol are unnecessary for the resolution of the 
dispute raised by the United States.  In particular , we note that bringing the measures into conformity 
with China's obligations pursuant to our findings  under Article III:4 of the GATT 1994 also would 
remove any inconsistency of those measures with either paragraph 5.1 or  paragraph 1.2 of the 
Accession Protocol.  Therefore, with respect to the Imported Publications Subscription Rule  and the 
Publications (Sub-)Distribution Rule , we exercise judicial economy with  regard to the US claim that 
those measures are also inconsistent with para graphs 5.1 and 1.2 of the Accession Protocol.  
7.1708  To the extent that in Section VII.E above we have found that the United States has not 
established that China has acted inc onsistently with the obligations in Article III:4 of the GATT 1994, 
the necessary pre-requisite for an inconsistency with either paragraph 5.1 or paragraph 1.2, namely 
that China had acted inconsistently with Article III:4,  has not been satisfied.  Therefore, we find that 
the United States has not established that the Network Music Opinions , the Internet Culture Rule , the 
2001 Audiovisual Products Regulation , the Audiovisual Products Importation Rule
885, the Films 
Regulation, the Film Distribution and Exhibition Rule , and the Film Enterprise Rule  are inconsistent 
with paragraphs 5.1 and 1.2 of China's Accession Protocol. 
2. Summary of conclusions 
7.1709  We exercise judicial economy with respect to the US claim that the Imported Publications 
Subscription Rule  and the Publications (Sub-)Distribution Rule  are inconsistent with paragraphs 5.1 
and 1.2 of China's Accession Protocol. 
7.1710  We find that the United States has not established that the Network Music Opinions , the 
Internet Culture Rule , the 2001 Audiovisual Products Regulation , the Audiovisual Products 
Importation Rule , the Films Regulation, the Film Distribution and Exhibition Rule , and the Film 
Enterprise Rule  are inconsistent with paragraphs 5.1 and 1.2 of China's Accession Protocol. 
                                                      
885 We note our finding in Section VII.B.2(b), that the 2001 Audiovisual Products Regulation  and the 
Audiovisual Products Importation Rule  are outside the Panel's terms of refe rence with respect to the US claim 
under Article III:4 of the GATT 1994.  Therefore, just as with the measures discussed in Section VII.E above, the US cannot establish an inconsistency with paragraphs 5.1 and 1.2 of the Accession Protocol with respect to 
these measures.  WT/DS363/R 
 Page 461 
 
 
  VIII.  CONCLUSIONS AND RECOMMENDATIONS 
8.1 For the reasons set forth in this Re port, the Panel concludes as follows: 
1. China's terms of reference objections 
(a) Measures China alleges are outside the Panel's terms of reference 
(i) The Film Distribution and Exhibition Rule  is outside the Panel's terms of 
reference with respect to the US claim that it is inconsistent with China's 
trading rights commitments in its Accession Protocol, because China did not receive adequate notice that it was a specif ic measure at issue, with respect to 
this claim, as required by Article 6.2 of the DSU. 
(ii) The 2001 Audiovisual Products Regulation  and the Audiovisual Products 
Importation Rule  are outside the Panel's terms of reference with respect to the 
US claim that China's m easures are inconsistent with Article III:4 of the 
GATT 1994 because the panel request did not adequately notify China that these were specific measures at issue, with  respect to this claim, as required 
by Article 6.2 of the DSU. 
(b) Certain requirements China alleges are outside the Panel's terms of reference 
(i) The so-called "pre-establishment legal compliance" requirement, the approval 
process to engage in distribution of reading materials and audiovisual products and the "decision making criteria"  that the MOC would apply in the 
approval of Chinese-foreign contractual joint ventures for the distribution of reading materials and audiovisual products  are not within the Panel's terms of 
reference.  When read as a whole, including the listing of the specific 
requirements that are the subject of its complaint, the US panel request did not notify China that these requirements were "specific measures at issue" 
within the meaning of Article 6.2 of the DSU.  
(c) The US claim with respect to reading materials under Article III:4 of the GATT 1994 
(i) The US claim that China's measures on reading materials are inconsistent 
with Article III:4 of the GATT 1994 is w ithin the Panel's terms of reference, 
despite the lack of consultations.    
(ii) The United States, through its description of its claim in the panel request, 
excluded electronic publications from its claim under Article III:4 of the GATT 1994.  Therefore, the Panel's findings as to whether China's measures 
are inconsistent with Article III:4 of the GATT 1994 will relate only to 
whether books, newspapers, and peri odicals are treated no less favourably 
than like domestic products. 
(iii) The requirements set forth in Articles 3 and 4 of the Imported Publications 
Subscription Rule , that newspapers and periodicals, as well as books in the 
limited category may only be sold through subscription, are within the Panel's 
terms of reference as they are adequate ly identified in the US panel request. 
(iv) The requirements on purchasers of imported newspapers and periodicals, as 
well as books in the limited category, embodied in Articles 5 through 8 of the WT/DS363/R 
Page 462  
 
  Imported Publications Subscription Rule , are not within the Panel's terms of 
reference as they were not adequately identified as specific measures at issue within the meaning of Article 6.2 of the DSU. 
(d) 'Measures' China argues the Panel should not examine 
(i) The Several Opinions  is attributable to China a nd establishes rules or norms 
intended to have general and prospective application.  It is therefore a 
"measure" within the meaning of Artic le 3.3 of the DSU and is a proper 
subject of these dispute settlement proceedings. 
(ii) The Importation Procedure  and the Sub-Distribution Procedure  are 
attributable to China, but they do not establish rules or norms intended to 
have general and prospectiv e application.  Therefore, they are not "measures" 
within the meaning of Article 3.3 of the DSU.  As such, they are not a proper subject of these dispute settlement proceedings. 
2. China's commitments on trading rights in its Accession Protocol 
(a) Measures relating to all the products 
(i) Article X.2 of the Catalogue  of Prohibited Foreign Investment Industries , in 
conjunction with Articles 3 and 4 of the Foreign Investment Regulation , 
result in China acting inconsistently wi th paragraph 5.1 as well as paragraphs 
83(d) and 84(a) and, hence, paragraph 1.2.   
(ii) Article X.3 of the Catalogue  of Prohibited Foreign Investment Industries , in 
conjunction with Articles 3 and 4 of the Foreign Investment Regulation , 
result in China acting inconsistently wi th paragraph 5.1 as well as paragraphs 
83(d) and 84(a) and, hence, paragraph 1.2.   
(iii) The Panel has exercised judicial economy in respect of the US claims that 
Articles X.2 and X.3 of the Catalogue  of Prohibited Foreign Investment 
Industries , in conjunction with Articles 3 and 4 of the Foreign Investment 
Regulation , are inconsistent with paragraphs 5.2 and 84(b) to the extent they 
relate to foreign-invested enterprises.   
(iv) In respect of foreign individuals and foreign enterprises not registered in 
China, the United States has not established that Articles X.2 and X.3, of the Catalogue  of Prohibited Foreign Investment Industries , in conjunction with 
Articles 3 and 4 of the Foreign Investment Regulation , result in China acting 
inconsistently with either  paragraph 5.2 or 84(b).  
(v) Article 4 of the Several Opinions  results in China acting inconsistently with 
paragraph 5.1 as well as paragraphs 83(d) and 84(a) and, hence, paragraph 1.2.   
(vi) The Panel has exercised judicial economy in  respect of the US claims that the 
Several Opinions is inconsistent with paragraphs  5.2 and 84(b) to the extent 
they relate to foreign-invested enterprises.   
(vii) In respect of foreign individuals and foreign enterprises not registered in 
China, the United States has not established that Article 4 of the Several  WT/DS363/R 
 Page 463 
 
 
  Opinions  results in China acting inconsisten tly with either paragraph 5.2 or 
84(b).  Consequently, no inconsiste ncy with paragraph 1.2 has been 
established either.    
(b) Reading materials 
(i) The United States has not established that Article 43 of the Publications 
Regulation results in China acting inconsistently with its trading rights 
commitments under the Accession Protocol. 
(ii) In respect of three requirements contained in Article 42 of the Publications 
Regulation , Article 42, in conjunction with Ar ticle 41, results in China acting 
inconsistently with paragr aph 5.1 as well as paragrap hs 83(d) and 84(a) and, 
hence, paragraph 1.2, except for audiovisual products.   
(iii) In relation to five other requireme nts contained in Article 42 of the 
Publications Regulation , the United States has not established that Article 42 
results in China acting inconsistently w ith paragraph 5.1, or  paragraphs 83(d) 
or 84(a).  Consequently, no inconsis tency with paragraph 1.2 has been 
established either. 
(iv) The United States has not established that Article 42 of the Publications 
Regulation  results in China acting inconsiste ntly with paragraph 5.2 as well 
as paragraph 84(b) (discrimination) in  respect of foreign individuals and 
foreign enterprises not registered in China.  Consequently, no inconsistency with paragraph 1.2 has been established either.   
(v) To the extent that Article 42 of the Publications Regulation  affects foreign-
invested enterprises, the Panel has exer cised judicial economy in respect of 
one US claim based on paragraph 5.2 or pa ragraph 84(b) (discrimination).     
(vi) In respect of an another US claim ba sed on paragraph 5.2 or paragraph 84(b) 
(discrimination), the United States has not established that Article 42 of the 
Publications Regulation  results in China acting inconsistently with the 
aforementioned paragraphs.  Conse quently, no inconsistency with 
paragraph 1.2 has been established either.  
(vii) The United States has not established that Article 42 of the Publications 
Regulation  results in China acting incons istently with paragraph 84(b) 
(discretion).  Consequently, no incons istency with paragraph 1.2 has been 
established either.   
(viii) Article 41 of the Publications Regulation  results in China acting 
inconsistently with paragraph 84(b) (dis cretion) and, hence, paragraph 1.2. 
(ix) The Panel did not rule on the US claims in respect of the Importation 
Procedure . 
(x) 
The United States has not established that Article 8 of the 1997 Electronic 
Publications Regulation  results in China acting inconsistently with 
paragraph 5.1 as well as paragraphs 83(d) and 84(a).  Consequently, no 
inconsistency with pa ragraph 1.2 has been established either. WT/DS363/R 
Page 464  
 
  (xi) The United States has not established that Article 8 of the 1997 Electronic 
Publications Regulation  results in China acting inconsistently with 
paragraph 5.2 or paragraph 84(b) (d iscrimination).  Consequently, no 
inconsistency with pa ragraph 1.2 has been established either. 
(xii) The United States has not established that Article 8 of the 1997 Electronic 
Publications Regulation  results in China acting inconsistently with 
paragraph 84(b) (discretion).  Con sequently, no inconsistency with 
paragraph 1.2 has been established either. 
(xiii) The United States has not established that Articles 50 and 51 of the 1997 
Electronic Publications Regulation  result in China acting inconsistently with 
paragraph 84(b) (discretion).  Con sequently, no inconsistency with 
paragraph 1.2 has been established either. 
(xiv) The United States has not established that Articles 50 and 51 of the 1997 
Electronic Publications Regulation  result in China acting inconsistently with 
paragraphs 5.2 or 84(b) (discriminati on).  Consequently, no inconsistency 
with paragraph 1.2 has been established either. 
(xv) The United States has not established that Articles 50 and 51 of the 1997 
Electronic Publications Regulation  result in China acting inconsistently with 
the second sentence of paragraph 84(b) (requirements for obtaining trading rights).  Consequently, no inconsistency with paragraph 1.2 has been established either. 
(xvi) The United States has not established that Articles 52 to 55 of the 1997 
Electronic Publications Regulation  result in China acting inconsistently with 
paragraphs 5.2 or 84(b) (discriminati on).  Consequently, no inconsistency 
with paragraph 1.2 has been established either. 
(xvii)  The United States has not established that Articles 52 to 55 of the 1997 
Electronic Publications Regulation  result in China acting inconsistently with 
paragraph 84(b) (discretion).  Con sequently, no inconsistency with 
paragraph 1.2 has been established either. 
(c) Films for theatrical release 
(i) The United States has not established that Article 5 of the Film Regulation  
results in China acting inconsistently with its trading rights commitments 
under the Accession Protocol. 
(ii) Article 30 of the Film Regulation  results in China acting inconsistently with 
paragraph 84(b) (discretion) and,  hence, paragraph 1.2.     
(iii) Article 30 of the Film Regulation  results in China acting inconsistently with 
paragraph 5.1 as well as paragraphs 83(d) and 84(a) and, hence, 
paragraph 1.2.   
(iv) The United States has not established any inconsistency of the Film 
Regulation  with paragraph 5.2.    WT/DS363/R 
 Page 465 
 
 
  (v) The United States has not established that Article 3 of the Film Enterprise 
Rule results in China acting inconsistently with its trading rights 
commitments under the Accession Protocol. 
(vi) Article 16 of the Film Enterprise Rule  results in China acting inconsistently 
with paragraph 84(b) (discretion) and, hence, paragraph 1.2.   
(vii) Article 16 of the Film Enterprise Rule  results in China acting inconsistently 
with paragraph 5.1 as well as paragra phs 83(d) and 84(a) and, hence, 
paragraph 1.2.   
(viii) The United States has not established any inconsistency of the Film 
Enterprise Rule  with paragraph 5.2.   
(ix) The Panel did not rule on the US  claims in respect of the Film Distribution 
and Exhibition Rule . 
(d) Audiovisual products 
(i) Article 5 of the 2001 Audiovisual Products Regulation results in China acting 
inconsistently with paragraph 84(b) (dis cretion) and, hence, paragraph 1.2. 
(ii) Article 27 of the 2001 Audiovisual Products Regulation results in China 
acting inconsistently with paragra ph 84(b) (discretion) and, hence, 
paragraph 1.2. 
(iii) The United States has not established that Article 28 of the 2001 Audiovisual 
Products Regulation results in China acting inconsistently with its trading 
rights commitments under the Accession Protocol. 
(iv) The United States has not established any inconsistency of the 2001 
Audiovisual Products Regulation with paragraph 5.1, 83(d), 84(a) or 5.2.  
Consequently, no inconsistency with paragraph 1.2 has been established 
either. 
(v) Article 7 of the Audiovisual Products Importation Rule results in China 
acting inconsistently with paragra ph 84(b) (discretion) and, hence, 
paragraph 1.2. 
(vi) Article 8 of the Audiovisual Products Importation Rule results in China 
acting inconsistently with paragra ph 84(b) (discretion) and, hence, 
paragraph 1.2. 
(vii) The United States has not established that Article 9 of the Audiovisual 
Products Importation Rule  results in China acting inconsistently with its 
trading rights commitments under the Accession Protocol. 
(viii) The United States has not established that Article 10 of the Audiovisual 
Products Importation Rule results in China acting inconsistently with its 
trading rights commitments under the Accession Protocol. 
(ix) The United States has not established any inconsistency of the Audiovisual 
Products Importation Rule with paragraph 5.1, 83(d), 84(a) or 5.2.  WT/DS363/R 
Page 466  
 
  Consequently, no inconsistency with paragraph 1.2 has been established 
either. 
(x) Article 21 of the Audiovisual (Sub-) Distribution Rule results in China acting 
inconsistently with paragr aph 5.1 as well as paragrap hs 83(d) and 84(a) and, 
hence paragraph 1.2.   
(xi) The United States has not established any inconsistency of the Audiovisual 
(Sub-) Distribution Rule with paragraph 5.2 or 84(b).  Consequently, no 
inconsistency with pa ragraph 1.2 has been established either. 
8.2 The Panel's findings of inconsistency in respect of the  Catalogue  of Prohibited Foreign 
Investment Industries , the Foreign Investment Regulation , the Several Opinions , the Publications 
Regulation , the 2001 Audiovisual Products Regulation  and the Audiovisual Products Importation 
Rule, insofar as the latter two measures concer n finished audiovisual products, and the Audiovisual 
(Sub-) Distribution Rule  are subject to the Panel's findings on  China's Article XX(a) defence.  The 
Panel's findings with respect to Ch ina's defence are detailed below. 
(a) China's Article XX(a) defence with r espect to the measures identified in 
paragraph 8.2 and concerning reading mate rials (including electronic publications) 
and finished audiovisual products 
(i) China has not demonstrated that any of the relevant measures are "necessary" 
to protect public morals, within the m eaning of Article XX(a).  As a result, 
China has not established that these measures are justified under 
Article XX(a).   
(ii) Because China has in any event not est ablished that the measures at issue 
satisfy the requirements of Article XX(a), the Panel did not determine 
whether Article XX(a) is available as a direct defence for breaches of China's trading rights commitments as set out in the Accession Protocol.    
3. China's national treatment and mark et access commitments under the GATS 
(a) Distribution of reading materials 
(i) Article 4 of the Imported Publications Subscription Rule and Article 42 of 
the Publications Regulation  are together inconsistent with China's national 
treatment commitments under Article XV II of the GATS with respect to the 
wholesale of imported reading materials subject to subscription. 
(ii) Article 2 of the Publications (Sub-)Distribution Rule , in conjunction with 
Article 16 of the Publications Market Rule , is inconsistent with China's 
national treatment commitments under Article XVII of the GATS with respect to the wholesale of imported reading materials subject to sales through the market. 
(iii)
 Where master distribution involves wholesale or retail services, Article X:2 
of the Catalogue of Prohibited Fore ign Investment Industries of the 
Catalogue,  in conjunction with Articles 3 and 4 of the Foreign Investment 
Regulation,  is inconsistent with China's national treatment commitments 
under Article XVII of the GATS.  Article 4 of the Several Opinions is also 
inconsistent with Article XVII.   WT/DS363/R 
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  (iv) Article 62 of the 1997 Electronic Publications Regulation  is inconsistent with 
China's national treatment commitmen ts under Article XVII of the GATS 
with respect to the master wholesale or wholesale of electronic publications.   
(v) To the extent that it is applied to the wholesale of electronic publications, the 
Publications (Sub-)Distribution Rule , together with the Publications Market 
Rule, is inconsistent with China's na tional treatment commitments under 
Article XVII of the GATS.    
(vi) The Panel did not find that the Publications (Sub-)Distribution Rule  is 
inconsistent with Article XVII of the GATS in respect of the master wholesale of electronic publications, as the United States has not established 
that this measure prohibits foreign- invested enterprises, including service 
suppliers of other Members, from enga ging in the master wholesale of any 
electronic publications as claimed. 
(vii) The requirements concerning register ed capital and operating term for 
foreign-invested wholesalers, including service suppliers of other Members, 
respectively contained in paragraphs 4 and 5 of Article 7 of the Publications 
Sub-Distribution Rule  are inconsistent with China's national treatment 
commitments under Article XVII of the GATS.   
(b) Electronic Distribution of Sound Recordings 
(i) The Circular on Internet Culture  (Article II), the Network Music Opinions  
(Article 8), and the Several Opinions  (Article 4), each is inconsistent with 
China's national treatment commitments  under Article XVII of the GATS.  
Article X:7 of the Catalogue of Prohi bited Foreign Investment Industries  of 
the Catalogue , in conjunction with Articles 3 and 4 of the Foreign Investment 
Regulation,  is also inconsistent with Article XVII of the GATS.  
(ii) The Panel did not find that the Internet Culture Rule  is inconsistent with 
Article XVII of the GATS, as the United States has not established that this 
measure, as implemented, imposes the alleged prohibition on the electronic distribution of sound recordings by service suppliers of other Members. 
(c) Distribution of AVHE products 
(i) Article 8.4. of the Audiovisual (Sub-)Distribution Rule  is inconsistent with 
China's market access commitments under Article XVI of the GATS as it 
contains a limitation on the participation of foreign capital in contractual joint 
ventures engaging in the distribution of AVHE products, which falls within 
the scope of Article XVI:2(f).  For the same reasons,  Article VI:3  of the 
Catalogue of Industries with Restri cted Foreign Investment in the  Catalogue, 
in conjunction with  
Article 8 of the  Foreign Investment Regulation , is 
inconsistent with China's market access commitments under Article XVI. 
(ii) The Panel did not find that Article 1 of the Several Opinions  is inconsistent 
with Article XVI of the GATS, as the United States has not established that 
this measure imposes a limitation that falls within the scope of Article XVI:2(f), as claime d by the United States. WT/DS363/R 
Page 468  
 
  (iii) Article 1 of the Several Opinions  and the operating term requirement 
provided for by Article 8.5 of the Audiovisual (Sub-)Distribution Rule  each is 
inconsistent with China's national tr eatment commitments under Article XVII 
of the GATS. 
(iv) The Panel has exercised judicial economy with respect to the US claim under 
Article XVII of the GATS regarding Article 8.4 of the Audiovisual 
(Sub-)Distribution Rule,  and Article VI:3 of the Catalogue of Industries with 
Restricted Foreign Investment of the Catalogue  in conjunction with the  
Foreign Investment Regulation , because the Panel found the same measures 
to be inconsistent with Article XVI of the GATS. 
4. China's national treatment obligations under Article III:4 of the GATT 1994  
(a) Reading materials  
(i) Articles 3 and 4 of the Imported Publications Subscription Rule , as they are 
applied to newspapers and periodica ls, are inconsistent with China's 
obligations under Article III:4 of the GATT 1994.  
(ii) The United States has not established that Articles 3 and 4 of the Imported 
Publications Subscription Rule , as they are applied to books in the limited 
category, are inconsistent with China' s obligations under Article III:4 of the 
GATT 1994.  
(iii) Article 2 of the Publications (Sub-)Distribution Rule , read in conjunction 
with Article 16 of the Publications Market Rule , is inconsistent with China's 
obligations under Article III:4 of the GATT 1994. 
(b) Sound recordings intended for electronic distribution 
(i) The United States has not established that Article 16 of the Internet Culture 
Rule is inconsistent with China's oblig ations under Article III:4 of the 
GATT 1994. 
(ii) The United States has not established that Article 9 and Appendix 2 of the  
Network Music Opinions  are inconsistent with Article III:4 of the 
GATT 1994.  
(c) Films for theatrical release  
(i) The United States has not established that the alleged discriminatory 
"duopoly" for film distribution within China is a measure taken by another 
Member which could be subject to challenge under the Dispute Settlement 
Understanding.  Therefore, the United States has not established that the Film 
Regulation, Film Distribution and Exhibition Rule, and Film Enterprise Rule , 
taken together, are inconsistent with Article III:4 of the GATT 1994.  WT/DS363/R 
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  5. China's national treatment commitments under paragraphs 5.1 and 1.2 of the Accession 
Protocol  
(a) Reading materials 
(i) The Panel exercised judicial economy in  respect of, the United States' claims 
that the Imported Publications Subscription Rule  and the Publications 
(Sub-)Distribution Rule  are inconsistent with China's obligations under 
Paragraphs 5.1 and 1.2 of its Accession Protocol.   
(b) Sound recordings intended for electronic di stribution and films for theatrical release 
(i) The Panel found that the US has not established the necessary pre-requisite 
for an inconsistency with paragraphs  5.1 and 1.2 with respect to the 2001 
Audiovisual Products Regulation , the Audiovisual Products Importation 
Rule, the Internet Culture Rule , the Network Music Opinions , the Film 
Regulation , the Film Distribution and Exhibition Rule , and the Film 
Enterprise Rule . 
6. Nullification and impairment 
8.3 Under Article 3.8 of the DSU, in cases where there is infringement of the obligations assumed 
under a covered agreement, the action is considered prima facie to cons titute a case of nullification or 
impairment of benefits under that ag reement.  Accordingly, we conclude that to the extent that China 
has acted inconsistently with certain provisions  of its Accession Protocol, the GATS, and the 
GATT 1994, it has nullified or impaired benef its accruing to the United States under those 
agreements.  
7. Recommendations 
8.4 Pursuant to Article 19.1 of the DSU, having fo und that China has acted inconsistently with 
provisions of its Accession Protocol, the GATS,  and the GATT 1994 set out above, we recommend 
that the Dispute Settlement Body request China to bring the relevant measure s into conformity with 
its obligations under those agreements. 
 
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