CHINA – MEASURES AFFECTING TRADING RIGHTS AND DISTRIBUTION SERVICES FOR CERTAIN PUBLICATIONS AND AUDIOVISUAL ENTERTAINMENT PRODUCTS
Document: Request for Consultations by the United States Addendum
Date: 16 July 2007
Document codes: WT/DS363/1/Add.1; G/L/820/Add.1; S/L/287
Complainant: EU
Respondent: Australia
Third parties: Canada, Chile, China, India, Philippines, Thailand, U.S.
Dispute stage: Mutually Agreed Solution
Agreements cited: Art. 2.2, 4.1, 5.1, 5.6, 5.7  Sanitary and Phytosanitary Measures (SPS)

CHINA – MEASURES AFFECTING TRADING RIGHTS AND
DISTRIBUTION SERVICES FOR CERTAIN PUBLICATIONS
AND AUDIOVISUAL ENTERTAINMENT PRODUCTS

Request for Consultations by the United States

Addendum

 The following communication, dated 10 July 2007, from the delegation of the United States
to the delegation of China and to the Chairman of the Dispute Settlement Body, is circulated in
accordance with Article 4.4 of the DSU.

As you know, on 5-6 June 2007, the United St ates and the People's Republic of China
("China") first held consultations with respect to (1 ) certain measures that restrict trading rights with
respect to imported films for theatrical releas e, audiovisual home entertainment products ( e.g., video
cassettes and DVDs), sound recordings, and publications ( e.g., books, magazines, newspapers, and
electronic publications), and (2) certain measures that restrict market access for, or discriminate
against, foreign suppliers of distribution services fo r publications and foreign suppliers of audiovisual
services (including distribution services) for audiovisual home entertainment products. My
authorities have now instructed me to request suppl emental consultations with the Government of the
People's Republic of China ("China") pursuant to Articles 1 and 4 of the Understanding on Rules and
Procedures Governing the Settlement of Disputes , Article XXII of the General Agreement on Tariffs
and Trade 1994 ("GATT 1994"), and Article XXII of the General Agreement on Trade in Services
("GATS") with respect to certain market access concer ns 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 provide less favourable distribution
opportunities for imported films for theatrical release than for like domestic films, and (2) certain
measures that provide less favourable opportuniti es for foreign suppliers of sound recording
distribution services and for the distribution of imported sound recordings than are provided to like
service suppliers and like products. This request supplements and does not replace the request for
consultations circulated as WT/DS363/1.

I. Distribution of Films for Theatrical Release

Various measures of China appear to provide di stribution opportunities for imported films for
theatrical release that are less favourable than the distribution opportunities for domestically produced
films for theatrical release.

S/L/287/Add.1

In this connection, the measures at issue include the following:

(1) the Regulations on the Administration of the Films Industry
1;

(2) the Provisional Rules on the Entry Criteria for Operating Film Enterprises2; and

(3) the Provisional Specific Implementing Ru les for Reforming Film Distribution and
Exhibition
3;

as well as any amendments, related measures, or implementing measures.

The measures at issue appear to establish a dual distribution system for films for theatrical
release. It appears that imported films can be distributed within China only by two entities and only
on a nationwide basis. By contrast, it appears that domestically produced films can be distributed not
only by those same two entities but also by many other entities, including entities that operate on a
local, provincial or interprovincial basis.

Accordingly, the measures at issue appear to be inconsistent with China's obligations under
Article III:4 of the GATT 1994 and the provisi ons of paragraph 5.1 of Part I of the Protocol on the
Accession of the People's Republic of China ,
4 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 Report of the Working Party on the Accession of China 5). The Accession
Protocol forms part of the terms of accession agreed between China and the WTO and is an integral
part of the Marrakesh Agreement Establishing the World Trade Organization.

II. Distribution of Sound Recordings

Various measures of China appear to impose market access restrictions or discriminatory
requirements on foreign service suppliers seeking to engage in the digital distribution of sound
recordings and to impose discriminatory restrictions on sound recordings imported in physical form.

In this connection, the measures at issue include:

(1) the Interim Regulations on Internet Culture Administration
6 (the "Interim Regulations");

(2) the Circular of the Ministry of Culture on Relevant Issues of Implementation of the Interim
Regulations on Internet Culture Administration7;

1 State Council Order No. 342, adopted on 12 Decem ber 2001, promulgated on 25 December 2001 and
effective as of 1 February 2002.
2 Decree No. 43, jointly issued by the State Administration of Radio, Film and Television and the
Ministry of Commerce, promulgated on 10 October 2004 and effective as of 10 November 2004.
3 Guang Fa Ban Zi [2001] No. 1519, jointly issued by the State Administration of Radio, Film and
Television and the Ministry of Culture (18 December 2001).
4 WT/L/432, 23 November 2001 (the "Accession Protocol").
5 WT/MIN(01)/3 (the "Working Party Report").
6 Promulgated in Order No. 27 of the Ministry of Culture (10 May 2003), amended by Order No. 32 of
the Ministry of Culture (1 July 2004).
7 Wen Shi Fa [2003] No. 27, issued by the Ministry of Culture (4 July 2003).

 S/L/287/Add.1

(3) the Catalogue for Guidance of Foreign Investment Industries
8;

(4) the Several Opinions of the Ministry of Cultu re, the State Administration of Radio, Film and
Television, the General Administration of Pr ess and Publication, the National Development
and Reform Commission and the Ministry of Commerce on Introducing Foreign Investment
into the Cultural Sector
9; and

(5) the Several Opinions on the Develo pment and Regulation of Network Music
10;

as well as any amendments, related measures, or implementing measures.

The Interim Regulations define "internet cu ltural activities" as including activities such as
wholesaling and retailing of "internet cultural pr oducts" on the internet (including to mobile
telephones). The Interim Regulations further defi ne "internet cultural products" as including various
kinds of "network audiovisual products," including both audiovisual products that have been produced
specifically for transmission over th e internet and products that are the result of the transformation of
an audiovisual product existing in physical form into a format that can be transmitted over the
internet. It appears, therefore, that the definiti on of "internet cultural products" extends to digital
sound recordings, and that the definition of "int ernet cultural activities" extends to the digital
distribution of such products.

The Interim Regulations and the other measur es at issue appear, however, to prohibit any
foreign-owned or foreign-invested entity from obtai ning the licenses necessary to engage in "internet
cultural activities." As a result, the measures at issue appear to prohibit any foreign-owned or foreign-
invested entities from digital distribution of "internet cultural products," including sound recordings in
digital form.

In addition, even if foreign-invested entiti es can engage in the distribution of sound
recordings in digital form, the measures at issue a ppear to accord foreign suppliers of sound recording
distribution services less favourable treatment than that accorded to Chinese suppliers of sound
recording distribution services. The measures at issu e appear to provide that any "imported" music
(which appears to include music in which certain rights are held by a foreign-owned or foreign-
invested enterprise) is subject to content review be fore digital distribution. However, music in which
such rights are held by Chinese enterprises without foreign investment is subject to registration but
not prior content review before digital distribution. Consequently, it appears that foreign-owned and
foreign-invested sound recording distribution enterp rises in China, as well as enterprises that supply
cross-border sound recording distribution services, are treated less favourably than like sound
recording distribution enterprises that are wholly Chinese-owned.

In Sector 2D of China's Schedule of Specific Commitments on Services (the "Schedule"),
11
China undertook market access and national treatment commitments with respect to the supply of
sound recording distribution services through cr oss-border supply and through commercial presence

8 Order [2004] No. 24, jointly issued by the National Development and Reform Commission and the
Ministry of Commerce (30 November 2004).
9 Wen Ban Fa [2005] No. 19, jointly issued by the Ministry of Culture, the State Administration of
Radio, Film and Television, the General Administration of Press and Publication, the National Development and
Reform Commission, and the Ministry of Commerce (6 July 2005).
10 Ministry of Culture (20 November 2006); available at:
http://www.ccnt.gov.cn/xwzx/whbzhxw/t20061211_32440.htm (visited on 9 July 2007).
11 WT/L/432, Annex 9, and WT/MIN(01)/3/Add.2.

S/L/287/Add.1

in China by service suppliers of other Members. Moreover, the measures at issue do not appear to fall
within the terms, limitations, conditions, or qualifi cations on market access or national treatment that
China has specified in its Schedule with respect to the supply of these services. The measures at issue
therefore appear to be inconsistent with Chin a's obligations under Articles XVI and XVII of the
GATS.

The measures at issue also appear to require that sound recordings imported into China in
physical form but intended for digital distribu tion must undergo content review prior to such
distribution within China; domestically produced s ound recordings appear not to be subject to this
requirement but can instead be digitally distribu ted immediately. It thus appears that sound
recordings imported into China in physical form ar e treated less favourably than sound recordings
produced in China in physical form . The measures at issue therefore appear to be inconsistent with
China's obligations under Article III:4 of the GAT T 1994, and the provisions of paragraph 5.1 of
Part I of the Accession Protocol, as well as China's ob ligations under the provis ions 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).

The measures cited in this request for consulta tions also appear to nullify or impair the
benefits accruing to the United States directly or indirectly under the cited agreements.

 We look forward to receiving your reply to the present request and to fixing a mutually
convenient date for consultations.