CHINA – MEASURES AFFECTING TRADING RIGHTS AND DISTRIBUTION SERVICES FOR CERTAIN PUBLICATIONS AND AUDIOVISUAL ENTERTAINMENT PRODUCTS
Document: Report of the Appellate Body
Date: 21 December 2009
Document codes: WT/DS363/AB/R
Complainant: U.S.
Respondent: China
Third parties: Australia, EU, Japan, South Korea, Taiwan
Dispute stage: Appellate Body
Agreements cited: Part I, para. 5.2  Protocol of AccessionArt. XI:1, III:4  GATT 1994Art. XVII, XVI  Services (GATS)Part I, para. 1.2, Part I, para. 5.1  Protocol of Accession

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

AB-2009-3

Report of the Appellate Body

APPELLATE BODY

China, Appellant/Appellee
United States, Other Appellant/Appellee

Australia, Third Participant
European Communities
1, Third Participant
Japan, Third Participant
Korea, Third Participant
Separate Customs Territory of Taiwan, Penghu,
Kinmen and Matsu, Third Participant
AB-2009-3

Present:

Hillman, Presiding Member
Oshima, Member
Ramírez-Hernández, Member

I. Introduction
1. China and the United States each appeals certain issues of law and legal interpretations
developed in the Panel Report, (the "Panel Report").
2 The Panel
was established to consider a complaint by the United States concerning a series of Chinese measures
regulating activities relating to the importation and di stribution of: reading materials (for example,
books, newspapers, periodicals, electronic publications ); audiovisual home entertainment ("AVHE")
products (for example, videocassettes, video compact discs, digital video discs ("DVDs")); sound
recordings (for example, recorded audio tapes); and films for theatrical release. 3 Further details
regarding the content and the operation of the me asures examined by the Panel are set out in
section IV of this Report.
2. Before the Panel, the United States claimed that certain of the challenged Chinese measures
violate trading rights commitments undertaken by China in the Protocol on the Accession of the
People's Republic of China to the World Trade Organization (the "WTO") ("China's Accession
Protocol")4 and the Report of the Working Party on the Accession of China to the WTO ("China's

1We note that, on 1 December 2009, the Treaty of Lisbon amending the Treaty on European Union and
the Treaty establishing the European Community (done at Lisbon, 13 December 2007) entered into force. On
29 November 2009, the World Trade Organization received a Verbal Note (WT/L/779) from the Council of the
European Union and the Commission of the European Communities stating that, by virtue of the Treaty of
Lisbon, as of 1 December 2009, the European Union replaces and succeeds the European Community.
2WT/DS363/R, 12 August 2009, and WT/DS363/R/Corr.1, 19 August 2009.
3Panel Report, paras. 2.1 and 2.2.
4WT/L/432.

Accession Working Party Report")
5 because, by limiting trading rights to wholly Chinese State-owned
enterprises, the measures restrict the right of ente rprises in China, foreign enterprises, and foreign
individuals, to import the relevant products into China. 6 The United States alleged violations of
paragraphs 5.1 and 5.2 of China's Accession Protocol, and of paragraph 1.2 of China's Accession
Protocol to the extent that it incorporates commitme nts referred to in paragr aphs 83 and 84 of China's
Accession Working Party Report.7
3. Additionally, the United States claimed that certa in of China's measures are inconsistent with
Article XVI and/or Article XVII of the General Agreement on Trade in Services (the "GATS")
because they:
(a) prohibit foreign-invested enterprises in Ch ina from engaging in certain types of
distribution of reading materials and electronic distribution of sound recordings;
(b) limit the commercial presence for the distri bution of AVHE products within China to
Chinese-foreign contractual joint ventures with majority Chinese ownership; or
(c) impose on those foreign-invested enterprises in China that are permitted to engage in
the distribution of AVHE products or certain reading materials requirements that are
more burdensome than those applicable to domestic distributors.8
4. Finally, the United States claimed that certain of China's measures are inconsistent with
Article III:4 of the General Agreement on Tariffs and Trade 1994 (the "GATT 1994") because they:
(a) restrict the distribution of certain imported reading materials within China by
requiring that, unlike the situation for like domestic products, distribution be
conducted only by wholly Chinese State-owned enterprises, only through
subscription, and only to subscribers approved by the Chinese Government;
(b) limit to wholly Chinese-owned enterprises the distribution of certain imported
reading materials, while the distribution of like domestic products is not so limited;
(c) discriminate against imported sound recordings intended for electronic distribution
within China by subjecting them to more burdensome content review requirements
than like domestic products; or

5WT/ACC/CHN/49 and WT/ACC/CHN/49/Corr.1.
6Panel Report, para. 2.3(a).
7Panel Report, para. 3.1(a).
8Panel Report, paras. 2.3(b) and 3.1(b) and (c).

(d) discriminate against imported films for theatrical release by limiting the distribution
of such imported films to two wholly Chinese State-owned enterprises, while the
distribution of like domestic products is not so limited.9
5. The Panel addressed each of the Chinese legal instruments challenged by the United States. 10
The Panel considered procedural objections raised by China and found that claims in respect of
several measures were not within the Panel's terms of reference in accordance with the requirements
of Article 6.2 of the Understanding on Rules and Procedures Governing the Settlement of Disputes
(the "DSU").11 The Panel also determined that two of the instruments challenged by the United States
were not "measures" within the meaning of Article 3.3 of the DSU.12

9Panel Report, paras. 2.3(c) and 3.1(d). The United States also requested the Panel to find that,
regarding China's national treatment obligations in resp ect of goods, certain of China's measures are also
inconsistent with paragraphs 1.2 and 5.1 of China's Accession Protocol. (Ibid., para. 3.1(e))
10The United States challenged, in particular: the Foreign Investment Regulation; the Catalogue; the
Several Opinions ; the Publications Regulation ; the Importation Procedure ; the Imported Publications
Subscription Rule ; the Publications (Sub-)Distribution Rule ; the Publications Market Rule ; the Sub-
Distribution Procedure ; the 1997 Electronic Publications Regulation ; the 2001 Audiovisual Products
Regulation; the Audiovisual Products Importation Rule; the Audiovisual (Sub-)Distribution Rule; the Internet
Culture Rule; the Circular on Internet Culture ; the Network Music Opinions; the Film Regulation; the Film
Enterprise Rule; and the Film Distribution and Exhibition Rule. (Panel Report, para. 3.1) The full titles of these
legal instruments are set out in the lists of abbreviations at pages vii and ix of this Report.
The parties submitted translations of the measures, or of certain provisions of the measures, as part of
the exhibits attached to their first written submissions. The Panel identified several provisions for which the
parties had provided different translations or disputed the meaning of particular terms, and requested that the
parties attempt to agree on a single translation. On 9 and 20 October 2008, the par ties communicated that they
had reduced some of their translation differences but that they were unable to agree on others, and requested that
the Panel seek translation of the relevant terms or pr ovisions from an independent source. On 19 December
2008, the Panel requested the United Nations Office at Nairobi (the "UNON") to provide the relevant
translations. The Panel and the pa rties received the translations from the UNON on 10 February 2009.
Annex A-1 to the Panel Report summarizes the translation issues that arose during th e Panel proceedings. (See
Panel Report, paras. 2.4-2.9)
11The Panel found that the following were not within its terms of reference: claims relating to China's
trading rights commitments in respect of the Film Distribution and Exhibition Rule ; claims under Article III:4
of the GATT 1994 in respect of the 2001 Audiovisual Products Regulation and the Audiovisual Products
Importation Rule; and claims concerning certain requirements (pre-establishment legal compliance, approval
process requirements, decision making criteria) contained in certain measures. (Panel Report, para. 8.1.1(a)
and (b); see also paras. 7.60, 7.82, and 7.104) The Panel separately found that the lack of consultations on a
specific claim under Article III:4 of the GATT 1994 regard ing certain reading material s did not mean that the
claim was outside the Panel's terms of reference; however, it excluded from consideration claims under
Article III:4 of the GATT 1994 in respect of electronic publications and certain provisions of the Imported
Publications Subscription Rule. (Ibid., para. 8.1.1(c); see also paras. 7.131, 7.147, 7.156, and 7.161)
12The Panel found that the Importation Procedure and the Sub-Distribution Procedure did not qualify
as "measures" because they did not them selves establish rules or norms of general and prospective application.
(Panel Report, para. 8.1.1(d)(ii); see also paras. 7.214 and 7.225) The Panel separately found that the Several
Opinions was a measure properly subject to dispute settlement proceedings. ( Ibid., para. 8.1.1(d)(i); see also
para. 7.198)

6. The Panel then considered whether China's me asures are consistent with China's trading
rights commitments in paragraphs 1.2, 5.1, and 5.2 of China's Accession Protocol and in
paragraphs 83(d) and 84( a) and (b) of China's Accession Work ing Party Report. China's trading
rights commitments include an obligation to grant "a ll enterprises in China ... the right to trade",
which means "the right to import a nd export goods". This obligation is subject to certain conditions,
including that it is "[w]ithout prejudice to China's ri ght to regulate trade in a manner consistent with
the WTO Agreement".
13 The Panel found that provisions in China's measures that either limit
importation rights to wholly State-owned enterp rises regarding, or prohibit foreign-invested
enterprises in China from importing, reading materials, AVHE products, sound recordings, and films,
are inconsistent with China's oblig ation to grant the right to trade.
14 The Panel also concluded that
several provisions of the Chinese measures at issu e breach China's obligation to grant in a non-
discretionary manner the right to trade.15
7. The Panel turned next to China's defence that certain provisions found to be inconsistent with
its trading rights commitments are nevertheless justified under Article XX(a) of the GATT 1994
because they form part of measures governing China' s regime to review the content of the relevant
products, thereby protecting public morals in China. The Panel refrained from making a finding as to
"whether Article XX can be directly invoked as a defence to a breach of China's trading rights

13See China's Accession Protocol, para. 5.1; and China's Accession Working Party Report, paras. 83(d)
and 84(a). In addition, China assumed obligations to ensure that foreign enterprises and individuals would be
granted treatment no less favourable than that accorded to enterpri ses in China with respect to the right to trade
(see China's Accession Protocol, para. 5.2) and to ensure that trading rights for foreign enterprises and
individuals are granted in a non-discriminatory and non-discretionary manner (see China's Accession Working
Party Report, para. 84(b)). The texts of these provisions are included as part of Annex III to this Report, and the
Panel's analysis of them is summarized at infra, section IV.B.
14These findings relate to Articles X:2 and X:3 of th e List of Prohibited Foreign Investment Industries
in the Catalogue, in conjunction with Articles 3 and 4 of the Foreign Investment Regulation ; Article 4 of the
Several Opinions; Article 42, in conjunction with Article 41, of the Publications Regulation; Article 21 of the
Audiovisual (Sub-)Distribution Rule; Article 30 of the Film Regulation; and Article 16 of the Film Enterprise
Rule. (Panel Report, paras. 8.1.2(a)(i), (ii), and (v), 8.1.2( b)(ii), 8.1.2(c)(iii) and (vii), and 8.1.2(d)(x); see also
paras. 7.351, 7.352, 7.374, 7.401, 7.411, 7.576, 7.598, 7.599, and 7.703) The Panel's findings of violation in
respect of Article 30 of the Film Regulation and Article 16 of the Film Enterprise Rule also extend to the
exclusion of foreign enterprises not registered in China and foreign individuals from engaging in the business of
importing films. (Ibid., paras. 7.576, 7.598, and 7.599)
15These findings relate to Article 41 of the Publications Regulation ; Articles 5 and 27 of the 2001
Audiovisual Products Regulation; Articles 7 and 8 of the Audiovisual Products Importation Rule; Article 30 of
the Film Regulation; and Article 16 of the Film Enterprise Rule. (Panel Report, paras. 8.1.2(b)(viii), 8.1.2(c)(ii)
and (vi), and 8.1.2(d)(i), (ii), (v), and (vi); see also paras. 7.437, 7.571, 7.594, 7.633, 7.657, 7.680, and 7.690)
The Panel exercised judicial economy with respect to the claims that Articles X:2 and X:3 of the List of
Prohibited Foreign Investment Industries in the Catalogue, in conjunction with Articles 3 and 4 of the Foreign
Investment Regulation; Article 4 of the Several Opinions; and Article 42 of the Publications Regulation, do not
grant in a non-discriminatory manner the right to trade. ( Ibid., paras. 8.1.2(a)(iii) and (vi) and 8.1.2(b)(v);
see also paras. 7.357, 7.378, and 7.417) The Panel also made findings that, in respect of certain claims, the
United States had not established a violation of China's trading rights commitments. ( Ibid., paras. 8.1.2(a)(iv)
and (vii), 8.1.2(b)(i), (iii), (iv), (vi), (vii), and (x)-(xvii), 8.1.2( c)(i), (iv), (v), and (viii), and 8.1.2(d)(iii), (iv),
(vii)-(ix), and (xi))

commitments under the Accession Protocol".16 Instead, the Panel "proceed[ed] on the assumption that
Article XX(a) is available to China as a defen ce for the measures [the Panel had] found to be
inconsistent with [China's] trading rights commi tments under the Accession Protocol" and examined,
based on that assumption, "whether the relevant measures satisfy the requirements of
Article XX(a)."
17 The Panel determined that none of the provisions of China's measures that it had
found to be inconsistent with China's trading ri ghts commitments are "nece ssary to protect public
morals" within the meaning of Article XX(a) of the GATT 1994, and that China therefore had not
established that the provisions are justified under that exception.18
8. The Panel also considered claims of the Un ited States concerning China's market access and
national treatment obligations in Articles XVI and XVII, respectively, of the GATS, as they relate to
reading materials, AVHE products, and the electroni c distribution of sound recordings. With respect
to the distribution of reading materials, the Panel found that provisions prohibiting foreign-invested
enterprises in China from engaging in: the "master distribution"
19 of books, newspapers, and
periodicals; the "master wholesale" 20 or wholesale of electronic publications; and the wholesale of
imported reading materials, are each inconsistent with Article XVII of the GATS. 21 The Panel also
concluded that provisions imposi ng different registered capital a nd operating term requirements on
foreign-invested wholesalers than on wholly Chin ese-invested wholesalers are inconsistent with
Article XVII of the GATS.22

16Panel Report, para. 7.743.
17Panel Report, para. 7.745.
18These findings relate to Articles X:2 and X:3 of th e List of Prohibited Foreign Investment Industries
in the Catalogue, in conjunction with Articles 3 and 4 of the Foreign Investment Regulation ; Article 4 of the
Several Opinions : Articles 41 and 42 of the Publications Regulation ; Article 27 of the 2001 Audiovisual
Products Regulation ; Article 8 of the Audiovisual Products Importation Rule ; and Article 21 of the
Audiovisual (Sub-)Distribution Rule . (Panel Report, para. 7.726) Because the Panel found that China had not
established that the measures at issue satisfy the requirements of Article XX(a) of the GATT 1994, the Panel did
not determine whether Article XX(a) is available as a defence for breaches of China's trading rights
commitments. (Ibid., para. 8.2; see also paras. 7.726 and 7.911-7.914)
19The Panel concluded that "master distribution" involves the sale of publications by an exclusive seller
to other wholesalers or retailers, or to certain professional end-users. (Panel Report, paras. 7.1025-7.1027)
20The Panel took note of China's statement that "master wholesale" is a term synonymous with "master
distribution", but is used exclusively in the context of electronic publications. (Panel Report, para. 7.1068)
21These findings relate to Article X:2 of the List of Prohibited Foreign Investment Industries in the
Catalogue, in conjunction with Articles 3 and 4 of the Foreign Investment Regulation; Article 4 of the Several
Opinions; Article 42 of the Publications Regulation, in conjunction with Article 4 of the Imported Publications
Subscription Rule; Article 62 of the 1997 Electronic Publications Regulation; and Article 2 of the Publications
(Sub-)Distribution Rule , in conjunction with Article 16 of the Publications Market Rule . (Panel Report,
para. 8.2.3(a)(i)-(v); see also paras. 7.998, 7.999, 7.1048, 7.1058, 7.1074, and 7.1094)
22These findings relate to paragraphs 4 and 5 of Article 7 of the Publications (Sub-)Distribution Rule.

9. Regarding the distribution of AVHE products , the Panel found that several provisions
permitting distribution by foreign-invested contr actual joint ventures only when the Chinese partner
holds a majority share are inconsistent with Article XVI:2(f) of the GATS.
23 With respect to certain
provisions for which a violation of Article XVI of the GATS had not been found, the Panel concluded
that these provisions nevertheless result in discrimination against foreign service providers in
violation of Article XVII of the GATS.
24 Concerning the electronic distribution of sound recordings,
the Panel concluded that provisions of China's me asures prohibiting foreign-invested enterprises from
supplying this service are also inconsistent with Article XVII of the GATS.25
10. Finally, the Panel considered the claims of the United States that China's measures are in
breach of China's national treatment obligations in Article III:4 of the GATT 1994. The Panel found
that certain provisions of China's measures relating to reading materials result in discrimination
against like imported products, in violation of Ar ticle III:4 of the GATT 1994, either by prohibiting
foreign-invested enterprises from distribu ting imported books, newspapers, and periodicals 26, or by
requiring that the distribution of imported ne wspapers and periodicals occur only through
subscription.27 Regarding films for theatrical release and the electronic distribution of sound
recordings, the Panel concluded that the United St ates had not demonstrated a violation of China's
national treatment obligations under Article III:4 of the GATT 1994.28

23These findings relate to Article VI:3 of the List of Restricted Foreign Investment Industries in the
Catalogue, in conjunction with Article 8 of the Foreign Investment Regulation , and Article 8.4 of the
Audiovisual (Sub-)Distribution Rule . (Panel Report, para. 8.2.3(c)(i); see also paras. 7.1395 and 7.1396)
Because the Panel found inconsistencies with Article XV I of the GATS in respect of these provisions, it
exercised judicial economy with respect to claims under Article XVII of the GATS. ( Ibid., para. 8.2.3(c)(iv);
see also para. 7.1427)
24These findings relate to Article 1 of the Several Opinions and Article 8.5 of the Audiovisual
(Sub-)Distribution Rule. (Panel Report, para. 8.2.3(c)(iii); see also para. 7.1426)
25These findings relate to Article X:7 of the List of Prohibited Foreign Investment Industries in the
Catalogue, in conjunction with Articles 3 and 4 of the Foreign Investment Regulation; Article 4 of the Several
Opinions; Article II of the Circular on Internet Culture ; and Article 8 of the Network Music Opinions. (Panel
Report, para. 8.2.3(b); see also para. 7.1311) The Panel also made findings that, in respect of certain claims,
the United States had not established a violation of China's GATS commitments. ( Ibid., paras. 8.2.3(a)(vi),
8.2.3(b)(ii), and 8.2.3(c)(ii))
26These findings relate to Article 2 of the Publications (Sub-)Distribution Rule , in conjunction with
Article 16 of the Publications Market Rule. (Panel Report, para. 8.2.4(a)(iii); see also para. 7.1545)
27These findings relate to Articles 3 and 4 of the Imported Publications Subscription Rule . (Panel
28Panel Report, para. 8.2.4(b) and (c); see also paras. 7.1654 and 7.1693. The United States also
claimed that any violation of Article III:4 of the GATT 1994 would also be inconsistent with China's obligations
in paragraphs 1.2 and 5.1 of China's Accession Protocol to abide by the national treatment obligations in
Article III:4 of the GATT 1994. The Panel exercised judicial economy in respect of the claims under the
GATT 1994 relating to reading materials, and found that th e prerequisite of a violation of Article III:4 of the
GATT 1994 was not present in respect of the claims relating to films for theatrical release and the electronic
distribution of sound recordings. ( Ibid., para. 8.2.5; see also paras. 7.1707 and 7.1708) The Panel also made
findings that, in respect of certain claims, the United States had not established a violation of China's obligations
under the GATT 1994. (Ibid., paras. 8.2.4(a)(ii), 8.2.4(b)(i) and (ii), and 8.2.4(c)(i))

11. On 22 September 2009, China notified the Dispute Settlement Body (the "DSB") of its
intention to appeal certain issues of law covered in the Panel Report and certain legal interpretations
developed by the Panel, pursuant to Articles 16.4 and 17 of the DSU, and filed a Notice of Appeal 29
pursuant to Rule 20 of the Working Procedures for Appellate Review (the "Working Procedures").30
On 29 September 2009, China filed an appellant's submission. 31 On 5 October 2009, the United
States notified the DSB of its intention to appeal cer tain issues of law covered in the Panel Report and
certain legal interpretations developed by the Panel, pursuant to Articles 16.4 and 17 of the DSU, and
filed a Notice of Other Appeal 32 pursuant to Rule 23(1) and (2) of the Working Procedures .
On 7 October 2009, the United States filed an other appellant's submission. 33 On 19 October 2009,
China and the United States each filed an appellee's submission. 34 On the same day, Australia, the
European Communities, Japan, and Korea each filed a third participant's submission 35, and the
Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu notified its intention to appear at
the oral hearing as a third participant.36
12. The oral hearing in this appeal was held on 2 and 3 November 2009. The participants and
three of the third participants (the European Commu nities, Japan, and Korea) made oral statements.
The participants and the third participants r esponded to questions posed by the Members of the
Division hearing the appeal.
13. Attached as Annex III to this Report are the provisions of the Chinese measures at issue in
this appeal, together with relevant extracts from China's Accession Protocol, China's Accession
Working Party Report, and China's Schedule of Specific Commitments for services ("China's GATS
Schedule").37

29WT/DS363/10 (attached as Annex I to this Report).
30WT/AB/WP/5, 4 January 2005.
31Pursuant to Rule 21 of the Working Procedures.
32WT/DS363/11 (attached as Annex II to this Report).
33Pursuant to Rule 23(3) of the Working Procedures.
34Pursuant to Rules 22 and 23(4) of the Working Procedures.
35Pursuant to Rule 24(1) of the Working Procedures.
36Pursuant to Rule 24(2) of the Working Procedures.
37The People's Republic of China, Schedule of Specific Commitments, GATS/SC/135.

II. Arguments of the Participants and the Third Participants
A. Claims of Error by China – Appellant
14. China's appeal concerns three aspects of the Pa nel Report. First, China appeals the Panel's
finding that China's trading rights commitments unde r paragraphs 1.2 and 5.1 of China's Accession
Protocol and paragraphs 83(d) a nd 84(a) and (b) of China's Accession Working Party Report, which
apply only to trade in goods, a pply to China's measures concerning films for theatrical release and
unfinished audiovisual products
38, which, according to China, regulate services and content. Because,
in China's view, these measures are not subject to the trading rights commitments at all, China also
seeks reversal of the Panel's finding that such meas ures are inconsistent with China's trading rights
commitments. Secondly, China appeals various elem ents of the Panel's necessity analysis, as well as
its ultimate finding that various measures at issue 39 are not "necessary", within the meaning of
Article XX(a) of the GATT 1994, to protect public morals in China. Finally, China disputes the
Panel's finding that the inscription "Sound record ing distribution services" in China's GATS Schedule
encompasses the distribution of sound recordings th rough electronic means and, on that basis, seeks
reversal of the Panel's consequent finding that various measures 40 regulating such distribution are
inconsistent with China's national treatment obligation under Article XVII of the GATS.
1. The Applicability of China's Tradi ng Rights Commitments to Measures
Pertaining to Films for Theatrical Release and Unfinished Audiovisual
Products
(a) Article 30 of the Film Regulation and Article 16 of the Film
Enterprise Rule
15. China appeals the Panel's findings that Article 30 of the Film Regulation and Article 16 of the
Film Enterprise Rule are inconsistent with China's trading rights commitments in paragraphs 1.2
and 5.1 of China's Accession Protocol and paragra phs 83(d) and 84(a) and (b) of China's Accession
Working Party Report. Specifically, China contends that the Panel erred in determining that China's
trading rights commitments, which apply only with r espect to trade in goods, are applicable to the
Film Regulation and the Film Enterprise Rule because, in China's view, these measures regulate the

38Article 30 of the Film Regulation ; Article 16 of the Film Enterprise Rule ; Article 5 of the 2001
Audiovisual Products Regulation; and Article 7 of the Audiovisual Products Importation Rule.
39Articles X:2 and X:3 of the List of Prohibited Foreign Investment Industries in the Catalogue, in
conjunction with Articles 3 and 4 of the Foreign Investment Regulation ; Article 4 of the Several Opinions :
Articles 41 and 42 of the Publications Regulation; Article 27 of the 2001 Audiovisual Products Regulation ;
Article 8 of the Audiovisual Products Importation Rule ; and Article 21 of the Audiovisual (Sub-)Distribution
Rule.
40Article II of the Circular on Internet Culture; Article 8 of the Network Music Opinions; Article 4 of
the Several Opinions; and Article X:7 of the List of Prohibited Foreign Investment Industries in the Catalogue,
in conjunction with Articles 3 and 4 of the Foreign Investment Regulation.

content of films and the services related to such cont ent. China claims that, in so finding, the Panel
committed errors of law and legal interpretation, and failed to conduct an obj ective assessment of the
facts before it, in violation of Article 11 of th e DSU. Because the Panel's findings of inconsistency
regarding Article 30 of the Film Regulation and Article 16 of the Film Enterprise Rule were based on
its erroneous finding that China's trading right s commitments apply to these provisions, China
contends that the findings of inconsistency "are equally flawed and in error, and should be reversed".41
16. China maintains that the United States shifte d the subject of its claim from "films for
theatrical release" to "hard-copy cinematographic f ilms", and that the Panel erroneously accepted this
shift as "a mere clarification of the [United States'] claim". 42 In its request for the establishment of a
panel and its first written submission to the Pane l, the United States alleged that China had acted
inconsistently with its trading rights commitments by failing to grant all foreign enterprises and
individuals the right to import "films for theatrical release ".43 In its first oral statement before the
Panel, however, the United States "suddenly" asserte d that it was "challenging measures that prohibit
foreign-invested enterprises from impor ting hard-copy cinematographic films , which are tangible
items".44 Yet, the Panel accepted this shift and found that the United States had merely clarified the
meaning of the expression "films for theatrical relea se" by confirming that this expression describes
goods. As a result, the Panel relieved the United Stat es of its burden of proof. According to China,
by not finding that the United States had deliberately shifted the subject of its claim, the Panel had to
"supplement[] the United States' failure" to fill in "a logical gap" as to why China's measures, which
regulate content and services, could be inconsistent with China's tr ading rights commitments that
apply to trade in goods.45
17. In China's view, the Panel committed a legal e rror in its assessment of the measures at issue
when it found that Article 30 of the Film Regulation 46 regulates who may engage in the import of
hard-copy cinematographic films. Having acknowle dged that the term "film" could be properly
understood as referring to content, the Panel erred in not ruling out "hard-copy cinematographic
films" as a possible meaning of the term "film" in the Film Regulation and in deriving instead legal
inferences based on such meaning. According to China, the language of other provisions of the Film
Regulation demonstrates that they are about the regula tion of content and the services related to such

43China's appellant's submission, paras. 204 and 205 (quoting Request for the Establishment of a Panel
by the United States, WT/DS363/5, p. 7 (underlining added by China); and referring to United States' first
written submission to the Panel, paras. 268 and 269).
44China's appellant's submission, para. 207 (quoting United States' oral statement at the first Panel
meeting, para. 11). (underlining added by China)
46China's arguments on the Film Regulation apply mutatis mutandis to the Film Enterprise Rule .
(China's appellant's submission, footnote 155 to para. 219)

content, and are not about goods. The plain wording of Articles 1, 2, 5, 24 through 29, and 31 of the
Film Regulation indicates that this measure focuses on cont ent that can be commercially exploited,
rather than on "the material used for the[] exploitation".
47 In China's view, the Appellate Body has the
authority to, and should, examine these other Articles in the Film Regulation in order to determine the
meaning and scope of Article 30. The Appellate Body has, in prior disputes, found that the
assessment of the WTO-consistency of municipal law is a process of legal characterization, and thus
an issue of law subject to appellate review under Article 17.6 of the DSU. 48 Moreover, China
highlights that it has, in any event, claimed that the Panel failed to conduct an objective assessment of
the facts, in violation of Article 11 of the DSU, when it examined China's measures concerning films
for theatrical release.
18. China adds that additional evidence before th e Panel, in the form of an independent
translator's opinion regarding the appropr iate translation of Article 30 of the Film Regulation ,
confirms that the term "film" (" Dian Ying " in Chinese) refers exclusively to the content of a film,
rather than to the material on which the film is printed or the film stock. Notwithstanding this
evidence and its own acknowledgement that the term "film" could re fer to content, the Panel wrongly
decided not to make any clear finding as to the meaning of the term "film" ("Dian Ying") in Article 30
of the Film Regulation . Instead, the Panel erroneously found that Article 30 "would necessarily
affect"
49 who may import goods even if the term " Dian Ying " refers exclusively to the content of
films.
19. China takes issue with the Panel's finding that Article 30 "would necessarily affect" who may
import goods also because, according to China, the Pa nel failed to establish how the measures at issue
affect the importation of hard-copy cinematogra phic films. According to China, the import
restrictions imposed by the measures at issue relate only to the intangible content—the motion picture,
as distinct from the cinematographic film that is the physical carrier of such motion picture.
Consequently, the measures do not have any direct le gal effect of restricting the importation of hard-
copy cinematographic films. The right to import granted under the measures refers exclusively to the
right to import content in the form of licensing agre ements for the distribution of such content within
China. Thus, the fact that the measures "may ha ve an incidental, practical effect on hard-copy
cinematographic film" 50, which is the carrier of the content regulated by the measures, does not

48China's appellant's submission, para. 234 (referring to Appellate Body Report, EC – Hormones ,
para. 132; and Appellate Body Report, US – Section 211 Appropriations Act , para. 105). In response to
questioning at the oral hearing, China also referred to Appellate Body Reports, China – Auto Parts, para. 255, in
support of its argument.
49Panel Report, para. 7.543.

support the Panel's finding that Article 30 woul d necessarily affect who may engage in the
importation of hard-copy cinematographic films. In the present dispute, cinematographic films are
imported "simultaneously, physically in conjunc tion with the right to provide the service in
question".51 Therefore, there is "no restriction on the ca rrier independently from that applicable to the
service"52, and the demand for the service is with respect to the content, not with respect to any good
carrying such content.
20. Finally, China alleges that the Panel's finding th at the measures at issue necessarily affect the
importation of goods undermines China's legitimate right s. China recalls that its legitimate right to
conduct content review of imported cultural produc ts, including films for theatrical release, was
neither challenged by the United States nor questioned by the Panel. China provides the following
example to illustrate that its right to conduct cont ent review would be undermined as a result of the
Panel's finding. If the content of a film fails to pass the content review and the film cannot be
imported for release in China, the Panel's logic necess arily implies that China would be found to be in
violation of its obligations con cerning trade in goods, because the hard-copy cinematographic film, in
which the content is embedded, also cannot be impo rted. In this way, China argues, its legitimate
right to conduct content review would be "seriously undermined".
53 China adds that its right to
conduct content review with respect to films is clea rly retained by virtue of its GATS Schedule, in
which China has expressly reserved its right to regulate the importation of motion pictures for
theatrical release.
54 China reiterates that its measures on f ilms for theatrical release regulate content
and services, and any effects on goods are merely "incidental" and "practical". 55 Thus, China
maintains that the Panel's error lies in its failure to recognize that applying WTO rules concerning
goods to measures that regulate services, "on the basis of a mere practical [and] incidental effect" of
the measures on goods, "would lead to absurd results".56
21. For these reasons, China requests the Appellate Body to reverse the Panel's findings that
Article 30 of the Film Regulation and Article 16 of the Film Enterprise Rule "are subject to China's
trading rights commitments, in that they would eith er directly regulate w ho may engage in importing
of 'hard-copy cinematographic films' or necessarily affect who may engage in importing of such
goods."57 China also requests the Appellate Body to reverse the Panel's consequent findings that these

51China's appellant's submission, para. 242. (footnote omitted)
54China's response to questioning at the oral hearing.
57Panel Report, para. 7.560; see also para. 7.584. China submits that its arguments concerning the
Panel's reasoning with respect to Article 30 of the Film Regulation also apply, mutatis mutandis, to Article 16 of
the Film Enterprise Rule.

provisions are inconsistent with China's trading rights commitments in paragraphs 1.2 and 5.1 of
China's Accession Protocol and paragraphs 83(d) and 84(a) and (b) of China's Accession Working
Party Report.
(b) Article 5 of the 2001 Audiovisual Products Regulation and Article 7
of the Audiovisual Products Importation Rule
22. China asserts that the Panel erred in finding that Article 5 of the 2001 Audiovisual Products
Regulation and Article 7 of the Audiovisual Products Importation Rule , which concern unfinished
audiovisual products
58 imported for publication, are inc onsistent with China's obligation under
paragraph 1.2 of China's Accession Protocol and paragraph 84(b) of China's Accession Working Party
Report to grant in a non-discretionary manner the righ t to trade. China seeks to have these findings
reversed on the specific ground that the Panel erred in finding that China's obligation to grant in a
non-discretionary manner the right to trade applies to such measures.
23. China maintains that, like Article 30 of the Film Regulation and Article 16 of the Film
Enterprise Rule , Article 5 of the Audiovisual Products Regulation and Article 7 of the Audiovisual
Products Importation Rule do not regulate the importation of goods but, rather, regulate the service of
copyright licensing for the publication of audiovisual content. China argues that, to the extent that the
Panel's findings are based on the same reasoning as that on which the Panel based its findings
concerning Article 30 of the Film Regulation and Article 16 of the Film Enterprise Rule , the Panel
committed the same errors of law in its findings that Article 5 of the 2001 Audiovisual Products
Regulation and Article 7 of the Audiovisual Products Importation Rule are inconsistent with
paragraph 1.2 of China's Accession Protocol and paragraph 84(b) of China's Accession Working Party
Report.
2. The "Necessity" Test under Article XX(a) of the GATT 1994
24. China requests the Appellate Body to reverse th e Panel's findings that several of the Chinese
measures at issue in this dispute 59 are not "necessary", within the meaning of Article XX(a) of the
GATT 1994, to protect public morals, and that they th erefore cannot be justified under that provision.

58The United States explained that unfinished audiovisual products refer to master copies to be used to
publish and manufacture copies for sale in China. (See Panel Report, para. 7.608) The Panel referred to
"unfinished audiovisual products" as master copies imported for publication. (See ibid., paras. 7.625 and 7.642)
59Articles X:2 and X:3 of the List of Prohibited Foreign Investment Industries in the Catalogue, in
conjunction with Articles 3 and 4 of the Foreign Investment Regulation ; Article 4 of the Several Opinions ;
Articles 41 and 42 of the Publications Regulation; Article 27 of the 2001 Audiovisual Products Regulation ;
Article 8 of the Audiovisual Products Importation Rule ; and Article 21 of the Audiovisual (Sub-)Distribution
Rule.

Should the Appellate Body do so, China further requ ests the Appellate Body to complete the analysis
and find that China's measures are justified under Article XX(a) of the GATT 1994.
25. China points out that cultural goods and services ha ve a very specific nature "[a]s vectors of
identity, values and meaning" 60, in that they do not merely satisfy a commercial need, but also play a
crucial role in influencing and defini ng the features of society. Noting that this specificity of cultural
goods has been affirmed by the UNESCO Universal Declaration on Cultural Diversity and by the
UNESCO Convention on the Protection and Promoti on of the Diversity of Cultural Expressions ,
China requests the Appellate Body to be "mindful" 61 in the present appeal of the specific nature of
cultural goods.
(a) The State-Ownership Requirement
26. China requests the Appellate Body to reverse the Panel's finding that the requirement in
Article 42(2) of the Publications Regulation that publication import entities be wholly State-owned
(the "State-ownership requirement") is not "necessary to protect public morals" in China within the
meaning of Article XX(a) of the GATT 1994. Chin a alleges that the Panel misrepresented China's
arguments relating to the State-ownership require ment, and that these misrepresentations result in
errors of law and a failure by the Panel to make an objective assessment of the matter before it, in
violation of Article 11 of the DSU.
27. China alleges that the Panel mistakenly reduced an argument that China made to "a mere 'cost
analysis'"62 and failed to recognize that China's argument in fact related to the balance reached
between the performance of a public policy function and the cost associated with performing this
public policy function. China asserts that it explained to the Panel that the Chinese Government could
not require enterprises with private investment in Ch ina to bear the substantial cost of performing the
public policy function of content re view, but could require only tho se enterprises in which the State
owns all equity to bear the cost of conducting content review.63
28. China asserts that the Panel also misrepresente d its argument that only wholly State-owned
enterprises are capable of satisfying the requirement in Article 42(4) of the Publications Regulation
that publication import entities have a suitable orga nization and qualified pers onnel. China alleges
that the Panel erred in evaluating this argument excl usively through the prism of "cost". China claims

63China's appellant's submission, paras. 17-20 (referring in footnotes to Panel Report, para. 7.853;
China's responses to Panel Questions 46(a), 185, 188(b) , and 195; China's first written submission to the Panel,
paras. 153, 196, and 197; and China's second written submission to the Panel, para. 104).

that its argument was not only about cost, but also about the capacity to perform content review in a
manner that preserves China's intended level of prot ection of public morals. China maintains that
State-owned enterprises are the only entities curre ntly considered to fulfil the technical and
organizational requirements set out in th e relevant Chinese laws and regulations.
64 China submits
that, if the Panel had properly understood China' s arguments, it would have found that the State-
ownership requirement makes a material contribution and is therefore necessary to the protection of
public morals in China.
(b) The Exclusion of Foreign-Invested Enterprises
29. China requests the Appellate Body to reverse the Panel's finding that the provisions excluding
foreign-invested enterprises from importing the relevant products are not "necessary" to protect public
morals in China within the meaning of Article XX(a) of the GATT 1994. China alleges that the Panel
erred in finding that the provisions excluding foreign-invested enterprises from importing the relevant
goods into China 65 make no material contribution to the protection of public morals in China. The
Panel relied on its earlier finding with respect to the State-ownership requirement to conclude that the
provisions excluding foreign-invested enterprises from importing do not contribute to the protection
of public morals in China. According to Ch ina, because the Panel's finding concerning the
State-ownership requirement is e rroneous, "[b]y necessary implication" 66 the Panel's finding with
respect to the provisions excluding foreign-invested enterprises from importing is also in error. In
addition, China submits that foreign-invested enterprises may not have the requisite understanding
and knowledge of the applicable standards of Chines e public morals to ensure the level of protection
sought by China. China maintains that the professi onals performing content review must be familiar
with Chinese values and public morals and capa ble of efficiently communicating with and
understanding the administrative authorities. China submits that in its analysis the Panel made a
finding that requiring qualified review personnel c ontributes materially to the protection of public
morals in China, and that the Panel's finding on the exclusion of foreig n-invested enterprises
contradicts this finding. 67 China emphasizes that the Panel' s failure to address these arguments
constitutes a failure to make an obj ective assessment of the matter befo re it, as required by Article 11
of the DSU.

64China's appellant's submission, para. 29 (referring to China's second written submission to the Panel,
para. 104).
65Articles X:2 and X:3 of the List of Prohibited Foreign Investment Industries in 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.

(c) The Restrictive Effect of the Measures
30. China alleges that the Panel erred in extending its assessment of the restrictive effect of the
measures at issue, notably, to those wishing to engage in importing, in particular on their right to
trade. China contends that, in so doing, the Panel placed an "unsusta inable burden of proof" 68 on
China. In China's view, the Panel's reasoning is ci rcular because it relied on the restrictive effect of
the measures both in finding that the measures at i ssue constitute a violation of China's obligation to
grant the right to trade and in finding that th e measures are not "necessary" within the meaning of
Article XX(a) of the GATT 1994. China contends th at, by considering the restrictive effect of the
measures on those wishing to engage in importing in the context of both the analysis of consistency
with paragraph 5.1 of China's Accession Protocol and its anal ysis under Article XX(a) of the
GATT 1994, the Panel committed a mistake similar to that of the panel in US – Gasoline .69 T h i s
approach leads to the "absurd situation" 70 that the challenged measures can never be justified because
the reasons why they were found to be inconsistent are the same as the reasons given for why they are
not "necessary". China adds that the Panel made no finding that China's measures have a significant
restrictive impact on imports. To the contrary , in acknowledging that the statistical information
submitted by China seemed to indicate that some of its measures were compatible with an increase in
imports, the Panel found, in fact, that China's measures do not seem to have adversely affected
imports.71
(d) Reasonably Available Alternative Measures
31. China requests the Appellate Body to reverse th e Panel's finding that at least one of the
alternative measures referred to by the United Stat es was an alternative "reasonably available" to
China. In particular, China submits that the pr oposed alternative that the Chinese Government be
given sole responsibility for conducting content revi ew is not "reasonably available" because it is
merely theoretical in nature and would impo se an undue and excessive burden on China. China
alleges that the Panel erred in law and failed to properly address arguments presented by China
demonstrating that the proposed alternative is not "reasonably available".
32. China asserts that the Panel failed to properly take into account the contribution of the import
entities, as first-level reviewers, in the overall cont ent review process. In the current system, import
entities carry most of the burden of reviewing impo rted reading materials, while the Government's

69China's appellant's submission, para. 44 (referring to Appellate Body Report, US – Gasoline , p. 16,
DSR 1996:I, 3, at 15).
71China's appellant's submission, para. 45 (referring to Panel Report, paras. 7.846, 7.861, and 7.866).

involvement is much more limited. China takes i ssue with the Panel's stat ement that the cost of
content review, if performed exclusively by th e Chinese Government, would not be substantially
higher than what it already is. To the contrary, the cost of the "tremendous restructuring" that would
be required to implement the alternative proposed by the United States would result in an "undue
financial burden" for China.
72 At present, the Chinese Government does not have the capacity and the
resources required to perform on its own the entire range of functions associated with content review.
It would have to create a completely new structure re flecting the contribution of the different levels of
review. In addition, the proposed alternative woul d involve significant cost and impose a significant
administrative burden because it would require the training and assignment of a large number of
qualified content reviewers in numerous locations. Furthermore, the Panel's judgement rests on the
assumption that time-sensitive publications could be submitted electronically to the Government for
content review. However, this would require the establishment of an electronic sampling system and
upgrading of the current electronic transmission system, which would pose "substantial technical
difficulties".
73 In addition, China stresses that, where elem ents of content are found to be contrary to
public morals, these elements must be removed from the products before they are imported. It is
unclear to what extent this could be achieved and by whom if content review were operated by means
of electronic communication between private import entities and the Chinese Government. Finally,
China adds that the proposed alternativ e would make it impossible to "double check"
74 content at the
customs level because it implies that content review would be carried out in one single location.
33. China submits that, in any event, the alte rnative proposed by the United States does not
qualify as "reasonably available" because it is not clear that it would be less trade restrictive than the
measures at issue. China refers to its argument th at, in assessing the trade-restrictive impact of the
measure, the Panel erred in examining not only the restrictive impact on imports but also the
restrictive impact on potential importers. For China, therefore, the Panel's finding that the alternative
proposed by the United States was less trade restri ctive was erroneous for the additional reason that
the Panel's assessment of the restrictiveness was b ased on a flawed examination of the restrictive
impact of the measure. It follows, according to Ch ina, that, in the absence of a proper finding as to
the extent of the restrictive impact on imports resulting from China's measures, the Panel could not
have established that an alternative measure would have a less restrictive impact on trade.

73China's appellant's submission, para. 67. (footnote omitted)

(e) Completion of the Analysis
34. Should the Appellate Body find that China's measures are "necessary" under Article XX(a) of
the GATT 1994, China requests the Appellate Body to complete the analysis and find that the
measures comply with the requirements of the chapeau of Article XX and that Article XX(a) is
available as a defence to a violation of Chin a's trading rights commitments under its Accession
Protocol. China refers, in this regard, to the ar guments that it made before the Panel demonstrating
that: the other "alternatives" proposed by the United States are not "genuine" and not "reasonably
available"; China's measures comply with the re quirements of the chapeau and are thus justified
under Article XX(a) of the GATT 1994; and Article XX( a) is available as a defe nce to the claim that
China has acted inconsistently with its trading rights commitments under its Accession Protocol.
35. In response to questioning at the oral hearing in this appeal, China clarified that, if the
Appellate Body were to uphold the Panel's findings that the measures at issue are not "necessary"
within the meaning of Article XX(a) of the GA TT 1994, then China does not seek a ruling by the
Appellate Body on the issue of whether Article XX(a) is available as a defence to a violation of
China's trading rights commitments under its Accession Protocol.
3. The Scope of China's GATS Schedule Entry on "Sound Recording
Distribution Services"
36. China requests the Appellate Body to reverse th e Panel's findings that a number of provisions
of China's measures are inconsistent with Article XVII of the GATS. 75 China appeals these findings
particularly on the grounds that the Panel erred in interpreting the commitment on "Sound recording
distribution services" inscribed in China's GATS Schedule as encompassing the distribution of sound
recordings through electronic means.
37. China claims that, in interpreting this entry in China's GATS Schedule, the Panel erred in its
application of both Articles 31 and 32 of the Vienna Convention on the Law of Treaties (the "Vienna
Convention").76 In China's view, "the only possible ou tcome which the Panel could have reasonably
reached after applying the rules on treaty interp retation [was] that such analysis was largely
inconclusive."77 China considers that, as a consequence, the Panel also erred and acted contrary to

75Article II of the Circular on Internet Culture; Article 8 of the Network Music Opinions; Article 4 of
the Several Opinions; and Article X:7 of the List of Prohibited Foreign Investment Industries in the Catalogue,
in conjunction with Articles 3 and 4 of the Foreign Investment Regulation.
76Done at Vienna, 23 May 1969, 1155 UNTS 331; 8 International Legal Materials 679.

Article 3.2 of the DSU in failing to apply the in dubio mitius principle and not adopting an
interpretation that was less onerous to China.
78
(a) Article 31 of the Vienna Convention
38. China observes that, under Article 31 of the Vienna Convention , "ordinary meaning",
"context", and "object and purpose" cannot be consid ered in isolation from one another. Rather,
Article 31 sets out a single rule and an integrated process of treaty interpretation requiring an analysis
not only of each of these elements, but also of the inte raction of the various elements with each other.
Thus, the ordinary meaning of a term cannot and sh ould not be finally determ ined before a panel has
examined such meaning in the relevant context and in the light of the object and purpose of the treaty.
According to China, the Panel failed to perform such a "holistic approach"
79 to treaty interpretation
when it interpreted the phrase "sound recording di stribution services", because it wrongly disregarded
evidence submitted by China demonstrating that the ordinary meaning of the terms "sound recording"
and "distribution" related only to tangible/phy sical goods, and reached premature conclusions on the
ordinary meaning of these terms before examining them in their context and in the light of the object
and purpose of the GATS.
39. China alleges that the Panel's conclusion that "sound recording" "cannot be limited to sound
embedded or transferred on physical media" 80 was based exclusively on the Panel's analysis of the
definition of the term "recording" — "recorded material; a recorded broadcast, performance". 81 The
Panel failed to consider an alternative definiti on submitted by China that defines "recording" as
"something on which sound or visual images have been recorded". 82 For China, this alternative
definition unambiguously indicated that "recording" refe rs to the carrier that contains the result of a
recording process. Rather than relying solely on one dictionary definition, the Panel "should have
found that the existence of two possible meanings sugg ested that the use of dictionary definitions was

78As a preliminary matter, China observes that it will, for purposes of this appeal, adopt the
terminology used by the United States and the Panel and refer to the distribution of sound recordings by
electronic means as "the services at issue". China stresses, however, that this is without prejudice to its view, as
expressed throughout the Panel proceedings, that the se rvices at issue constitute new and distinct services,
"network music services", rather than, as the United States argued, merely a new technological means to deliver
sound recording services. (China's appellant's submission, paras. 81 and 82)
79China's appellant's submission, para. 97. In its argument, China draws on the approach of panels in
Canada – Autos (at para. 10.12) and US – Section 301 Trade Act (at para. 7.22) and the Appellate Body in EC –
Chicken Cuts (at para. 176).
81Shorter Oxford English Dictionary , 5th edn., W.R. Trumble, A. Stevenson (eds.) (Oxford
University Press, 2002), Vol. 2, p. 2493. See China' s appellant's submission, para. 101 (quoting Panel Report,
para. 7.1173).
82China's appellant's submission, para. 102 (quoting The American Heritage Dictionary of the English
Language, 4th edn. (Houghton Mifflin Harcourt, 2000) (Panel Exhibit CN-71)).

in fact inconclusive." 83 China maintains that the Panel shoul d therefore have proceeded to examine
the two possible dictionary meanings in the light of the relevant context and the object and purpose of
the treaty.
40. China claims that the Panel committed a similar er ror in respect of the term "distribution".
The Panel interpreted "distribution" to m ean "the dispersal" of "things of value" 84, including
intangible products, based on a dictionary definition supp lied by the parties, and supplemented by
additional dictionary definitions that the Panel itself sought out. 85 However, China had provided the
Panel with another dictionary defi nition of "distribution" that defi nes this term as "the process of
marketing and supplying goods , especially to retailers". 86 China had also cited the Appellate Body's
statement in US – Softwood Lumber IV that "the ordinary meaning of the term 'goods' […] includes
items that are tangible and capable of being possessed" 87, which China views as supporting its
position that the ordinary meaning of "distribution" encompasses the distribution of only physical
goods. Although the Panel ac knowledged that other dictionary defi nitions were relevant, it failed to
carry out an analysis of these definitions. According to China, in the light of the various dictionary
meanings, the Panel should have come to the conclu sion that the meaning of "distribution" was also
inconclusive.
41. China refers to the report of the Appellate Body in US – Gambling as support for its
contention that the Panel failed to consider evid ence submitted by China and failed to include the
meanings claimed by China in the range of possible meanings of "sound recording" and
"distribution". The Panel therefore erred in reaching "premature conclusions" on the ordinary
meaning of these two terms "and ultimately on that of 'sound recording distribution services'". 88 For
China, the Appellate Body report in US – Gambling suggests that, in cases where a panel commences
its interpretation by consulting dictionary definitio ns, it must identify the range of possible meanings

85The Panel observed that the term "commodity" is 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'." ( Shorter Oxford English Dictionary , 5th edn., W.R. Trumble, A. Stevenson (eds.) (Oxford University
Press, 2002), Vol. 1, p. 461. See Panel Report, para. 7. 1179) The Panel also referred to dictionaries that define
"distribution" as the "movement of goods and services from the source through the distribution channel" ( ibid.,
para. 7.1180 (quoting Businessdictionary.com, available at: <www.businessdictionary.com> (emphasis added
by the Panel)), and define "distribution channel" as "the path or route taken by goods and services as they move
from producer to final consumer" ( ibid., footnote 654 to para. 7.1180 (referring to The Monash Marketing
Dictionary, available at: <www.buesco.monash.edu.au/mkt/dictionary/> (emphasis added by the Panel)).
86China's appellant's submission, para. 113 (quoting The American Heritage Dictionary of the English
Language, 4th edn. (Houghton Mifflin Harcourt, 2000) (Panel Exhibit CN-72) (underlining added by China);
and referring in footnote to China's first written submission to the Panel, para. 458).
87China's appellant's submission, para. 113 (referring in footnote to China's first written submission to
the Panel, para. 460; and quoting Appellate Body Report, US – Softwood Lumber IV , para. 59 (underlining
added by China)).

of the term it seeks to interpret.
89 It follows, in China's view, th at, because the various dictionary
definitions were inconclusive, the Panel should have undertaken a careful examination of each
possible meaning in the relevant context and in the light of the object and purpose of the treaty.
42. Turning to the Panel's examination of the context for "Sound recording distribution services",
China claims that, in addition to its failure to enga ge in an analysis of context with respect to the
relevant alternative dictionary meanings, the Pa nel further erred in concluding that the various
elements that it examined as relevant context suppo rted its original understanding of the ordinary
meaning of this phrase as encompassing the distribution of intangible sound recordings by electronic
means. Rather, argues China, a proper contextual an alysis would also have been inconclusive. China
makes a number of specific arguments relating to th e Panel's analysis of: (i) the other elements
inscribed under sector 2.D (Audiovisual Services) in China's GATS Schedule; (ii) sector 4
(Distribution Services) of China's GATS Schedule, as well as the GATS Schedules of other WTO
Members; and (iii) the relevant GATS provisions themselves.
43. China claims that the Panel's interpretati on of the context provided by the heading
"Audiovisual Services" in China's GATS Schedule also appears inconclusive. This is so because the
Panel's finding that the relevant sector may exte nd to services relating to content not embedded in
physical products "does not rule out the possibilit y that China could have scheduled commitments
concerning services related only to physical products."
90 As for the Panel's interpretation of the entry
"Videos (...) distribution services" in China's GATS Schedule, China submits that the Panel should
have relied on dictionary definitions from the time of China's accession to the WTO and taken note of
the use of the plural term "video tapes" in the en try in the 1991 Services Sectoral Classification List
that corresponds to this part of China's Schedule. 91 China maintains that, had the Panel done so, it
would have understood that the word "videos" in China's entry on "Videos (...) distribution services"
refers to countable, physical copies of content reco rded on video tapes. Instead, the Panel erred in
finding that this entry extends to the distribution of intangibles. China adds that, even admitting that
the entry "Videos (...) distribution services" extends to intangibles, does no t mean that all other
distribution commitments under sector 2.D also extend to intangibles. With respect to the sub-sector
"Cinema Theatre Services" (relating to the construc tion and renovation of cinema theatres) within
sector 2.D of China's GATS Schedule, China claims th at the Panel erred in failing to find that this
element of context was also inconclusive as to the meaning of "Sound recording distribution
services". China sees no "logical nexus" 92 between, on the one hand, the Panel's statement that the

89China's appellant's submission, para. 124 (referring to Appellate Body Report, US – Gambling ,
para. 167).
91MTN.GNS/W/120, 10 July 1991, at sector 2.D.

insertion under sector 2.D of services that would normally fall under other sectors has not had the
effect of excluding services that would normally fall under sector 2.D and, on the other hand, the
Panel's conclusion that "Sound recording distributio n services" includes the distribution of intangibles
unless indicated otherwise.
44. China also considers that the Panel's analys is of the respective coverage of sector 2.D
(Audiovisual Services) and sector 4 (Distribution Services) of China's GATS Schedule was flawed
and ignored the logic of China's Schedule. The Pa nel appeared to take the view that, had China's
relevant entries under "Audiovisual Services" been intended to cover exclusively audiovisual products
in physical form, they would have been inserted under "Distribution Services", where the distribution
of physical goods is generally covered. Yet, as China explained to the Panel, China's GATS Schedule
was structured so as to group subclasses of servi ces relating to audiovisual products under sector 2.D
because of their audiovisual content, thereby enablin g China to include limitations relating to content
review for all products under that sp ecific sector. Indeed, in China's view, the Panel itself seems to
have acknowledged this logic when it recognized, with respect to the construction and renovation of
cinema theatres, that China had scheduled service activities related to audiovisual services under the
heading "Audiovisual Services", even if such activ ities are typically classified under other sectors in
classification systems or in the GATS Schedules of other WTO Members. As regards the GATS
Schedules of other Members, the Panel itself seems to have acknowledged that such examination did
not offer any positive evidence, or support any par ticular inference, as to whether China's entry on
"Sound recording distribution services" in its GATS Schedule extends to the supply of intangibles.
The Panel "merely held that this element of context does not contradict such conclusion."
93
45. China "fails to see the logic behind" 94 the Panel's analysis of the context provided by
Article XXVIII(b) of the GATS. In China's view, there is no link between the distribution of services,
as referred to in Article XXVIII(b), and the definiti on of products in the context of a distribution
activity, which was the issue concerning China's GATS commitment on "Sound recording distribution
services". Even admitting that the term "distribution" could, in the abstract, relate to the distribution
of both physical and intangible products, this does not indicate whether the sp ecific entry in China's
GATS Schedule refers only to physical products or ex tends also to intangible products. Thus, China
contends that the Panel's examination of Article XXVIII(b), like its analysis of all the contextual
elements discussed above, is inconclusive as to whether China's GATS commitment on "Sound
recording distribution services" is limited to physical products, or extends also to intangible products.

46. China submits that the Panel's analysis of object and purpose was flawed because the Panel
failed to take account of the existence of sever al alternative meanings of "Sound recording
distribution services". The Panel failed to iden tify properly the object and purpose of the treaty
relevant to the ordinary meaning espoused by China. The Panel failed, in particular, to take account
of important principles that would have provided relevant guidance in its interpretation, namely,
following the positive-list principle, the reaching of a balance of concessions, and the principle of
progressive liberalization. According to China, th ese elements required the Panel to give careful
consideration to: (i) the sovereignty of WTO Me mbers to decide upon the pace and the extent of
liberalization of their services markets; (ii) th e fact that, absent a specific commitment explicitly
inscribing it in a GATS Schedule, a particular service should not be considered as subject to any
commitment; and (iii) the fact that the preamb le of the GATS explicitly states that progressive
liberalization should be achieved through "successiv e rounds of multilateral negotiations aimed at
promoting the interests of all participants on a mutually advantageous basis ..., while giving due
respect to national policy objectives". According to China, these elements should have led the Panel
to exercise more deference in its interpretation of the terms in China's GATS Schedule "where there
was no sufficiently conclusive evidence that Ch ina intended to schedule a commitment on this
particular service."
95
47. China asserts that a proper examination of th e object and purpose of the GATS suggests that
the meaning to be ascribed to its entry on "Sound recording distribution services" should be based on
definitions contemporaneous to the conclusion of the treaty. The Panel, however, followed an
"evolutionary"96 approach to treaty interpretation, insofar as it interpreted China's GATS
commitments based on their contemporary meaning. In China's view, the principle of progressive
liberalization does not allow the scope of the comm itments of a WTO Member to be extended based
on "temporal variations in language".97
48. For all of the above reasons, China claims that the Panel failed to apply properly the
customary rules of treaty interpretation codified in Article 31 of the Vienna Convention , acted
inconsistently with the requirements of Article 3.2 of the DSU, and erred in failing to find that the
results of its interpretation of the relevant entr y in China's GATS Schedule under Article 31 of the
Vienna Convention were "at the least inconclusive".98

(b) Article 32 of the Vienna Convention
49. China contends that the Panel's approach to Article 32 of the Vienna Convention was
"fundamentally flawed from the outset". 99 Because the Panel should have found that its analysis
pursuant to Article 31 was inconclusive, the Pane l should have applied Article 32 to "determine" 100
the meaning of the terms in China's Schedule and not merely to confirm the erroneous preliminary
conclusion it had reached under Article 31.
50. China claims that the Panel's analysis of the Services Sectoral Classification List and the 1993
Explanatory Note on Scheduling of Initial Commitmen ts in Trade in Services (the "1993 Scheduling
Guidelines")101, as preparatory work under Article 32 of the Vienna Convention, was largely based on
the same premises as its analysis of the sector heading "Audiovisual Se rvices" in China's GATS
Schedule. Yet, the fact that audiovisual conten t is the fundamental characteristic of the products
associated with the services scheduled under sector 2.D does not exclude that China may have
intended to commit services relating to audiovisual products in physical form only under that heading.
Thus, for the same reasons advanced by China in re spect of the Panel's analysis of the sector heading
"Audiovisual Services", the Panel's analysis of the preparatory work under Article 32 of the Vienna
Convention is "equally inconclusive".102
51. Regarding the circumstances of the conclusion of its Accession Protocol, China claims that,
even assuming that the negotiators were aware of the technical feasibility and commercial viability of
the electronic distribution of sound recordings in 2001, this alone does not demonstrate that the
negotiators intended to agree on a commitment on such services. The Panel also failed to take proper
account of the absence of a specific legal framework for the services at issue, both internationally and
domestically, at that time. Referring to the reasoning of the Appellate Body in EC – Chicken Cuts103,
China submits that the facts that the supply of the services at issue was not allowed within China at
the time of the negotiations on China's accession to the WTO and that Chinese measures regulating
the services at issue were adopted only as fr om 2003, constitute relevant evidence of the
circumstances of conclusion of the treaty. China emphasizes that this evidence, which reveals that
China did not intend to make a commitment on su ch services, "should not have been ignored by the
Panel".104 In contrast, and contrary to the reasoning of the Panel, the fact that internal discussions on
possible implementation of a legal framework concerning the services at issue were taking place

101MTN.GNS/W/164, 3 September 1993.
103China's appellant's submission, para. 189 (referring to Appellate Body Report, EC – Chicken Cuts ,
para. 283).

in 1999 does not, as such, suggest any intenti on on the part of China to undertake a specific
commitment on these services.
52. In the light of the above, China claims that th e Panel failed to apply properly the customary
rules of treaty interpretation codified in Article 32 of the Vienna Convention, acted inconsistently with
the requirements of Article 3.2 of the DSU, and e rred in failing to find that the results of its
interpretation pursuant to Article 32 were "inconclusive".
105
(c) In Dubio Mitius
53. Finally, China claims that the Panel should have found that the application of both Articles 31
and 32 of the Vienna Convention left the issue of whether China's GATS commitment on "Sound
recording distribution services" includes the distri bution of sound recordings by electronic means
"largely inconclusive". 106 When confronted with such a high level of ambiguity, the Panel should
have applied the in dubio mitius principle and refrained from adopting the interpretation that was the
least favourable to China. According to this prin ciple, if the meaning of a term is ambiguous, the
meaning to be preferred is the one that is less bur densome to the party assuming an obligation, or the
one that interferes the least with a party's territori al supremacy, or involves less general restrictions
upon the parties. 107 In China's view, this case presented a clear ground for the Panel to apply the
in dubio mitius principle and, in failing to do so, the Panel failed to apply properly the customary rules
of treaty interpretation and acted inconsistently with Article 3.2 of the DSU.
B. Arguments of the United States – Appellee
1. The Applicability of China's Tradi ng Rights Commitments to Measures
Pertaining to Films for Theatrical Release and Unfinished Audiovisual
Products
(a) Article 30 of the Film Regulation and Article 16 of the Film
Enterprise Rule
54. The United States requests the Appellate Body to uphold the Panel's findings that Article 30
of the Film Regulation and Article 16 of the Film Enterprise Rule are subject to China's trading rights
commitments under paragraphs 1.2 and 5.1 of Ch ina's Accession Protocol and paragraphs 83(d)
and 84(a) and (b) of China's Accession Working Pa rty Report. According to the United States, the

107China recalls that, in EC – Hormones , the Appellate Body found that the "principle of
in dubio mitius applies in interpreting treaties, in deference to the sovereignty of States". (China's appellant's
submission, para. 195 (quoting Appellate Body Report, EC – Hormones, footnote 154 to para. 165))

Panel properly found that these provisions of the Chinese measures relating to films for theatrical
release "either directly regulate who may engage in importing of 'hard-copy cinematographic films' or
necessarily affect who may engage in importing of such goods."108
55. The United States maintains that China's argument s on appeal "are premised on an artificial
dichotomy between film as mere content (which Ch ina contends is not a good) and the physical
carrier on which content may be embedded (which China views as a good)." 109 However, the United
States emphasizes that its claim in this dispute concerns measures regulating the importation of an
integrated product—a film for theatrical release—whi ch consists of a carrier medium containing
content. The United States argues that, contrary to China's assertion that the United States shifted the
focus of its claim from "films for theatrical relea se" to "hard-copy cinematographic films", the good
subject to the United States' claim—hard-copy ci nematographic film used for projecting motion
pictures—has always been a tangible good.
56. The United States highlights that China stated before the Panel that "only entities designated
by [China's State Administration on Radio, Film and Television] SARFT can import foreign films for
public show". 110 China further submitted that, "[i]f the importation of such foreign motion picture
requires importation of exposed and developed cinema tographic film containing such motion picture,
the importation entity will import such cinematographic film." 111 In the United States' view, these
statements prove that China's measures affect the im portation of a good and that they are inconsistent
with China's trading rights commitments due to their restrictions on who may import the good.
Moreover, arguing that the measures are focused on content and not on the importation of hard-copy
cinematographic films amounts to asserting that goods containing content should not be treated as
goods. Such logic would imply that measures regul ating books, which also contain content, would
similarly not be subject to China's trading right s commitments, which cannot be the case. The United
States adds that the expressive content of a good—su ch as the slogan of a T-shirt or the content of a
film—is not separable from the rest of the good.
57. The United States characterizes as "misplaced" 112 China's reliance on the opinion of a
translator at the United Nations Office at Nairobi (the "UNON") that the Chinese term " Dian Ying" in
the Film Regulation could refer to the content of a film (tha t is, the artistic work), "and not to the

109United States' appellee's submission, para. 123 (referring to China's appellant's submission,
paras. 221, 232, 238, 244, and 245).
110United States' appellee's submission, para. 125 (quoting China's response to Panel Question 179).
111United States' appellee's submission, para. 125 (quoting China's response to Panel Question 179).
(emphasis added by the United States omitted)

material (i.e., physical medium) on which the film is printed, or the film stock."
113 The United States
contends that "[t]he distinction drawn by the UNON translator between content in isolation on the one
hand and the material in isolation on the ot her hand is not at issue in this dispute" 114 because the
United States has not asserted that Article 30 of the Film Regulation affects only the material on
which the film is printed (such as film stock). Ra ther, the United States claims that Article 30 of the
Film Regulation affects a good containing content.
58. In addition, the United States emphasizes that heading 3706 in both the Harmonized
Commodity Description and Coding System of th e World Customs Organization (the "Harmonized
System")115 and China's Schedule of Concessions for goods 116 reads "Cinematographic film, exposed
and developed, whether or not incorporating sou nd track or consisting only of sound track".
Moreover, the Explanatory Notes117 accompanying the Harmonized System heading provide that "this
heading covers ... cinematographic film for the pr ojection of motion pictures", which confirms that
cinematographic films are considered goods even if they are used to provide a service. The United
States also underlines that Article III:10 of th e GATT 1994 provides an exception to the national
treatment obligation for films for theatrical release, which is elaborated upon in Article IV of the
GATT 1994. Noting that both provisions are unchanged from the GATT 1947, the United States
contends that they "make clear that films for theat rical release have been considered goods since at
least 1947."118
59. The United States recalls that, as the Panel corr ectly found, the mere fact that the import
transaction involving hard-copy cinematographic film s may not be the "'essential feature' of the
exploitation of the relevant film" 119 does not preclude the application of China's trading rights
commitments to the Film Regulation. A film for theatrical release is a good even if its commercial
value resides primarily in its utility in the supply of film projection services. In any event, a measure
restricting who may import a good would be subject to China's trading rights commitments in respect
of goods. Furthermore, the United States hi ghlights China's statement that "hard-copy
cinematographic film is imported ... simultaneously , physically in conjunction with the right to

113United States' appellee's submission, para. 130 (quoting the UNON's translation, p. 25; and referring
to China's appellant's submission, para. 231, in turn referring to Panel Report, para. 7.533).
114United States' appellee's submission, para. 130 (referring to the United States' comments during the
Panel proceedings on the UNON's translation, paras. 26 and 27).
115Harmonized Commodity Description and Coding System, Explanatory Notes, 4th edn. (WCO,
2007), p. VI-3706-1 (Panel Exhibit US-53).
116WT/ACC/CHN/49/Add.1.
117Harmonized Commodity Description and Coding System, Explanatory Notes, 4th edn. (WCO,
2007), p. VI-3706-1 (Panel Exhibit US-53).

provide the service in question" 120, and argues that China concedes in this statement that films for
theatrical release are goods.
60. Finally, the United States submits that the Panel's finding on the applicability of China's
trading rights commitments to the measures concerning films for theatrical release would not
undermine China's right to conduct content review. The United States stress es that China has not
invoked Article XX(a) of the GATT 1994 as a defence with respect to the United States' claims that
the measures concerning films for theatrical releas e are inconsistent with China's trading rights
commitments. Moreover, even if China had invoked such a defence before the Panel, it would have
failed because the restriction on who may import film s does not contribute to the protection of public
morals in China. The United St ates emphasizes that it has not challenged in this dispute China's right
to prohibit the importation of specific goods that do not pass the content review, and thus this right is
not being undermined. The United States argues that granting trading rights to all enterprises would
not prevent China from barring the importation of specific products carrying prohibited content.
(b) Article 5 of the 2001 Audiovisual Products Regulation and Article 7
of the Audiovisual Products Importation Rule
61. The United States requests the Appellate Body to uphold the Panel's findings that Article 5 of
the 2001 Audiovisual Products Regulation and Article 7 of the Audiovisual Products Importation Rule
are subject to, and inconsistent with, China's ob ligation to grant in a non-discretionary manner the
right to trade under paragraph 1.2 of China's Ac cession Protocol and paragraph 84(b) of China's
Accession Working Party Report.
62. The United States recalls that the Panel rej ected China's argument that the measures
concerning unfinished audiovisual products are not subject to China's obligation to grant in a
non-discretionary manner the right to trade. On ap peal, China dos not repeat the arguments that it
made before the Panel—that the measures concer ning unfinished audiovisual products do not regulate
trade in goods, but rather regulate trade in services. Rather, the United States notes, China merely
asserts that the Panel's analysis of the 2001 Audiovisual Products Regulation and the Audiovisual
Products Importation Rule is in error to the extent it incorpor ates the analysis related to films for
theatrical release.

120United States' appellee's submission, para. 135 (quoting China's appellant's submission, para. 242).

63. The United States underlines that, as the Panel also noted, unfinished audiovisual products are
classified under both the 2007 Harmonized System
121 and China's own Schedule of Concessions for
goods.122 This supports the Panel's finding that unfin ished audiovisual products are goods. The Panel
rightly found that Article 5 of the 2001 Audiovisual Products Regulation "would necessarily affect
who may engage in importing of hard-copy mast er copies, because only licensed importers could
engage in importing of audiovisual content on master copies." 123 The United States also supports the
Panel's rejection of China's argument that measures restricting who may import unfinished
audiovisual products should not be su bject to goods disciplines simply because such products are, in
China's view, accessories to services.
2. The "Necessity" Test under Article XX(a) of the GATT 1994
64. According to the United States, the Panel correctly found that none of the measures that it had
determined to be inconsistent with China's tr ading rights commitments are "necessary" to protect
public morals within the meaning of Article XX( a) of the GATT 1994. The United States observes
that the Panel analyzed the neces sity of the measures at issue by assuming, without deciding, that
Article XX(a) of the GATT 1994 can be invoked as a defence to an inconsistency with China's
obligation to grant the right to trade. At the oral hearing in this appeal, the United States urged the
Appellate Body to review the Panel's fi ndings under Article XX(a) using the same arguendo
approach, and likewise to refrain from deciding whet her Article XX(a) is available as a defence to a
violation of China's obligation to grant the right to trade.
(a) The State-Ownership Requirement
65. The United States requests the Appellate Body to reject China's appeal of the Panel's finding
that the State-ownership requirement does not make a material contribution to the protection of public
morals in China. The United St ates maintains that the Panel proper ly considered China's arguments
with respect to the State-ownership requirement a nd correctly concluded that this requirement does
not make a material contribution to the protection of public morals in China.
66. Recalling that China bore the initial burden of proof with respect to any defence based on
Article XX(a) of the GATT 1994, the United States observes that China's defence would fail if it
could not prove that State ownership of the im porting entity was necessary to achieve its content
review objectives. In the United States' view, Chin a did not meet this burden and the Panel did not

121Harmonized Commodity Description and Coding System, Explanatory Notes, 4th edn. (WCO,
2007), p. XVI-8523-1 (Panel Exhibit US-55).
122WT/ACC/CHN/49/Add.1.

misrepresent China's argument relating to the cost of content review. By stating that, in China's view,
privately owned enterprises cannot be expected to pay for performing a public interest function 124, the
Panel fully captured China's argument. The Pane l further noted that non-State-owned publication
import entities could be expected to face cost-based incentives related to content review and respond
to dissuasive sanctions just as State-owned en terprises do under the current Chinese measures, and
that China had offered very limited information on the cost of content review. The Panel also
observed that non-State-owned enterprises are routinel y required to bear the costs associated with
complying with laws and regulations that serve a public policy function. For these reasons, the
United States submits that the Panel properly foun d 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."125
67. The United States also asserts that the Pane l did not misrepresent China's argument
concerning the requirement for a suitable organizati on and qualified personnel. When asked by the
Panel to explain why this requirement could not be met by non-State-owned enterprises, China's
argumentation was "terse, at best" 126, because China merely repeated that it could not impose the cost
of content review on non-State-owned enterprises. W ith regard to China's argument that State-owned
enterprises are the only entiti es "currently considered" 127 to fulfil the organization and technical
requirements set out in the relevant Chinese law, the United States contends that, as a logical matter, a
description of what entities China currently considers to fulfil a requirement cannot establish that only
those entities could fulfil that requirement. In any event, the Panel did not limit itself to considering
the cost of compliance with the requirement of a su itable organization and qualified personnel. This
is evidenced by the Panel's statement that it was not convinced that privately owned enterprises would
be unable to attract qualified personnel, or that they would be unable to obtain the organizational
know-how needed to conduct content review properly. 128 For these reasons, the United States
contends that the Panel both understood a nd properly considered China's "very limited" 129 argument
on the suitable organization and qua lified personnel requirement, as it re lated to the State-ownership
requirement, and rightly concluded that these require ments did not make a material contribution to
China's objective.

124United States' appellee's submission, para. 14 (referring to Panel Report, para. 7.854, in turn
referring to China's second written submission to the Panel, para. 104).
126United States' appellee's submissi on, para. 22 (referring to Chin a's response to Panel Question
46(b)).
127United States' appellee's submission, para. 23 (referring to China's appellant's submission, para. 29,
in turn quoting China's second written submission to the Panel, para. 104).

(b) The Exclusion of Foreign-Invested Enterprises
68. The United States requests the Appellate Body to uphold the Panel's findings that the
provisions
130 prohibiting foreign-invested enterprises from engaging in the importation of the relevant
products do not make a material contribution to the pr otection of public morals in China. The United
States disagrees with China that the Panel's finding s concerning the exclusion of foreign-invested
enterprises from importing are "by necessary implication" 131 in error because the Panel relied on its
finding with respect to the State-ownership require ment to conclude that the provisions excluding
foreign-invested enterprises from importing do not c ontribute to the protection of public morals in
China. Rather, according to the United States, be cause the Panel's analysis and finding set out in
relation to the State-ownership requirement were correct, and since the Panel's reasoning was based
on a necessary implication from that finding, the Panel's analysis of China's measures excluding
foreign-invested enterprises was also correct.
69. Regarding China's argument that foreign-inv ested enterprises "may not have" the required
understanding and knowledge of the applicable standa rds of public morals to ensure the level of
protection sought by China, the United States asserts that it is not clear that China presented this
argument to the Panel. In addition, the United Stat es argues that China's concern that such enterprises
"may not have" certain qualifications does not logica lly lead to the conclusion that these enterprises
do not or could not have these qualifications. Rega rding China's allegation that the Panel's finding on
the exclusion of foreign-invested enterprises contradicts the finding made earlier by the Panel—that
requiring qualified review personnel contributes materi ally to the protection of public morals in
China—the United States contends that there is no contradiction because China provides no reason to
believe that foreign-invested enterprises would be unable to hire such personnel. The United States
adds that the Panel found, instead, in its analysis of the State-ownership requirement, that foreign-
invested enterprises could attract qualified personnel.
132
(c) The Restrictive Effect of the Measures
70. The United States submits that the Panel was correct, in assessing the trade restrictiveness of
the measures at issue under Article XX(a) of the GATT 1994, to consider not only the restrictive
impact of the measures on imports, but also their restrictive impact on "those wishing to engage in

130Articles X:2 and X:3 of the List of Prohibited Foreign Investment Industries in 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.

importing".133 In addition, according to the United States, the Panel's ultimate conclusion that the
measures were not "necessary" within the meaning of Article XX(a) would stand irrespective of the
Panel's assessment of the restrictiv e impact of the measures. This is so because the Panel found that
China's measures do not make a contribution to the ach ievement of China's content review objectives,
and this conclusion alone supports th e Panel's ultimate conclusion. Th e United States refers to the
various Panel findings concerning th e contribution made by the measure s at issue to the protection of
public morals. 134 Each such finding suffices to sustain the Panel's ultimate conclusion that the
relevant measure is not "necessary" to protect public morals within the meaning of Article XX(a).
The United States contends that these findings also show that China's argument on appeal—that "the
reasons for which these measures were found to be in violation of China's trading rights commitments
in the first place were also exactly the same reasons for which such measures cannot be justified"
135—
is incorrect.
71. In addition, the United States argues that, in its consideration of restrictive effects, the Panel
was simply adapting the weighing and balancing approach taken by the Appellate Body in
US – Gambling and Brazil – Retreaded Tyres to the particular situation it confronted in this dispute.
It was "logical" for the Panel to consider the restri ctive effect of the measures not only on imports but
also on enterprises because, in the present case, the Panel was applying Article XX(a) on an arguendo
basis to a situation where the Panel had found an in consistency with respect to China's obligations
concerning the treatment of enterprises, rather than an inconsistency regarding China's obligations
concerning the treatment of goods.
(d) Reasonably Available Alternative Measures
72. The United States requests the Appellate Body to uphold the Panel's finding that giving the
Chinese Government sole responsibility for con ducting content review is a WTO-consistent
alternative that is reasonably available to China. 136 The United States contends that China has failed
to submit evidence in support of its position that adopting the United States' proposal would impose

133United States' appellee's submission, para. 38 (quoting Panel Report, para. 7.788). (emphasis added
by the United States omitted)
134United States' appellee's submission, paras. 36-39 (referring in footnotes to Panel Report,
paras. 7.842, 7.844, 7.860, and 7.865).
135United States' appellee's submission, para. 40 (quoting China's appellant's submission, para. 43).
136As further alternative measures, in addition to the one examined by the Panel, the United States
proposed: in-house review by content experts, trained or hired by the importer, who would do content review
before importation, during the process of importation, or after importation but before release of the goods into
China; review by the Chinese Government of products imported by foreign-invested and privately held
importers; and review by Chinese domestic entities with the appropriate expertise, who importers would engage
to conduct content review before, during, or after importation. (United States' appellee's submission, footnote 59
to para. 47 (referring to Panel Report, paras. 7.873-7.875; and United States' oral statement at the second Panel
meeting, para. 25))

an undue burden on China. In stead, the evidence before the Pa nel established that the Chinese
Government does have the capacity to carry out content review, because Ch inese authorities already
carry out content review of films imported for theatrical release and content review of electronic
publications and audiovisual products . Moreover, with respect to reading materials, the General
Administration of Press and Publication (the "GAPP") performs several content review functions even
if, as China argues, its role may be limited. In the United States' view, this establishes that, in
principle, the Chinese Government and the GAPP are capable of conducting content review.
73. The United States further argues that China has not provided any data or estimate that would
suggest that the cost to the Chinese Government of performing content review would be unreasonably
high. In addition, China has not responded to the Panel's observation that China could charge fees to
defray any additional expense and that, in fact, Article 44 of the Publications Regulation as it stands
already provides for that option.
137 The United States also s ubmits that, because the Chinese
Government owns 100 per cent of the equity in th e import entities, the Government is in effect
already financing content review of imported publications. Therefore, the United States considers that
the Panel was correct in stating that it was "not apparent" 138 that the cost to the Chinese Government
would be any higher if the United States' proposal were implemented.
74. In response to China's argument that the pr oposed alternative would impose an undue burden
because it would require the creation of a new stru cture within the Chinese Government, the United
States argues that the mere fact that a proposed alternative requires a change does not disqualify it as a
reasonably available alternative. In Korea – Various Measures on Beef , the Appellate Body was not
persuaded that Korea could not achieve its desired level of protection if it were to devote more
resources to its enforcement efforts. 139 Furthermore, in response to China's argument that the
proposed alternative would impose a significant bu rden because it would require the training and
assignment of a large number of qualified content re viewers in numerous locations, the United States
asserts that it is not apparent why the Chinese Government would have difficulty operating in multiple
locations. In any event, according to the United St ates, current content review may be, and the annual
inspections are, in the first instance, conducted by authorities at the provincial level. For the United
States, this demonstrates that the capacity to c onduct content review is already present across China
and is not limited to a single location within the Chinese Government.140

137The text of Article 44 of the Publications Regulation is set out, infra, footnote 254.
139United States' appellee's submission, para. 55 (referring to Appellate Body Report, Korea – Various
Measures on Beef, para. 180).
140United States' appellee's submission, para. 56 (referring to GAPP, Notice on Approving and Issuing
License for Importing Publications and Carrying Out Annual Inspection System (2006) No. 1238 (Panel Exhibit
CN-22)).

75. In addition, the United States asserts that th e proposed alternative would be essentially the
same as the one described by the wholly State- owned China National Publications Import and Export
(Group) Corporation (the "CNPIEC") in its 2006 repo rt on operations. The fact that the CNPIEC has
implemented such a system serves to rebut China' s argument that implementing such a system would
raise substantial technical diffi culties for the Chinese Government. 141 The United States
acknowledges that the number of publications to be reviewed by the Government would increase
under the suggested alternative. However, the Un ited States maintains th at import statistics for
audiovisual products, for which the Chinese Gove rnment conducts content review pursuant to
Article 28 of the 2001 Audiovisual Products Regulation, demonstrate that Chinese authorities are able
to perform content review of a large number of publications.142
(e) Completion of the Analysis
76. The United States submits that the Appellate B ody should reject China's request to complete
the analysis. China's request is conditioned upon th e Appellate Body finding that China's measures
are "necessary" within the meaning of Article XX (a) of the GATT 1994, which the United States has
argued that the Appellate Body should not do.
77. In addition, the United States emphasizes that Ch ina bears the burden of proof with respect to
each of the three issues in respect of which it re quests completion of the analysis: (i) whether the
other alternative measures proposed by the Unite d States are "genuine" and "reasonably available" 143;
(ii) whether China's measures satisfy the require ments of the chapeau to Article XX of the
GATT 1994; and (iii) whether Article XX(a) is availa ble to China as a defence to an inconsistency
with its obligation to grant the right to trade unde r its Accession Protocol. Although China refers to
its arguments before the Panel, it has not met this burden because it has not identified, for any of those
three issues, factual findings by the Panel or undisput ed facts that would enable the Appellate Body to
complete the analysis. Rather, China has le ft to the Appellate Body "the entire burden" 144 of
identifying the means to complete the analysis, and may have placed the United States in the position
of having to respond for the first time to the asserted factual basis for completion of the analysis
during the oral hearing in the appeal. Thus, cont ends the United States, the Appellate Body should
not complete the analysis on any of these issues.

141United States' appellee's submission, para. 58 (referring to CNPIEC, Report on Operation of
Imported Publications of China National Publication Import & Export (Group) Corporation in 2006
(26 February 2007) (Panel Exhibit CN-26), p. 5).
142United States' appellee's submission, para. 59 (referring to China's response to Panel Question 191).
143United States' appellee's submission, para. 62 (referring to China's appellant's submission, para. 77,
in turn referring to China's second written submission to the Panel, paras. 107-132).

3. The Scope of China's GATS Schedule Entry on "Sound Recording
Distribution Services"
78. The United States requests the Appellate Body to uphold the Panel's finding that China's
commitment on "Sound recording distribution services" in sector 2.D of its GATS Schedule includes
the electronic distribution of sound recordings. This finding led the Panel to hold that the relevant
measures
145 are inconsistent with Article XVII of th e 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." 146 According
to the United States, China has presented little argume ntation as to why the Panel's interpretation of
China's GATS Schedule is inconsistent with the st andard of treaty interpretation set forth in the
Vienna Convention , or why China's preferred interpretation should be accepted. The United States
disagrees with China that, at each step of the Pane l's interpretative analysis, the Panel should have
found the relevant element of interpretation to be "inconclusive". For the United States, China's
criticism of the Panel's analysis "misses the mark" 147, insofar as it ignores that the Panel conducted a
comprehensive examination of all relevant elements under Articles 31 and 32 of the Vienna
Convention, rather than determining that any single element of its analysis in isolation was
conclusive.
(a) Article 31 of the Vienna Convention
79. The United States argues that the Panel correctly found that the ordinary meaning of
"recording" is "recorded material" 148, which refers to the content that is recorded, rather than the
medium containing the recorded sound, as argued by China. This finding was consistent with a
definition of "recording" that had been put forwar d by both the United States and China. Given that
the Panel explicitly took note of a ll of the definitions offered by th e parties and explained its reasons
for concluding that "recording" is not limited to r ecorded content that is embedded on physical media,
the United States maintains that China's claim that the Panel disregarded one of the two definitions for
"recording" that China had provided does not withstand scrutiny.
80. The United States also contends that the Panel' s analysis of the ordinary meaning of "sound
recording" and "distribution" in China's GATS Sc hedule is consistent with the approach of the
Appellate Body in US – Gambling . The Panel did not simply anal yze the meaning of the relevant

145Article II of the Circular on Internet Culture; Article 8 of the Network Music Opinions; Article 4 of
the Several Opinions; and Article X:7 of the List of Prohibited Foreign Investment Industries in the Catalogue,
in conjunction with Articles 3 and 4 of the Foreign Investment Regulation.
148Panel Report, para.7.1173.

terms in the abstract, but it examined which of the m eanings was to be attributed to the relevant term
in China's GATS Schedule. China's arguments do not establish that the Panel erred in its analysis of
ordinary meaning. To the contrary, asserts the United States, the Panel record fully supports the
Panel's conclusion that the ordinary meaning of the term "Sound recording distribution services" in
China's GATS Schedule encompasses the distributio n of sound recordings through both physical and
non-physical media.
81. The United States also argues that the Panel co rrectly concluded that the relevant context
supported the Panel's interpretati on of the ordinary meaning of "Sound recording distribution
services" as covering the distribution of sound r ecordings through both physical and non-physical
media. The United States emphasizes that, contrary to China's assertions, the Panel did not rely on
any element of the context as "conclusive", and the Panel did not "rule out" 149 the possibility that
China could have scheduled commitments covering only physical products.
82. Regarding the interpretation of the term "distr ibution", the United States argues that the Panel
correctly found that this term encompasses the distribution of intangible products. As the GATS itself
makes clear, the term "distribution" is not limited to the distribution of goods or tangible objects.
Article XXVIII(b) of the GATS defines the supply of a service as including its "distribution", and
services are not tangible objects. The United States adds that, in this part of its analysis, the Panel
specifically examined, and properly rejected, China' s argument that the meaning of "distribution"
should be limited to the distribution of physical goods.
83. The United States agrees with the Panel's an alysis of the sector heading "Audiovisual
Services" in China's GATS Schedule, and in particul ar with its observation that this heading does not
limit entries falling within its scope to services relating only to physical products. Regarding the entry
"Videos (...) distribution services" in China GATS Sc hedule, the United States disagrees with China
that the Panel should have relied upon the definition of the term "video" offered by dictionaries edited
at the time of the conclusion of China's accession ne gotiations. Such an argument is untenable for the
purpose of determining whether a particular technological means for supplying a service is covered by
a Member's GATS commitments. 150 The United States recalls its argument before the Panel that the
GATS is technologically neutral in the sense that it does not contain any provisions that distinguish

149United States' appellee's submission, footnote 119 to para. 87 (quoting China's appellant's
submission, para. 134).
150The United States adds that, following China's logi c, a commitment on "videos" undertaken in 2002
would not encompass DVDs, even though DVDs had already overtaken videotapes as the primary medium for
distributing films by then. This example demonstrates that dictionaries are not the sole or even always the best
source of the ordinary meaning of a term, particularly where the editing of a dictionary lags behind the evolution
of the ordinary meaning of a term. (United States' appellee's submission, para. 91 (referring in footnote to
Appellate Body Report, EC – Chicken Cuts, para. 175))

between the different technological means through which a service may be supplied, as well as the
observation by the panel in US – Gambling that a market access commitment entails that other
Members' service suppliers enjoy the right to s upply a service through all means of delivery unless
otherwise specified in the relevant Member's Schedule.
151 The United States submits that, if China
had wanted to exclude the distribution of sou nd recordings through electronic means from its
commitment on "Sound recording distribution servi ces", it could have explicitly done so in its
Schedule. Regarding the use of the plural "videos" instead of the singular "video" in China's GATS
Schedule, the United States points out that China's analysis appears to flow from a flawed premise,
because the relevant entry in the Services Sectoral Classification List is "video tape production and
distribution services", and the word "video" in this entr y is used as an adjective rather than as a noun.
The United States adds that many nouns, such as "id ea", can refer to intangible concepts that are
countable, whether they are referred to in the singular or in the plural form.
84. The United States claims that the Panel correctly found that the relationship between sector 4
(Distribution Services) and sector 2.D (Audiovisual Services) in China's GATS Schedule supports the
conclusion that sector 2.D includes the distribution of audiovisual products in non-physical form.
According to the United States, this conclusion by th e Panel is consistent with the logic in China's
Schedule, which groups audiovi sual products under sector 2.D because these products are of a
different kind than the other products whose distri bution is covered in sector 4. This uniqueness is
due both to their audiovisual content and to the fact that they can be distributed in non-physical form.
The United States also observes th at China has developed no alternative analysis of the context
provided by sector 4 and that, in any event, the Panel did not rely solely on its analysis of sector 4 as
conclusive of the scope of China's commitment on "Sound recording distribution services". Rather,
the Panel examined sector 4 of China's Schedule t ogether with other elements of the context, to
determine whether, taken as a whole, they supported the Panel's analysis regarding the meaning of the
terms in China's GATS Schedule.
85. In the view of the United States, Article XXVI II(b) of the GATS, which defines the "supply
of a service" as including its "distribution", disproves China's assertion that the term "distribution" is
limited to the distribution of physical goods. To the contrary, Article XXVIII(b) demonstrates that
"distribution" can and does refer to distribution of non-physical items. For the United States, this
rebuts China's assertions that the meaning of "d istribution" effectively limits the term "sound
recording" to physical objects.

151United States' appellee's submission, para. 92 (referring to Panel Report, US – Gambling ,
para. 6.285).

86. Regarding the object and purpose of the GATS, the United States claims that none of the
arguments presented by China provides any guidan ce as to whether China undertook a commitment
on the electronic distribution of sound recordings. The preamble of the GATS cannot be read as
requiring an interpreter to depart from the customar y rules of treaty interpretation codified in the
Vienna Convention , as this would not be consistent with Article 3.2 of the DSU. Moreover, the
preamble of the GATS indicates that the Agreement is aimed at, inter alia, 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 lib eralization", and that commitments negotiated
under the Agreement should aim at "securing an over all balance" of rights and obligations between
the Members. These statements mean that, while WTO Members may decide on the pace and extent
of liberalization of their services markets, they mu st also comply with the services commitments that
they have undertaken. The United States disag rees with China's conception of "progressive
liberalization" because, while each Member exer cises its prerogatives by entering into specific
commitments, compliance with current commitment s is essential to the credibility and success of
progressive liberalization in the future. As for the argument that the principle of progressive
liberalization would have required the Panel to base its analysis of the relevant terms in China's GATS
Schedule on their meaning at the time of China's accession to the WTO, the United States observes
that such an interpretative approach would place a limitation on a Member's commitment that does
not exist in its Schedule, and would not conform to the requirements of the Vienna Convention. The
United States adds that resorting to a dictiona ry published in December 2001—when China's GATS
Schedule was finalized—would not have led to a diffe rent interpretation. Even in 2001, the term
"distribution" referred to intangible products. For the United States, the Panel's finding that "product"
refers to goods and services does not depend on technological developments since 2001.
87. For all of the above reasons, the United States submits that the Panel's analysis of the ordinary
meaning of the relevant terms in China's GATS Schedule in their context and in the light of the object
and purpose of the GATS was sound, and should be upheld.
(b) Article 32 of the Vienna Convention
88. The United States claims that the Panel did not err in resorting to supplementary means of
interpretation under Article 32 of the Vienna Convention only for the purpose of confirming the
conclusions it reached when applying Article 31 of the Vienna Convention . The United States
cautions that China may not seek to have the A ppellate Body reopen the facts related to the
circumstances of the conclusion of China's GATS Sche dule, in particular given that China's Notice of
Appeal does not include a claim under Article 11 of the DSU on this issue.

89. The United States observes that, in relation to the Panel's finding that Members were aware of
the technical and commercial viability of the electronic distribution of sound recordings at the time of
China's WTO accession, China has shifted its argument to state that "this fact alone does not establish
that they intended to make a commitment on such services."
152 China's assertions that the distribution
of electronic sound recordings was not allowed in Ch ina at the time of its accession, and that China
did not adopt measures regulating the electronic dist ribution of sound recordings until 2003, were not
"ignored"153 by the Panel. Rather, the United States argu es, they were considered and rejected by the
Panel. The United States agrees with the Pane l that a "Member's service commitments need not
reflect its existing legal framework" 154, particularly given that Members often undertake GATS
specific commitments that guarantee a level of market access higher than that available under the
regulatory regimes in force at the time the co mmitments are made. The United States points to
evidence that was before the Panel demonstrating that China and other WTO Members were aware of
the commercial reality of the electronic distribution of sound recordings before 2001, and that the
services at issue were being supplied in China at th e time of the conclusion of the negotiations of
China's GATS Schedule. In the view of the United States, the Panel could not have interpreted the
common intentions of the parties based solely on China's adoption of a law in 2003. The
United States adds that China's reference to EC – Chicken Cuts is unavailing because the Panel's
approach to the circumstances of the conclusion of the treaty in this case was consistent with the
guidance provided by the Appellate Body in that case.
155 The United States, therefore, concludes that
the Panel's analysis of the supplementary mean s of interpretation was correct, and that the
circumstances of the conclusion of China's accession to the WTO support the finding that China
undertook a GATS specific commitment with respect to the electronic distribution of sound
recordings.
(c) In Dubio Mitius
90. The United States characterizes China's claim that the Panel should have applied the principle
of in dubio mitius as "without merit".
156 The Panel correctly interpreted the meaning of the entry
"Sound recording distribution services" in Chin a's GATS Schedule as encompassing the electronic
distribution of sound recordings on the basis of Article 31 of the Vienna Convention , and then
confirmed this interpretation by resorting to supp lementary means of interpretation under Article 32

152United States' appellee's submission, para. 110 (quoting China's appellant's submission, para. 184).
153United States' appellee's submission, para. 111 (referring to China's appellant's submission,
para. 190).
155United States' appellee's submission, para. 114 (referring to China's appellant's submission,
para. 189, in turn referring to Appellate Body Report, EC – Chicken Cuts, para. 283).

of the Vienna Convention. For these reasons, the United States c onsiders that there was no basis for
applying the in dubio mitius principle in this dispute.
C. Claims of Error by the United States – Other Appellant
1. The Necessity of the State Plan Requirement within the Meaning of
Article XX(a) of the GATT 1994
91. The United States requests the Appellate Body to reverse the Panel's intermediate finding that
the requirement, in Article 42 of the Publications Regulation, that the approval of publication import
entities conform to China's State plan for the total number, structure, and distribution of publication
import entities (the "State plan requirement") can be characterized as "necess ary", in the absence of
reasonably available alternatives, to protect publ ic morals in China within the meaning of
Article XX(a) of the GATT 1994. Alternatively, if the Appellate Body upholds the Panel's findings
on the proposed alternative measure that the Panel found to be reasonably available to China, then,
rather than reversing the Panel, the United Stat es suggests that the Appellate Body could simply
declare the Panel's intermediate finding moot and of no legal effect.
92. The United States expresses "some concerns" 157 about the analytical approach taken by the
Panel in its analysis of the "necessity" of the State plan requirement. The United States considers that
the Panel took a "two-step" 158 approach in its analysis under Article XX(a) of the GATT 1994,
examining, first, whether China had made a prima facie case that the measures at issue were
"necessary" within the meaning of Article XX(a ), and examining only subsequently whether
reasonably available and WTO-consis tent alternatives had been identified. In taking this approach,
the Panel drew on a statement made by the Appellate Body in Brazil – Retreaded Tyres.159 However,
the United States submits that other Appellate Body reports, in particular US – Gambling and Korea –
Various Measures on Beef , described a single process consisting of a number of "possible lines of
inquiry"160 that are to be weighed and balanced. A ccording to the United States, the "single,
integrated, yet multifaceted inquiry"161 set out by the Appellate Body is moreover in line with the text
of Article XX(a), which sets out a single criterion: "necessary". The United States contends that
intermediate findings of a multi-step analysis, such as the preliminary conclusion of the Panel in the
present case that the State plan requirement is "nece ssary" to protect public morals "in the absence of

157United States' other appellant's submission, para. 26.
158United States' other appellant's submission, para. 26.
159United States' other appellant's submission, para. 26 (referring to Panel Report, para. 7.786, in turn
quoting Appellate Body Report, Brazil – Retreaded Tyres, para. 178).
160United States' other appellant's submission, para. 26 (referring to Appellate Body Report, US –
Gambling, paras. 306 and 307; and referring in footnote to Appellate Body Report, Korea – Various Measures
on Beef, para. 166).
161United States' other appellant's submission, para. 27.

reasonably available alternatives", introduce "confusion".
162 For the United States, this is because the
term "necessary" appears to have b een used in a different sense in th e intermediate finding than in the
ultimate finding that the State plan requirement wa s not "necessary" given that a reasonably available
alternative measure had been identified.
93. As for the substance of the intermediate finding made by the Panel, the United States is of the
view that the Panel erred in finding that, in the ab sence of reasonably available alternatives, the State
plan requirement can be characterized as "necessary" to protect public morals in China. The United
States disputes, in particular, that the State plan requirement makes a material contribution to the
protection of public morals in China. Re ferring to the Appellate Body reports in US – Gambling and
Korea – Various Measures on Beef , the United States maintains that the State plan requirement is not
significantly closer to the pole of "indispensable " than to the opposite pole of "simply making a
contribution".163
94. The United States highlights multiple problems with the Panel's analysis of the State plan
requirement. First, the Panel did not actually ex amine the State plan, because China did not submit
the State plan, nor did it provide any information about the content of the State plan, or any past or
future plan. Instead, China simply stated that th e State plan "concern[s] the quantity, geographical
and product coverage of publication import entities". 164 The absence of information about the content
of the State plan meant that the Panel was precluded from assessing the actual State plan and its
impact, and was reduced to speaking in generaliti es. The United States emphasizes that the Panel
could not have properly weighed th e contribution—if any—that the State plan made to achieving
China's objectives on the basis of the general assertions made by China.
95. Secondly, the United States contends that, because China did not pr ovide the requested
information, the Panel could not know what Chin a meant when it asserted that there was a "limited
number"
165 of publication import entities, nor what rationale was used to justify such limit. The
United States also points to evidence that was before the Panel showing that, in 2006, there were 806
publishers of domestic books and el ectronic publications, almost 20 times more than the 42 approved
State-owned import entities in China. 166 Given that these domestic publishers perform in-house

162United States' other appellant's submission, para. 27 (referring to Panel Report, para. 7.836).
163United States' other appellant's submission, paras. 28 and 29 (referring to Panel Report, para. 7.785;
Appellate Body Report, US – Gambling, para. 310; and Appellate Body Report, Korea – Various Measures on
Beef, para. 161).
164United States' other appellant's submission, para. 31 (quoting China's response to Panel
Question 44).
165United States' other appellant's submission, para. 34.
166United States' other appellant's submission, para. 34 (referring to Panel Report, para. 7.812; United
States' oral statement at the second Panel meeting, para . 30; and GAPP, "Bulletin of Statistics", Excerpt (Panel
Exhibit US-98)).

content review, it was unclear how China could argu e that a large number of content reviewers would
undermine the consistency or quality of content revi ew or affect whether th e performance of that
review met the standard set by China.
96. Thirdly, the United States submits that the Panel failed to recognize the contradiction between
the requirement that publication import entities have branches in a large number of customs areas and
the rationale given for limiting the number of impo rting entities. Other evidence before the Panel
demonstrates that, while China appears to limit the number of publication import entities, it
simultaneously expands the number and location of actual content reviewers beyond such limited
numbers by requiring import entities to have branches that can cover many locations. This, according
to the United States, undermines the alleged benefits that the Panel presumed to flow from any limit
the State plan may place on the number of im port entities, such as easier interaction between
Government authorities and the approved import entiti es to enhance consistency, and providing more
time to conduct annual inspections.
97. Fourthly, the United States contends that the Panel did not properly take into account the role
of the GAPP in content review. The Panel stated that a limitation on the number of publication import
entities would allow the GAPP to devot e more time to conduct its annual ex post controls of
publication import entities' compliance with conten t review requirements. In the absence of
information regarding the nature of these annual in spections, however, it is, according to the United
States, impossible to assess how much of an a dditional burden—if any—w ould be caused by an
increase in the number of importing entities. For example, if the annual review involved actual
review of the imported publications, the workload for the GAPP would be a function of the number of
titles imported rather than of the number of publica tion import entities. The United States adds that,
because each branch of a publication import entity subm its a report to the GAPP, the workload is at
least as much a function of the number of branches as it is a function of the number of entities
approved as publication import entities.
98. Finally, the United States takes issue with certa in Panel statements regarding the restrictive
impact of the State plan requirement. In addition to the fact that the Panel could not have assessed
such restrictive impact in the ab sence of specific information on the State plan, the Panel's statement
that this requirement does not a priori exclude particular types of enterprises in China from
establishing an import entity is unclear. The State plan requirement might not exclude particular
types of enterprises from establishing an import entit y, but it nevertheless is intended to limit the
number of publication import entities and thereby constitutes a restriction.

99. For these reasons, the United States consid ers that there are "significant flaws"
167 in the
Panel's analysis of the State plan requirement, and that the Panel misinterpreted and misapplied
Article XX(a) of the GATT 1994 in reaching it s findings regarding the "necessity" of this
requirement. The United States claims, in the alternativ e, that, if the Appellate Body were to find that
the Panel's analysis concerning the State plan requi rement does not constitute a misinterpretation and
misapplication of Article XX(a) of the GATT 1994, th en the Panel's disregard of significant facts
relating to this requirement, including the fact that it did not know the content of the State plan,
constitutes an error in the appreciation of the ev idence because the Panel made a finding that has no
evidentiary basis in the record, and is therefore inconsistent with Article 11 of the DSU.
D. Arguments of China – Appellee
1. The Necessity of the State Plan Requirement within the Meaning of
Article XX(a) of the GATT 1994
100. China contends that the Appellate Body shoul d dismiss the United States' "concerns" about
the analytical approach taken by the Panel in its Article XX(a) analysis. China also requests the
Appellate Body to dismiss the United States' other appeal and to uphold the Panel's finding that the
State plan requirement makes a material contribution to the protection of public morals in China.
101. With respect to the "two-step" analytical a pproach allegedly adopted by the Panel in its
"necessity" analysis under Article XX(a) of the GA TT 1994, China submits that the United States'
contention appears to be based on an inaccurate re presentation of previous Appellate Body findings.
China points out that the United States' reference to a statement in the Appellate Body report in
US – Gambling 168 was incomplete. When read in its entirety, it is clear that in US – Gambling the
Appellate Body set out an approach of logical se quencing between the various tests to be performed
as part of the "necessity" test. This sequencing is also reflected in the Appellate Body report in
Brazil – Retreaded Tyres .169 China adds that the United States has not identified any specific legal
error affecting the Panel's reasoning. Instead , the United States expresses "some concerns" and
suggests that the Panel's approach generated c onfusion with respect to the term "necessary".
According to China, this does not constitute an allega tion of an error of law that would fall within the
scope of appellate review. In any event, Chin a submits that the Panel has followed precisely the
multifaceted approach to weighing and balancing th at the United States argues the Panel should have
adopted.

167United States' other appellant's submission, para. 38.
168China's appellee's submission, para. 6 (referring to United States' other appellant's submission,
para. 26).
169China's appellee's submission, para. 7 (referring to Appellate Body Report, Brazil – Retreaded Tyres,
para. 178).

102. On substance, China submits that the Panel w as correct in finding that, in the absence of
reasonably available alternatives, the State plan re quirement can be characterized as "necessary" to
protect public morals in China. According to Chin a, the United States' argument that China failed to
put forward evidence about the State plan requirement is "misplaced and incorrect". 170 C h i n a d i d
respond to the pertinent Panel question explaining th at the State plan was not available in written
form, and that the State plan is concerned with the quantity, geographical and product coverage of
publication import entities. The Panel was entitled to c onsider that this response, together with other
evidence on the record, provided a suffic ient basis for the Panel's analysis. 171 China points to, in
particular, certain exhibits that, in its view, constituted "circumstantial evidence" 172 confirming that
the selection of publication import entities is concerned with their quantity, and their geographical and
product coverage. China argues that the Panel's eval uation of this evidence fell within its discretion
as the trier of facts and that the United States has failed to establish that the Panel erred in the
inferences that it drew from the facts before it.173
103. China characterizes as "irrelevant" 174 and "wrong" 175 the United States' comparison of the
respective numbers of domestic publication entities and approved publication import entities, and its
related efforts to explain that content review for imported publications c ould be performed in a
manner similar to that for domestic publications. The United States fails to take into account
significant differences between the content review of domestic publications and that of imported
publications. In particular, China maintains that the market demand for domestic publications is
much higher, and content review of importe d publications requires greater resources and
sophistication, including specific language skills and an appreciation of the differences between
Chinese culture and that of the countries of origin of foreign publications. China asserts that the fact
that there is a lower number of entities in charge of content review for imported publications is only a
reflection of the different requirements for the two types of work and that, therefore, no meaningful
comparison can be drawn from the number of entities involved in the content review of the two
different categories of publications.

170China's appellee's submission, para. 14 (referring to United States' other appellant's submission,
para. 33).
171China's appellee's submission, paras. 13 (referring to China's response to Panel Question 44) and 14.
172China's appellee's submission, footnote 12 to para. 15 (referring to W. Yumei, "Fourteen (Foreign
Publications) Retailers Enter Chinese Mainland Mark et and Increasing Number of Book, Newspaper and
Magazine Retailers", China News Publishing Newspaper , 22 January 2008 (Panel Exhibit US-13); Panel
Exhibit CN-26, supra, footnote 141; and "China Statistical Data Collection of Press and Publication", in China
Labor and Social Security Publication (2006, 2005, 2004, 2003, 2002) (Panel Exhibits CN-33 through CN-37,
respectively)).
173China's appellee's submission, para. 17 (referring to Appellate Body Report, US – Wheat Gluten ,
paras. 175 and 176).
174China's appellee's submission, subheading 3.2, p. 4.

104. With respect to the United States' argument concerning the relationship between the
numerical limitation on publication import entities a nd the requirement for an extensive geographical
presence, China submits that this argument is prem ised on a misrepresentation of the way in which
inspections are carried out by the GAPP. Accordin g to China, it is the import entities themselves,
rather than the branches of the import entities, that are subject to annual review by the GAPP. The
various branches of import entities are obliged to s ubmit inspection materials to the administration of
press and publication in their locality on an annual b asis, and this local authority then issues an
examination opinion. Each branch must then submit its annual summary report and the local
authority's examination opinion to its parent comp any, which in turn submits them to the GAPP for
annual inspection. China also points to evidence it submitted demonstrating that, in cases of non-
compliance, it is the import entity itself, rather than any of its branches, that is subject to sanction
under applicable law.
176
105. Regarding the United States' argument that the total workload for the GAPP may be a
function of the number of titles imported rather th an the number of publication import entities, China
contends that this argument is based on a misr epresentation of the character of the GAPP's annual
inspections. China points to the evidence it submitted demonstrating that these GAPP annual
inspections focus on the functioning and mode of ope ration of the import entities, in particular, with
respect to their implementation of the content review system. 177 Thus, according to China, limiting
the number of such entities does make a contribution to the protection of public morals in China.
106. Finally, as to the United States' allegation that the Panel erred in its consideration of the
restrictive effect of the State plan requirement, Chin a recalls that it has appealed the Panel's inclusion
of the impact of the measures at issue on potential importers in its assessment of the restrictive
impact. In any event, China contends that the St ate plan requirement does not set any form of quota
on the number of import entities, but rather sets an additional condition in order for a publication
import entity to be approved. Furthermore, China observes that, even if the State plan requirement
could be viewed as setting a restriction on the num ber of import entities, this alone would not suffice
to conclude that the State plan requirement does no t make a material contribution to the protection of
public morals in China.

176China's appellee's submission, para. 25 (referring to Panel Exhibit CN-22, supra, footnote 140,
para. VI(1)).
177China's appellee's submission, paras. 29-31 (referring to Panel Exhibit CN-22, supra, footnote 140,
para. IV(2)).

E. Arguments of the Third Participants
1. Australia
107. Australia submits that the Appellate Body shou ld reverse or modify the Panel's finding that
China's Accession Protocol commitments relating to trade in goods are appli cable to the measures
concerning films for theatrical release and unfinis hed audiovisual products. With regard to the
"necessity" of China's measures, Australia submits th at the Appellate Body should uphold the Panel's
finding that China failed to demonstrate that the measures found to be inconsistent with China's
trading rights commitments are "necessary" to protect public morals within the meaning of
Article XX(a) of the GATT 1994. 178 Finally, Australia submits th at the Appellate Body should
uphold the Panel's findings that the entry "Sound recording distribution services" in China's GATS
Schedule includes the distribution of sound recordings by electronic means.
108. Australia considers that the Panel erred in fi nding that China's trading rights commitments
apply to the measures concerning films for theatri cal release and unfinished audiovisual products. 179
Drawing an analogy with the Appellate Body's approach in EC – Bananas III, Australia maintains that
the Panel should have examined whether those meas ures "affect" trading rights in goods in a manner
inconsistent with the Marrakesh Agreement Establishing the World Trade Organization (the "WTO
Agreement")180, in particular by scrutinizing the structure and design of the measures in order to
determine whether they regulate films for theatri cal release and unfinished audiovisual products on
the basis of their characteristics as goods, or on the b asis of their content. In Australia's view, the
content of audiovisual products is a service. Australia argues that China submitted sufficient evidence
to "raise doubt" 181 as to whether the measures regulate fi lms for theatrical release based on their
characteristics as goods. Given that the United States failed to counter this evidence, China's trading
rights commitments should not have been found to apply to the measures at issue.
109. Referring to the Panel's analysis and intermed iate finding of "necessity" of the State plan
requirement, Australia emphasizes that China bore th e burden of demonstrating that the measures at
issue contribute to the achievement of China's objec tives, "having regard in particular to the trade-

178In this regard, Australia refers to the List of Prohibited Foreign Investment Industries in the
Catalogue, 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
concern finished audiovisual products, and the Audiovisual (Sub-)Distribution Rule.
179These measures are, with rega rd to films for theatrical release, Articles 5 and 30 of the Film
Regulation and Articles 3 and 16 of the Film Enterprise Rule , and with regard to unfinished audiovisual
products, Article 5 of the 2001 Audiovisual Products Regulation and Article 7 of the Audiovisual Products
Importation Rule.
180Australia's third participant's submission, pa ra. 8 (referring to Appellate Body Report, EC –
Bananas III, para. 221).
181Australia's third participant's submission, para. 12.

restrictiveness of that measure".
182 Observing that WTO Members rely heavily on previous panel and
Appellate Body reports in relati on to Article XX of the GATT 1994 in order to defend their measures
on the basis of public policy, Australia states that it "would welcome" 183 clarification from the
Appellate Body regarding the Panel's interpretation of the relationship between the assessment of the
"necessity" of a measure and the assessment of the existence of "reasonably available alternatives"
under Article XX(a) of the GATT 1994.
2. European Communities184
110. The European Communities submits that Article XX(a) of the GATT 1994 may be indirectly
applicable to China's obligation under paragraph 5.1 of China's Accession Protocol to grant the right
to trade, and contends that the Panel erred in la w by examining China's Article XX(a) defence on an
arguendo basis. With regard to the Panel's substa ntive analysis under Article XX(a), the European
Communities disagrees with China's claims of erro r on appeal. Instead, the European Communities
supports the Panel's finding that the State-owners hip requirement is not "necessary" for the protection
of public morals in China; submits that the Panel was correct to weigh the restrictive impact that the
measures at issue may have on those wishing to engage in importing; and considers that the Panel did
not err in its evaluation of whether the alterna tives proposed by the United States were "reasonably
available" to China. The Eu ropean Communities does not, however, accept that the Panel had a
sufficient basis on which to conclude that the Stat e plan requirement was "necessary" and, therefore,
agrees with the United States' appeal of this fi nding. The European Communities agrees with the
Panel's legal interpretations and conclusions regarding the scope of China's GATS commitments.
111. The European Communities submits that Artic le XX(a) of the GATT 1994 does not directly
apply to China's Accession Protocol because excep tions may be invoked only within the specific
agreement in which they are contained, and accession protocol commitments are not part of the
GATT 1994. However, Article XX(a) of the GATT 1994 is indirectly relevant for the interpretation
of China's obligation under paragraph 5.1 of Ch ina's Accession Protocol due to the introductory
clause to that paragraph, which reads: "Without pr ejudice to China's right to regulate trade". In the
European Communities' view, the Panel correctly de termined that China's right to regulate trade
encompasses a "core"
185 right—to regulate imports and exports—a nd a consequent right to regulate

182Australia's third participant's submission, para. 21.
183Australia's third participant's submission, paras. 3 and 22.
184We note that, on 1 December 2009, the Treaty of Lisbon amending the Treaty on European Union
and the Treaty establishing the European Community (done at Lisbon, 13 December 2007) entered in to force.
On 29 November 2009, the WTO received a Verbal Note (WT/L/779) from the Council of the European Union
and the Commission of the European Communities stating that, by virtue of the Treaty of Lisbon , as of
1 December 2009, the European Union replaces and succeeds the European Community.
185European Communities' third participant's submission, para. 6.

who may import or export goods "where this is incidental (or necessary) to the regulation of the
relevant goods".186 The Panel in effect found that none of the measures at issue correspond to "core"
measures regulating trade, but left open the ques tion of whether the measures are consequential,
incidental, and/or necessary to measures regulating tr ade in the relevant goods, that is, to measures
prohibiting certain content or requiring content review prior to importation. Because the availability
of Article XX(a) depends on the answer to this question, the European Communities considers that
the Panel erred in law by examining China's Article XX(a) defence on an arguendo basis. A detailed
substantive analysis under Article XX(a) should follow, and depend upon, a positive finding that
Article XX(a) applies—yet the Panel made no such finding. Before undertaking its Article XX(a)
analysis, therefore, the Panel should first have show n that "the measures found to be inconsistent with
[China's] trading rights commitments are incidental (in the sense of 'necessary') to the regulation of
the relevant goods". 187 Moreover, the Panel's arguendo approach was not helpful for effectively
resolving the dispute between the parties because China does not know whether it can adopt "less
GATT-inconsistent (less restrictive) alternative m easures, such as those pointed out by the United
States"188 without running the risk of a renewed and successful WTO challenge of such measures.
112. With respect to the analysis of the "necessity " of the State-ownership requirement, the
European Communities does not believe that the Pa nel misrepresented China's arguments, erred in
law, or failed to make an objective assessment of th e matter before it, in violation of Article 11 of the
DSU. The European Communities does not share Chin a's position that the costs relating to a "public
policy function"189 cannot be imposed on privately owned enterprises, and points to the example of
marketing approval procedures for pharmaceutical pr oducts or other highly regulated goods, the costs
of which are borne by private enterprises and th en passed on to consumers. Privately owned
enterprises could also perform the task of content re view if properly trained staff were employed.
Even if the activity of content review must be ca rried out by State entities, it does not follow that
prohibiting the importation of such products by pr ivately owned enterprises is necessary for the
protection of public morals. Rather, explains the European Communities, privately owned enterprises
could, before importing or marketing the products, submit the products to be imported to the State
entity responsible for carrying out the content review, and pay that entity a fee.
113. Concerning China's argument that the Panel erred in interpreting Article XX(a) of the
GATT 1994 as requiring the Panel to also weigh the rest rictive impact that the measures at issue may
have "on those wishing to engage in importing", in particular on their right to trade, the European

186European Communities' third participant's subm ission, para. 8 (referring to Panel Report,
para. 7.276).
187European Communities' third participant's submission, para. 11.
188European Communities' third participant's submission, para. 12.
189European Communities' third participant's submission, para. 16.

Communities submits that the Panel was correct in its analysis and that there was no "circular
reasoning"
190 as alleged by China. In analyzing whet her the measures were "necessary" within the
meaning of Article XX(a) of the GATT 1994, the Pa nel had to weigh and balance several factors,
including the restrictive impact of the measures on international commerce. This element must be
taken into account even when the restrictive im pact is the reason why the measure was found to
violate WTO obligations in the first place. A failure to take account of such restrictive impact would
deprive the examination of "necessity" of its sense a nd impede a panel's assessment of whether a less
restrictive alternative exists. The European Communities disagr ees with China that the Panel's
approach was analogous to that erroneously adopted by the panel in US – Gasoline191, and points out
that, in any event, the panel in that dispute was interpreting paragraph (g) of Article XX, which does
not contain a "necessity" requirement. The European Communities emphasizes that the effect of the
measures at issue "is tantamount to a total ban on those entities who will never qualify to enter the
Chinese market".192
114. The European Communities considers that the Panel did not err in finding that at least one of
the alternatives proposed by the United States was "reasonably available" to China even though the
United States did not provide any details on how that alternative could be implemented. The task of
WTO panels is to determine, on the basis of the argu ments of the parties, whether there are other less
trade-restrictive alternatives that could be impl emented, not to provide a solution as to how any
proposed alternatives would be impl emented; it is up to China to deal with the details of how
implementation could take place. The European Co mmunities also recalls that, before the Panel, it
argued that China could implement a content revi ew system without such severe restrictions on
trading rights because it is the content of the material itself that is subject to review, not the entity or
individual who is actually importing it into China. This is further supported by reference to content
review for domestic products, which can be efficiently performed without similar curtailments.
115. The European Communities "largely agree[s]" 193 with the United States' appeal regarding the
Panel's analysis of the "necessity" of the State plan requirement. The European Communities does
not fully understand on what specific grounds the Pane l could have made its in termediate finding that
the State plan requirement is "necessary" to protect public morals, especially as it had never been
given the opportunity to examine the actual measu re. The European Communities adds that it is
important that parties to WTO disputes abide by the DSU, including the requirement in Article 13.1

190European Communities' third participant's submission, para. 25 (quoting China's appellant's
submission, para. 43).
191European Communities' third participant's submissi on, para. 26 (referring to and quoting Appellate
Body Report, US – Gasoline, p. 16, DSR 1996:I, 3, at 15).
192European Communities' third participant's submission, para. 34.
193European Communities' third participant's submission, para. 40.

that "[a] Member should respond promptly and fully to any request by a panel for such information as
the panel considers necessary and appropriate."
116. With respect to the appeal of the Panel's interpretation of the entry "Sound recording
distribution services" in China's GATS Schedule, th e European Communities di sagrees with China's
view that changes in digital technologies and communication networks have resulted in the emergence
of an entirely new type of services sector—"network music services". 194 The European Communities
further submits that the Panel decided not to invoke the principle of "technological neutrality" because
there was no need for it to do so given that it had found that China's commitment includes the
distribution of audio content by non-physical means a nd not because, as China suggests, this principle
was irrelevant because network music services is a new and distinct service.
3. Japan
117. With regard to China's trading rights commitm ents, Japan submits that the Appellate Body
should uphold the Panel's findings with regard to th e measures relating to films for theatrical release
and unfinished audiovisual products. Japan urges th e Appellate Body to reverse the Panel's finding
that, in the absence of reasonably av ailable alternatives, the State plan requirement is "necessary" to
protect public morals in China, but to otherw ise uphold the Panel's conclusions in respect of
Article XX(a) of the GATT 1994. Finally, Japan urges the Appellate Body to uphold the Panel's
interpretation of China's GATS Schedule entry "S ound recording distribution services" as including
the distribution of sound recordings in electronic form.
118. Japan asserts that, in appealing the Panel's finding that the measures regulating films for
theatrical release are subject to its trading rights commitments, China simply repeats the arguments
that it made before the Panel, changing the focus from the regulation of servi ces to the regulation of
content. In Japan's view, the content and use of tangible media are not relevant to the issue of
whether China's trading rights commitments apply to hard-copy cinematographic films. For Japan,
the Panel's findings in this regard are both correct and consistent with the A ppellate Body's finding in
Canada – Periodicals that content does not preclude a conclu sion that the object in which such
content is contained is a good.195
119. Regarding the Panel's findings under Article XX(a) of the GATT 1994, Japan views the
Panel's approach as "proper and legally correct", except that the Panel's intermediate finding regarding
the "necessity" of the State plan requirement is, in Japan's view, "mere conjecture, made without any

194European Communities' third participant's submission, para. 44.
195Japan's third participant's submission, para. 37 (referring to Appellate Body Report, Canada –
Periodicals, p. 17, DSR 1997:I, 449, at 463).

evidence or information".
196 China did not sustain its burden of demonstrating why it is necessary for
the protection of public morals that all entities—ot her than those that are wholly State-owned—be
excluded from importing publications; nor did China demonstrate why private traders would not and
could not meet the importation requirements of th e Chinese Government. With respect to China's
argument that it is "necessary" for importers of publ ications to be wholly State-owned, because only
wholly State-owned enterprises can understand the criteria for content review and applicable
standards of public morals in China, Japan point s to Article X:1 of the GATT 1994, which requires
not only that measures be published, but that th ey be published "in such a manner as to enable
governments and traders to become acquainted with th em." This requirement of transparency shows
that China may not fail to publish or disclose regul atory criteria for a product and then channel all
imports of that product through wholly State-ow ned enterprises that the Government has fully
informed regarding the actual detailed criteria applied to the product. Furthermore, Japan argues that
China failed to explain why alternative measures are not reasonably available, and that China does not
raise new arguments on appeal that would justify a reversal of the Panel's finding in this regard.
120. Japan supports the Panel's reading of China's GATS Schedule commitments, and
characterizes as "troubling" 197 the notion that new services are necessarily unbound. Given that
China's Schedule refers to the 1991 United Nati ons Provisional Central Product Classification (the
"CPC"), which is exhaustive, the only relevant ques tions are: (i) where in the CPC a service is
covered; and (ii) whether a new service falls with in the scope of an existing commitment. Japan
emphasizes that China's GATS Schedule entry on "Sound recording distribution services" does not
specify any limitation on the means by which distri bution may be carried out. The Panel correctly
found that this commitment includes the electroni c distribution of sound recordings, and properly
interpreted the meaning of this entry through recourse to Articles 31 and 32 of the Vienna Convention.
Japan adds that use of the in dubio mitius principle would be "wholly inappropriate in interpreting an
individually bargained commitment". 198 Instead, the content of a Member's Schedule should be
interpreted on the basis of the maxim pacta sunt servanda.
4. Korea
121. Korea submits that the Panel's analysis of China's defence of the State plan requirement under
Article XX(a) of the GATT 1994 may constitute legal error, but that the Panel's interpretation of
China's GATS Schedule entry "Sound recording distribution services" should be upheld by the
Appellate Body. Korea also notes that some of the issues raised in this appeal appear to be a re-

196Japan's third participant's submission, para. 17.
197Japan's third participant's submission, para. 27.
198Japan's third participant's submission, para. 33.

discussion of factual, rather than legal, issues. Korea cautions that the parties should not be given a
second chance to discuss the facts, but adds that the Appellate Body should closely scrutinize the
Panel's findings so as to determine whether the Pane l complied with its duties under Article 11 of the
DSU.
122. As regards China's defence under Article XX(a) of the GATT 1994 and the Panel's
intermediate finding concerning the necessity of the State plan requirement, Korea recalls that China
bore the burden of demonstrating that the co ntested measure satisfies the requirements of
Article XX(a). Even if the State plan was not av ailable in written form during the Panel proceedings,
non-written evidence, such as a Government official's explanation of the content and implementation
of the plan, could have been used to establish a prima facie case. Korea finds it difficult to understand
how the Panel could have evaluate d the effect of the State plan without actually reviewing it.
According to Korea, to the extent th at the Panel erroneously applied the prima facie threshold with
respect to the State plan requirement, the Panel ma y have failed to properly discharge its duties under
Article 11 of the DSU.
123. In Korea's view, the Panel's analysis of China's GATS Schedule entry "Sound recording
distribution services" was done in an extensive and comprehensive manner in accordance with the
interpretative principles of the Vienna Convention and relevant Appellate Body jurisprudence,
notably, the "holistic approach" 199 set out in EC – Chicken Cuts . In Korea's view, Article 11 of the
DSU requires a panel to interpret a particular term to the extent that the interpretation of the term is
essential to resolve the dispute. In this case, the Panel extensively explained its step-by-step approach
to the interpretation of the term "Sound recordi ng distribution services". The Panel was certainly
aware of the existence of different definitions, but it appears to have made a specific choice that it
believed was the most appropriate to resolve the disp ute. The Panel also reviewed the context and the
object and purpose of the GATS so as to confirm the dictionary meaning of the term and checked the
relevant preparatory work including the circumstances of the conclusion of the treaty. For all of these
reasons, Korea believes that the Panel correctly cons idered all relevant elements of interpretation
separately and collectively before reaching its conc lusion and did not, as China portrays it, engage in
a "cherry-picking"200 exercise.

199Korea's third participant's submi ssion, paras. 21 and 22 (referring to Appellate Body Report, EC –
Chicken Cuts, para. 176).
200Korea's third participant's submission, para. 22 (referring to China's appellant's submission,
paras. 105, 106, 114, and 117).

III. Issues Raised in This Appeal
124. The following issues are raised in this appeal:
(a) Whether the Panel erred in finding that China's measures pertaining to films for
theatrical release and unfinished audiovisual products are subject to China's trading
rights commitments and, more specifically:
(i) whether the Panel erred in finding that Article 30 of the Film Regulation
and Article 16 of the Film Enterprise Rule are subject to China's trading
rights commitments as set out in paragraphs 1.2 and 5.1 of China's Accession
Protocol and paragraphs 83(d) and 84(a) and (b) of China's Accession
Working Party Report, and whether, in making this finding, the Panel failed
to make an objective assessment of the facts, in violation of Article 11 of the
DSU;
(ii) whether the Panel erred in finding that Article 5 of the 2001 Audiovisual
Products Regulation and Article 7 of the Audiovisual Products Importation
Rule are subject to China's obligation to grant in a non-discretionary manner
the right to trade, as set out in para graph 1.2 of China's Accession Protocol
and paragraph 84(b) of China's Ac cession Working Party Report, and
whether, in making this finding, th e Panel failed to make an objective
assessment of the facts, in violation of Article 11 of the DSU;
(b) Whether, by virtue of the introductory clause of paragraph 5.1 of China's Accession
Protocol, Article XX(a) of the GATT 1994 may be invoked by China in this dispute
as a defence to the violations of its trading rights commitments; and whether, in
finding that China had not demonstrated that the provisions
201 that China sought to
justify under Article XX(a) of the GATT 1994 are "necessary" to protect public
morals:

201Articles X:2 and X:3 of the List of Prohibited Foreign Investment Industries in the Catalogue, in
conjunction with Articles 3 and 4 of the Foreign Investment Regulation ; Article 4 of the Several Opinions ;
Article 41, and Article 42 in conjunction with Article 41, of the Publications Regulation; Article 27 of the 2001
Audiovisual Products Regulation ; Article 8 of the Audiovisual Products Importation Rule ; and Article 21 of
the Audiovisual (Sub-)Distribution Rule.

(i) the Panel erred in law, or failed to make an objective assessment of the matter
before it, in violation of Article 11 of the DSU, in its analysis of the
contribution to the protection of public morals in China made by:
− the requirement in Article 42 of the Publications Regulation that publication
import entities be wholly State-owned enterprises;
− the provisions excluding foreign-inv ested enterprises from engaging in the
importation of the relevant products202; and
− the State plan requirement in Article 42 of the Publications Regulation;
(ii) the Panel erred in taking into account the restrictive effect that the relevant
provisions and requirements have on tho se wishing to engage in importing;
and
(iii) the Panel erred in finding that there is a less-restrictive alternative measure
"reasonably available" to China, and whether, in making this finding, the
Panel failed to make an objective assess ment of the matter before it, in
violation of Article 11 of the DSU;
(c) Whether the Appellate Body can complete the analysis under Article XX(a) and the
chapeau of Article XX should it find that the Panel erred in its analysis of the
"necessity" of China's measures to protect public morals, within the meaning of
Article XX(a) of the GATT 1994; and
(d) Whether the Panel erred in finding that the entry "Sound recording distribution
services" in sector 2.D of China's GATS Schedule extends to the distribution of sound
recordings in non-physical form, notably through electronic means, and in finding, as
a consequence, that the provisions
203 prohibiting foreign-invested entities from
engaging in the distribution of sound recordi ngs in electronic form are inconsistent
with Article XVII of the GATS.

202Such exclusion is set out in the following provisions : Articles X:2 and X:3 of the List of Prohibited
Foreign Investment Industries in 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.
203Article II of the Circular on Internet Culture; Article 8 of the Network Music Opinions; Article 4 of
the Several Opinions; and Article X:7 of the List of Prohibited Foreign Investment Industries in the Catalogue,
in conjunction with Articles 3 and 4 of the Foreign Investment Regulation.

IV. Overview of the Measures at Issue and the Panel's Findings
A. Introduction
125. This dispute concerns measures of China relating to the importation into China, and/or
distribution within China, of certain products consisti ng of reading materials, audiovisual products,
sound recordings, and films for theatrical release.
126. The United States alleged before the Panel that the measures at issue: (i) fail to grant the right
to trade
204 to enterprises in China and foreign enterprises and individuals 205, in violation of China's
obligations under the Protocol on the Accession of the People's Republic of China to the WTO
("China's Accession Protocol") 206 and the Report of the Working Party on the Accession of China to
the WTO ("China's Accessi on Working Party Report") 207; (ii) deny market access to, or discriminate
against, foreign service suppliers in breach of China's scheduled commitments under Articles XVI
and XVII, respectively, of the GATS; and/or (iii) discriminate against imported products, as
compared to like domestic products, in violation of Article III:4 of the GATT 1994.
127. China asked the Panel to reject the claims of the United States on several grounds, including
that some of China's measures are not subject to the obligations invoked by the United States, and that
certain other measures are justified under Article XX (a) of the GATT 1994 because they form part of
a content review system that prohibits the importation of cultural goods with content that could have a
negative impact on public morals in China.208

204The Panel's treatment of China's co mmitments in respect of the right to trade—that is, the right to
import and export goods—is further discussed infra, in subsection IV.B.
205The Panel determined that each of the measures it found to be in consistent with China's trading
rights commitments applies in respect of foreign-invest ed enterprises in China. The term "foreign-invested
enterprise" refers to one of several forms of investment projects regulated in China. (See infra, para. 142 and
footnote 245 thereto) With the exception of its findings in respect of Article 30 of the Film Regulation and
Article 16 of the Film Enterprise Rule (see infra, footnote 298), the Panel found that the United States had not
established a claim that the challenged measures apply in respect of foreign enterprises not invested or
registered in China, or foreign individuals.
206WT/L/432.
207WT/ACC/CHN/49 and WT/ACC/CHN/49/Corr.1.
208China also raised several preliminary objections, asserting that claims in respect of certain of China's
measures were not within the Panel's terms of referenc e, and that certain instruments challenged by the United
States are not measures that could be examined in WTO dispute settlement.

128. This dispute is characterized by a large numbe r of claims made, and measures challenged, by
the United States. In consequence, the Panel made many findings relating to the various measures
and claims, including findings that a number of provi sions of China's measures are inconsistent with
China's WTO obligations. The Panel's findings that ar e challenged in this appeal are limited to those
identified in section III above. Becaus e the measures at issue in this appeal fo rm part of a larger
regulatory scheme, and in order to provide some cont ext for our findings, we consider it useful to set
out an overview of the Panel's findings of inconsiste ncy before turning to the substance of the specific
issues raised on appeal by China and the United St ates. We note that the following overview places
certain emphasis on those findings of the Panel that ar e relevant to this appeal. For a more complete
account of the Panel's consideration of the operati on of China's measures and the Panel's reasoning
and findings, direct reference should be had to the Panel Report.
129. The Panel reviewed 17 measures209 issued at different levels of the Chinese Government. Six
of the challenged measures are administrative regulations or documents that were enacted or approved
by the State Council, China's highest executive body. 210 The remaining Chinese measures challenged
by the United States are departmental rules or admi nistrative circulars or opinions enacted by one or
more ministries or agencies under the State Council.211

209The United States challenged 19 legal instruments of China. (See supra, footnote 10) The Panel
ruled that two of these instruments did not constitute "mea sures" within the meaning of Article 3.3 of the DSU,
and that certain measures challenged by the United States fell outside the Panel's terms of reference. (See supra,
footnotes 11 and 12) The Panel also found that the United States had not established a number of the claims
raised, and exercised judicial economy in respect of certain other claims. (See supra, footnotes 15, 23, 25,
and 28)
210There are four such administ rative regulations at issue in this dispute: (i) the Foreign Investment
Regulation; (ii) the Publications Regulation; (iii) the 2001 Audiovisual Products Regulation; and (iv) the Film
Regulation. The Catalogue and the Several Opinions are administrative documents that were issued by one or
more Chinese ministries or agencies after obtaining the approval of the State Council.
China explained to the Panel that the hierarchy of Chinese laws and regulations issued by the central
Government is composed of three levels: (i) laws en acted by the National People's Congress or its Standing
Committee; (ii) administrative regulations enacted by the State Council; and (iii) departmental rules enacted by
ministries or agencies under the State Council. (Panel Report, para. 7.182 (referring to China's response to Panel
Question 37(a)); see also Law of the People's Republic of China on Legislation (Panel Exhibit US-72)) None
of the measures at issue in this dispute are laws enacted by the National People's Congress or its Standing
Committee.
211There are 11 such departmental rule s or administrative circulars or opin ions at issue in this dispute:
(i) the Imported Publications Subscription Rule ; (ii) the Publications (Sub-)Distribution Rule ; (iii) the
Publications Market Rule ; (iv) the 1997 Electronic Publications Regulation (although entitled a "regulation",
this measure was enacted by China's General Administration of Press and Publication (the "GAPP")); (v) the
Audiovisual Products Importation Rule; (vi) the Audiovisual (Sub-)Distribution Rule; (vii) the Internet Culture
Rule; (viii) the Circular on Internet Culture ; (ix) the Network Music Opinions; (x) the Film Enterprise Rule;
and (xi) the Film Distribution and Exhibition Rule.

130. We note that each good or service at issue in this dispute and its related importation and
distribution activities are regulated by several of Chin a's measures. The relevant provisions of three
measures examined by the Panel—that is, China's foreign investment regulations (the Foreign
Investment Regulation , the Catalogue, and the Several Opinions )—apply to all of the goods and
services at issue in this dispute, whereas the rema ining measures contain provisions that apply to only
one such category of goods and services. We also note that, in respect of 15 of the challenged
measures, the Panel found one or several violatio ns of China's WTO obligations in respect of:
(i) trading rights under China's Accession Protoc ol and Working Party Report; (ii) services under
Articles XVI and XVII of the GATS; and/or (iii) goods under Article III:4 of the GATT 1994.
212
131. The following chart illustrates the extent to which the challenged measures, the goods and
services they regulate, and the relevant WTO obligati ons overlap. The chart: (i) lists each of the
measures for which the Panel found a violation of Ch ina's WTO obligations; (ii) identifies the goods
and services to which each measure applies (insofar as the goods and/or services relate to a finding of
violation by the Panel); and (iii) indicates whether the Panel's findings of violation relate to China's
trading rights commitments, GATS obligations, and/or GATT 1994 obligations. In addition, the chart
highlights that the appeal by China and the other appeal by the United States implicate 11 of the
measures for which the Panel found an inconsistency with China's WTO obligations.
213

212The Panel found that the Film Distribution and Exhibition Rule was outside the Panel's terms of
reference in respect of claims concerning China's trading rights commitments, and that the United States had not
otherwise established a violation of China's WTO obligations in respect of the Film Distribution and Exhibition
Rule and the Internet Culture Rule. (Panel Report, paras. 8.1.1(a)(i), 8.2.3(b)(ii), 8.2.4(b)(i), and 8.2.4(c)(i); see
also paras. 7.60, 7.1305, 7.1654, and 7.1692)
213For each of the 11 measures at issue in this appeal , the specific provisions found by the Panel to be
inconsistent with China's obligations under the covered agreements are set out in Annex III to this Report.

Measures found by the Panel to be
inconsistent with China's WTO
obligations
(bold indicates at issue in this appeal)
Reading
materials
Audiovisual
products214
Films for
theatrical
release215
Electronic
distribution
of sound
recordings216
Foreign Investment Regulation
Catalogue
Several Opinions
Publications Regulation217
Imported Publications Subscription Rule
Publications (Sub-)Distribution Rule
Publications Market Rule
1997 Electronic Publications Regulation
2001 Audiovisual Products Regulation
Audiovisual Products Importation Rule
Audiovisual (Sub-)Distribution Rule
Circular on Internet Culture
Network Music Opinions
Film Regulation
Film Enterprise Rule

 Panel Findings of Violation Concerning :

 Trading rights and GATS
 Trading rights only
 GATS only
 GATS and GATT 1994

214The Panel determined the specifi c scope of "audiovisual produc ts" for each of the challenged
measures. For purpos es of its findings in respect of specific provisions of the Foreign Investment Regulation
and the Catalogue, for example, the Panel determined that the term "audiovisual products" covers products such
as video discs, as well as physical sound recordings and films for theatrical release. (Panel Report, paras. 7.340-
7.352 (concerning Article X:3 of the List of Prohibited Foreign Investment Industries in the Catalogue, in
conjunction with Articles 3 and 4 of the Foreign Investment Regulation))
215As noted supra, footnote 214, the Panel determined that the term "audiovisual products" for purposes
of a provision of the List of Prohibited Foreign Investment Industries in the Catalogue, in conjunction with
provisions of the Foreign Investment Regulation, includes films for theatrical release.
216The Panel determined that, for purposes of China's foreign investment regulations (the Foreign
Investment Regulation, the Catalogue, and the Several Opinions), the electronic distribution of sound recordings
was covered by provisions governing "Internet cultural activities". (Panel Report, paras. 7.1308-7.1310)
217The Publications Regulation also applies to audiovisual products, but the Panel concluded that
relevant provisions in the 2001 Audiovisual Products Regulation take precedence over the corresponding
provisions in the Publications Regulation concerning the regulation of audiovisual products. (Panel Report,
para. 7.390)

132. Before summarizing relevant aspects of the me asures at issue and the Panel's findings in
respect of specific provisions of these measures, we recall the Panel's interpretation of China's
obligations in respect of trading rights, and outli ne certain elements of China's regulatory regime
applicable to the products at issue.
B. China's Trading Rights Commitments
133. China acceded to the WTO on 11 December 2001. China's Accession Protocol provides that
it shall, together with certain commitments referr ed to in China's Accession Working Party Report,
"be an integral part of the WTO Agreement".
218 For purposes of this Report, we use the term "trading
rights commitments" to refer to the obligations of China in respect of the right to trade that are
contained in paragraphs 5.1 and 5.2 of China's Accession Protocol, and para graphs 83(d) and 84(a)
and (b) of China's Accession Working Party Report. 219 The Panel observed that paragraphs 83(d) and
84(a) and (b) of China's Accession Working Party Report are incorporated into China's Accession
Protocol and, hence, the WTO Agreement.220
134. Before turning to the specific claims of the United States, the Panel set out its interpretation of
these commitments. The Panel explained at the outset of its legal findings that it would apply the
"principles" contained in Articles 31 and 32 of the Vienna Convention "in interpreting the relevant
provisions of the covered agreements".221

218Paragraph 1.2 of China's Accession Protocol provides:
The WTO Agreement to which China 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 accession. 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.
Paragraph 342 of China's Accession Working Party Report, provides:
The Working Party took note of the explanations and statements of China
concerning its foreign trade regime, as reflected in this Report. The
Working Party took note of the commitments given by China in relation to
certain specific matters which are reproduced in paragraphs ... 83 [and] 84 ...
of this Report and noted that thes e commitments are incorporated in
paragraph 1.2 of the Draft Protocol.
219We note that the Panel made findings of violation in respect of China's trading rights commitments
as they relate to the obligation to grant the right to trade pursuant to paragraph 5.1 of China's Accession Protocol
and paragraphs 83(d) and 84(a) of China's Accession Working Party Report, and the obligation to grant in a
non-discretionary manner the right to trade pursuant to paragraph 84(b) of China's Accession Working Party
Report. The Panel considered that paragraph 1.2 of China's Accession Protocol incorporates the relevant
paragraphs of China's Accession Working Party Report such that any inconsistency with paragraph 83(d), 84(a),
or 84(b) "leads to a consequential inconsistency" with paragraph 1.2 of China's Accession Protocol. (Panel
Report, para. 7.332) The Panel did not find any violations in respect of China's obligation to grant in a non-
discriminatory manner the right to trade under paragraph 5.2 of China's Accession Protocol and paragraph 84(b)
of China's Accession Working Party Report.
220Panel Report, para. 7.232.
221Panel Report, paras. 7.8 and 7.9.

135. First, the Panel considered that China's trad ing rights commitments encompass the obligation
to grant the right to trade as set out in paragraph 5.1 of China's Accession Protocol and
paragraphs 83(d) and 84(a) of Ch ina's Accession Working Party Repor t. Paragraph 5.1 of China's
Accession Protocol imposes on China the obligation to ensure that, with the exception of certain
goods set out in an annex (and which are not at issu e in this dispute), "all enterprises in China shall
have the right to trade in all goods throughout the customs territory of China." 222 According to
paragraph 5.1, the right to trade means the right to import and export goods. The Panel determined
that all of the products at issue in this dispute are goods covered by this obligation. 223 The Panel also
considered that the phrase "all enterprises in Chin a" covers wholly Chin ese-invested enterprises,
regardless of whether they are privately or Stat e-owned, and foreign-invested enterprises, which
include wholly foreign-owned enterprises, as well as Chinese-foreign joint ventures, whether in equity
or contractual form.224
136. The introductory clause of paragraph 5.1 stipulates that China's obligation to grant the right to
trade is "[w]ithout prejudice to China's right to re gulate trade in a manner consistent with the WTO
Agreement". The Panel determined that China coul d maintain a measure which does not ensure that
all enterprises in China have the right to trade, provided that th e measure also regulates trade in a
WTO-consistent manner, because in such cases Chin a's right to regulate trade takes precedence over
China's obligation to ensure that all ente rprises in China have the right to trade. 225 The Panel also
considered that the introductory clause of paragra ph 5.1 permits China to regulate not only the goods
that are imported or exported, but also who can import or export these goods. 226 Recalling that the
right to regulate may mean the right to restrict, th e Panel concluded that the right to regulate trade

222 Paragraph 5.1 of China's Accession Protocol provides:
Without prejudice to China's right to regulate trade in a manner consistent
with the WTO Agreement, China shall progressively liberalize the
availability and scope of the right to tr ade, so that, within three years after
accession, all enterprises in China shall have the ri ght 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 sh all be accorded national treatment under Article III
of the GATT 1994, especially paragrap h 4 thereof, in respect of their
internal sale, offering for sale, purcha se, transportation, distribution or use,
including their direct access to end- users. For those 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.
223Panel Report, para. 7.248.
224Panel Report, paras. 7.249, 7.251, and 7.252. The Panel noted that both parties agreed that the
phrase "all enterprises in China" do es not include foreign en terprises that are not registered in China. ( Ibid.,
footnote 201 to para. 7.249)
225Panel Report, paras. 7.254 and 7.255.
226Panel Report, paras. 7.275 and 7.276.

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."
227 T h e
Panel also addressed the specific language in para graph 84(b) of China's Accession Working Party
Report and considered that China's right to impose "WTO-consistent requirements related to
importing and exporting, such as those concerni ng import licensing, TBT and SPS" contains, by
implication, a right to impose incidental WTO- consistent requirements relating to importing and
exporting.228
137. Turning to paragraphs 83(d) and 84(a) of Ch ina's Accession Working Party Report, the Panel
considered that the function of these paragraphs is to confirm the obligation to grant the right to trade
to all enterprises in China. 229 The Panel therefore took the view that the obligation set out in these
paragraphs should also be understood as being without prejudice to China's right to regulate trade in a
WTO-consistent manner.230

227Panel Report, para. 7.277.
228Panel Report, para. 7.319. Paragraph 84(b) of China's Accession Working Party Report provides:
With respect to the grant of trading rights to foreign enterprises and
individuals, including sole proprietorships of other WTO members, the
representative of China 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 w ith all WTO-consistent requirements
related to importing and exporting, such as those concerning import
licensing, TBT and SPS, but confirme d that requirements relating to
minimum capital and prior experience would not apply.
229Paragraph 83(d) of China's Accession Working Party Report provides:
The representative of China also conf irmed that within three years after
accession, all enterprises in China woul d be granted the right to trade.
Foreign-invested enterprises would not be required to establish in a
particular form or as a separate en tity to engage in importing and exporting
nor would new business licence encompassing distribution be required to
engage in importing and exporting.
Paragraph 84(a) of China's Accession Working Party Report provides:
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 enterpri ses in China and
foreign enterprises and individuals, including sole proprietorships of other
WTO Members, to export and import a ll goods (except for the share of
products listed in Annex 2A to the Dr aft 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 Sche dule of Specific Commitments under
the GATS.
230Panel Report, paras. 7.310 and 7.315.

138. Secondly, the Panel considered that China' s trading rights commitments encompass the
obligation to grant in a non-discriminatory manner the right to trade to foreign enterprises and
individuals. Paragraph 5.2 of China's Accession Prot ocol provides that, with respect to the right to
trade, "all foreign individuals and enterprises, incl uding those not invested or registered in China",
shall be accorded treatment no less favourable than that given to enterprises in China. 231 The Panel
considered that the term "foreign enterprises" include s enterprises registered outside China wishing to
engage in importing or exporting, regardless of wh ether or not they have a commercial presence in
China, as well as foreign-invested enterprises registered in China. 232 The Panel also concluded that
this obligation should be understood, like that in paragraph 5. 1 of China's Accession Protocol, as
being without prejudice to China's right to regulate trade in a WTO-consistent manner. 233 In addition,
the Panel noted that paragraph 84(b) of Chin a's Accession Working Party Report confirms the
obligation to grant in a non-discriminatory manner the right to trade to foreign enterprises and
individuals.234 The Panel considered that the obligation not to discriminate in granting trading rights
would be breached if there were discrimination between foreign enterprises and individuals, on the
one hand, and wholly Chinese-owned enterprises in China, on the other hand.235
139. Thirdly, the Panel noted that paragraph 84(b) of China's Accession Working Party Report
encompasses the obligation to grant in a non-discretionary manner the right to trade to foreign
enterprises and individuals. The Panel concluded th at this obligation prohibits Chinese authorities
responsible for granting trading rights from choosin g on the basis of their own preference whether or
not such rights should be granted, although th e Panel acknowledged that the mere imposition of
requirements or conditions for obtaining trading ri ghts would not necessarily constitute a breach of
this obligation.236
140. These interpretations by the Panel are not specifi cally appealed by the participants in their
respective Notices of Appeal and Other Appeal.

231Paragraph 5.2 of China's Accession Protocol provides:
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 th an that accorded to enterprises in
China with respect to the right to trade.
232Panel Report, paras. 7.292 and 7.299. The Panel made the same finding in respect of the term
"foreign enterprises" that appears in paragraph 84(a) and (b) of China's Accession Working Party Report. ( Ibid.,
para. 7.314 and 7.318)
233Panel Report, para. 7.305.
234Panel Report, para. 7.322.
235Panel Report, para. 7.320. The Panel did no t consider it necessary to determine whether
discrimination between foreign enterprises of different Members is also covered by paragraph 84(b). ( Ibid.,
para. 7.323)
236Panel Report, para. 7.324.

C. Aspects of China's Regulatory Regime for the Relevant Products
141. China explained before the Panel that the Un ited States challenged a series of measures that
establish a content review mechanism and a system for the selection of import entities for specific
types of goods that China cons iders to be "cultural goods".
237 China emphasized particular
characteristics of cultural goods, including the imp act they can have on societal and individual
morals.238 It is for this reason, according to China, that it has adopted a regulatory regime under
which the importation of reading materials, audiovi sual products, and films for theatrical release
containing specific types of prohibited content is not permitted. 239 To this end, China explained, its
existing regulatory regime defines the content that China considers to have a negative impact on
public morals and, in order to ensure that such content is not imported into China, establishes a
mechanism for content review of relevant pr oducts that is based upon the selection of import
entities.240 China submitted that, because these import en tities play an essential role in the content
review process241, and because, in the case of imported products , it is critical that content review be
carried out at the border 242, only "approved" and/or "designated" import entities are authorized to
import the relevant products. Both the extent of th e participation of an import entity in the content
review process and the means by which an entit y is "approved" or "designated" to engage in
importation vary depending upon the particular product involved. China further explained that its
prohibition on the dissemination of certain types of content is enforced through dissuasive sanctions,
including fines, the revocation of operating licences, and criminal sanctions 243; and that domestic

237Panel Report, paras. 7.711 and 7.712.
238China referred, in this regard, to Article 8 of the UNESCO Universal Declaration on Cultural
Diversity, which states that cultural goods are "vectors of identity, values and meaning" and that they "must not
be treated as mere commodities or co nsumer goods". (Panel Report, para. 7.751) China also referred to the
UNESCO Convention on the Protection and Promotion of the Diversity of Cultural Expressions . ( Ibid.,
para. 4.207)
239China explained that content that is prohibited ranges "from the depiction or condoning of violence
or pornography, to other important values, including th e protection of Chinese cultu re and traditional values".
(Panel Report, para. 7.714) The Panel set out the list of content that may not be included in publications and
noted that the United States did not specifically contest that the dissemination of materials containing the types
of content listed as prohibited by China could have a negative impact on public morals in China. ( Ibid.,
paras. 7.760-7.762)
240Panel Report, paras. 7.753-7.755.
241Panel Report, para. 7.713. China further explained that, due to the limited resources of its
administrative authorities and the risk of delay, import entities must be given a substantial role in the content
review process in order to ensure eff ective and efficient content review. On this basis, China argued 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 authorities, even if it may result in restrictions of the right to import."
(Ibid., para. 7.754)
242Panel Report, para. 7.754.
243Panel Report, para. 7.752.

publishers of cultural goods also face limitations on the publication of prohibited content, and content
review requirements.244
D. Measures Pertaining to All Goods and Services in This Dispute
142. We now turn to summarize the relevant aspects of the measures at issue, beginning with the
three measures enacted or approved by the State Counc il that regulate foreign investment in China.
As noted, these measures apply to all of the goods and services at issue in this dispute. The Foreign
Investment Regulation was enacted by the State Council in 2002, and specifies that foreign investment
in China may take the form of a foreign-invested enterprise or project, a Chinese-foreign equity joint
venture, or a Chinese-foreign contractual joint ventur e. Article 3 provides the authority for a separate
measure, the Catalogue, which is to serve as "the basis for the examination and approval of foreign-
invested projects". Article 4 establishes that there are four categories of foreign-invested projects:
"encouraged", "permitted", "restricted", and "prohibited". Under Article 4, the Catalogue is to list
"encouraged, restricted and prohibited categories of foreign-invested projects", and foreign investment
in any industry not listed in the Catalogue is permitted. The Panel determined that, read together,
Articles 3 and 4 of the Foreign Investment Regulation mean that, if a foreign-invested project falls
within the prohibited category in the Catalogue, that investment may not be approved.245
143. The Catalogue was most recently updated and approved by the State Council in 2007. In the
List of Prohibited Foreign Investment Industries in the Catalogue 246, there are three provisions of
particular relevance in this dis pute and on appeal: Article X:2 list s "master distribution, and import
operations of books, newspapers a nd periodicals"; Article X:3 identifies "import operations of
audiovisual products and electronic publications"; and Article X:7 references "[n]ews websites,
network audiovisual program services, internet on- line service operation site, and internet culture
operation". The Panel found that the effect of Articles X:2 and X:3 of the List of Prohibited Foreign
Investment Industries in the Catalogue, in conjunction with Articles 3 and 4 of the Foreign
Investment Regulation, is to prohibit any foreign-invested enterprise in China from lawfully importing
books, newspapers, periodicals, electronic publicati ons, or audiovisual prod ucts (including sound

244Panel Report, paras. 7.716 and 7.752.
245Panel Report, para. 7.347. The Panel considered that Article 8 of the Foreign Investment Regulation
provides guidance on the interpretation of provisions in the restricted category in the Catalogue. ( Ibid.,
paras. 7.1386-7.1388)
246In this Report, we refer to the List of Restrict ed Foreign Investment Industries and the List of
Prohibited Foreign Investment Industries to distinguish between two parts of the Catalogue that separately list
restricted and prohibited categories of foreign-invested pr ojects, and to make clear that these Lists are parts of
the Catalogue itself. The Panel referred to these two Lists as the Catalogue of Industries With Restricted
Foreign Investment, and the Catalogue of Prohibited Foreign Investment Industries. (Panel Report, paras. 7.340
and 7.342)

recordings and films for theatrical release).
247 Explaining that it understood "internet culture
operation" as including the electronic distribution of sound recordings, the Panel found that the effect
of Article X:7, in conjunction with Articles 3 and 4 of the Foreign Investment Regulation , is to
prohibit foreign-invested enterprises from supplying such services.248
144. A third measure, the Several Opinions , was jointly issued in 2005 by several Chinese
ministries and agencies with the approval of the State Council, and offers guidance to the issuing
authorities in regulating foreign investment in their respective sectors. 249 Article 4 of the Several
Opinions directs Chinese Government agencies to prohibi t foreign-invested enterprises in China from
engaging in the business of importing and/or distri buting certain products, including all of the goods
and services at issue in this dispute.250
E. Measures Pertaining to Reading Materials
145. The importation and distribution of reading mate rials in China is regulated by the General
Administration of Press and Publication (the "GA PP"). For books, newspapers, and periodicals,
day-to-day content review is performed by the publication import entities approved by the GAPP. 251
Publication import entities conduct content review when they provide to the GAPP, prior to
importation, a list of materials intended for importation. 252 The content is then double-checked at the
time of customs clearance. 253 With respect to these produc ts, the GAPP mainly exercises a
supervisory role by conducting a nnual inspections of the content review performed by importation
entities. The GAPP may intervene in day-to-day cont ent review, but only upon its review of the list
of publications provided by publi cation import entities, or when it is requested to do so by such

247Panel Report, para. 7.348.
248Panel Report, paras. 7.1309 and 7.1310. As note d below, the Panel also made a finding regarding
certain audiovisual distribution activities set out in the List of Restricted Foreign Investment Industries in the
Catalogue. This finding is not appealed. (See infra, footnote 292)
249Panel Report, paras. 7.187 and 7.198.
250Panel Report, paras. 7.374, 7.1041, and 7.1308.
251Panel Report, paras. 7.730 and 7.903. Article 44 of the Publications Regulation provides that
publication import entities are "responsible for examining the content of the publications" that are imported. An
exhibit in the Panel record indicates that, as of 2008, there were 42 wholly State-owned enterprises approved to
import reading materials into China. (Panel Exhibit US-13)
252Panel Report, para. 7.730. Article 45 of the Publications Regulation provides, in part:
A publication import entity shall, before importing publications, submit a
catalogue of the publications it plans to import to the publication
administration under the people's government at the provincial level or above.
If the publication administration under the people's government at the
provincial level or above finds any publications that are prohibited or deferred
from being imported, it shall immediately notify the publication import entity
and inform Customs. A publication import entity shall not import any
publication for which there has been a notice of prohibition or deferral, and
Customs shall not release such a publication.
253Panel Report, para. 7.891 (referring to China's response to Panel Question 191).

entities.254 For electronic publications, samples are brought into China through temporary importation
procedures and submitted to the GAPP for final content review. Once an electronic publication
passes content review, importation approval is grante d and the publication import entity presents the
approval documents to customs at the time of importation.255
1. Measures Challenged as Inconsistent with China's Trading Rights
Commitments
146. The Panel examined whether various measures challenged by the United States prohibit or
otherwise affect the ability of foreign-invested en terprises to import reading materials into China.
Having concluded that certain provisions of Ch ina's foreign investment regulations (the Foreign
Investment Regulation , the Catalogue, and the Several Opinions )256 prohibit foreign-invested
enterprises from engaging in the importation of re ading materials, the Panel found the provisions
inconsistent with China's obliga tion, in China's Accession Protocol and Working Party Report, to
grant the right to trade to all enterprises in China.257
147. A separate administrative regulation enacted by the GAPP—the Publications Regulation —
also regulates the importation of reading materials into China. Article 41 of the Publications
Regulation prohibits the importation of reading materials by any individual or entity other than
"approved" publication import entities. 258 With respect to newspapers and periodicals, Article 41
imposes an additional requirement that approved publication import entities must be further
"designated" by the GAPP in order to engage in the business of importing newspapers or

254Panel Report, paras. 7.730 and 7.901. Article 44 of the Publications Regulation provides, in part:
The publication administration under the people's government at the
provincial level or above may directly examine the content of the publications
imported by a publication import entity. When a publication import entity is
unable to identify whether the imported publications include any content
prohibited by Articles 26 and 27 of these Regulations, it may request the
publication administration under the people's government at the provincial
level or above [to] examine the contents. The publication administration
under the people's government at the provincial level or above may, when
examining the contents of imported publications upon the request of a
publication import entity, charge fees in accordance with the standards
approved by the State Council's department in charge of pricing.
255Panel Report, paras. 7.892 and 7.901 (referring to China's responses to Panel Questions 191
and 196).
256These findings relate to Articles X:2 and X:3 of the List of Prohibited Foreign Investment Industries
contained in the Catalogue, in conjunction with Articles 3 and 4 of the Foreign Investment Regulation ; and
Article 4 of the Several Opinions.
257Panel Report, para. 8.1.2(a)(i), (ii), and (v); see also paras. 7.351, 7.352, and 7.374. Wherever the
Panel found that a provision was inconsistent with China' s obligation to grant the right to trade, it was referring
to the obligation contained in paragraph 5.1 of China's Accession Protocol, and paragraphs 83(d) and 84(a) of
China's Accession Working Party Report and, hence, paragraph 1.2 of China's Accession Protocol.
258Panel Report, para. 7.392.

periodicals.
259 Article 42 of the Publications Regulation sets out that, in order to be approved as a
publication import entity, the applicant is required to satisfy eight requirements, including that it must:
(i) be a wholly State-owned enterprise (the "State-o wnership requirement"); (ii) have an organization
suited to the needs of its business of importing p ublications and specialized personnel who meet the
qualification requirements determined by the State (the "suitable organization and qualified personnel
requirement"); and (iii) conform to China's State pl an for the total number, structure, and distribution
of publications import entities (the "State plan requirement"). 260 The Panel found that each of these
three requirements in Article 42, in conjunction with Article 41, of the Publications Regulation results
in a violation of the obligation to grant the right to trade in China's Accession Protocol and Working
Party Report.261 The Panel moreover concluded that the re quirement under Article 41 that publication
import entities must be designated in order to engage in the importation of newspapers and periodicals
violates China's obligation, under its Accession Prot ocol and Working Party Report, to grant in a
non-discretionary manner the right to trade. 262 China does not appeal the above Panel findings of
violation concerning China's regulations as they apply to the importation of reading materials.
148. China argued that, if the Panel were to find th e above provisions inconsistent with China's
trading rights commitments, then the Panel should also find that the provisions are "necessary to
protect public morals" under Article XX(a) of the GATT 1994, consistent with the chapeau to
Article XX, and therefore justified. 263 The Panel did not determine whether Article XX(a) of the
GATT 1994 is available to China as a defence to vi olations of China's trading rights commitments,
but instead proceeded on the assumption that the defe nce was available, and analyzed the relevant
provisions of the Chinese measures. 264 In assessing whether they were "necessary to protect public
morals" within the meaning of Article XX(a) of the GATT 1994, the Panel also proceeded on the

259Panel Report, para. 7.434.
260The Panel found that the United States had not demonstrated that the five other requirements in
Article 42—(i) name and articles of association; (ii) we ll-defined scope of business; (iii) adequate funding;
(iv) fixed business site; and (v) conditions set out in laws or other regulations—are inconsistent with China's
trading rights commitments. (Panel Report, para. 7.409)
261Panel Report, para. 8.1.2(b)(ii); see also paras. 7.401 and 7.411.
262Panel Report, para. 8.1.2(b)(viii); see also para. 7.437. Wherever the Panel found that a provision
was inconsistent with China's obligation to grant in a non-discretionary manner the right to trade, it was
referring to the obligation contained in paragraph 84(b) of China's Accession Working Party Report and, hence,
paragraph 1.2 of China's Accession Protocol.
263China invoked its defence under Article XX(a) of the GATT 1994 in respect of the following
provisions as they relate to the importation of reading materials: Article X:2 and X:3 of the List of Prohibited
Foreign Investment Industries in the Catalogue, in conjunction with Articles 3 and 4 of the Foreign Investment
Regulation; Article 4 of the Several Opinions; and Article 41, and Article 42 in conjunction with Article 41, of
the Publications Regulation. China also invoked Article XX(a) of the GATT 1994 in respect of provisions of
China's measures as they relate to audiovisual products. (See infra, footnote 287)
264In its analysis of China's defen ce under Article XX(a) of the GATT 1994, the Panel considered that
provisions contained in measures that did not, themselv es, provide for content review should still be considered
in the light of, and together with, other applicable rules and regulations that do establish or refer to content
review mechanisms. (Panel Report, paras. 7.772-7.780)

assumption that the importation of a product contai ning the prohibited content listed in China's
measures could have a negative impact on public mora ls in China. The Panel noted that the United
States did not contest this point. 265 The Panel therefore focused its assessment on the contribution of
the provisions to the protection of public morals in Ch ina, and the restrictive effect of the provisions
on imports and on those wishing to import. 266 The Panel also sought to confirm its assessment by
comparing China's measures with less trade restrictive, reasonably available alternatives.267
149. The Panel determined that the "suitable or ganization and qualified personnel requirement"
and the "State plan requirement", in the absence of reasonably available alternatives, could be
characterized as "necessary" to protect public morals in China268, but that China had not demonstrated
that an alternative advanced by the United States was not reasonably available. 269 The Panel also
found that China had not demonstrated that prov isions prohibiting foreign-invested enterprises from
engaging in the importation of re ading materials (either in the form of a "State-ownership
requirement" or a requirement excluding foreign- invested enterprises from being approved as
importers), or provisions relating to the designation of import entities, are "necessary" to protect
public morals in China.
270 The Panel thus concluded that none of the provisions of China's measures
that it found to be inconsistent with China' s trading rights commitments are justified under
Article XX(a).271
150. On appeal, China challenges various elements of the Panel's analysis under Article XX(a), as
well as its ultimate finding that China had not demonstrated that the provisions of the measures set out
above are "necessary" to protect public morals within the meaning of Article XX(a) of the
GATT 1994. In its other appeal, the United States ch allenges the Panel's intermediate finding that the
State plan requirement in Article 42 of the Publications Regulation could be characterized as
"necessary", in the absence of reasonably available alternatives, to protect public morals in China
within the meaning of Article XX(a) of the GATT 1994.272

265Panel Report, para. 7.763.
266Panel Report, paras. 7.787 and 7.788.
267Panel Report, para. 7.869.
268Panel Report, paras. 7.828 and 7.836.
269Panel Report, para. 7.911.
270Panel Report, paras. 7.848, 7.863, and 7.868.
271Panel Report, para. 8.2; see also para. 7.913. In the light of these findings, the Panel did not proceed
to decide whether Article XX is applicable to China's trading rights commitments under its Accession Protocol
and Working Party Report. (Ibid., para. 8.2(a)(ii); see also para. 7.914)
272Panel Report, para. 7.836.

2. Measures Challenged under the GATS and the GATT 1994

151. The Panel also made findings on various United States' claims that provisions of China's
measures regulating reading materials are inconsiste nt with China's national treatment obligations
under the GATS and the GATT 1994. None of these findings is appealed. The Panel found that
certain provisions of China's measures regulating foreign investment (the Foreign Investment
Regulation, the Catalogue, and the Several Opinions ), as well as the 1997 Electronic Publications
Regulation, violate China's national treatment commitments under Article XVII of the GATS because
they prohibit foreign-invested enterprises, but no t like domestic enterprises, from engaging in certain
types of distribution of reading materials in China (for example, the "master distribution" 273 of books,
newspapers, and periodicals; and the "master wholesale" 274 of electronic publications). 275 The Panel
also found that provisions of the Publications Regulation and several departmental rules issued by the
GAPP—the Imported Publications Subscription Rule , the Publications (Sub)-Distribution Rule , and
the Publications Market Rule —violate Article XVII of the GATS because they either prohibit
foreign-invested enterprises from engaging in the wholesale distribution of imported reading
materials276, or impose registered capital and operating term requirements that discriminate against
foreign-invested wholesale suppliers.277
152. The United States presented claims under Ar ticle III:4 of the GATT 1994 in respect of
China's measures pertaining to all of the products at issue in this dispute.278 However, the Panel's only
findings of violation under Article III:4 were made in respect of reading materials. The Panel
concluded that provisions of the GAPP rules iden tified above discriminate against imported products
because they either prohibit foreign-invested enterprises from distributing imported books,
newspapers, and periodicals279, or require that the distribution of imported newspapers and periodicals
occur only through subscription.280

273See supra, footnote 19.
274See supra, footnote 20.
275Panel Report, para. 8.2.3(a)(iii) and (iv); see also paras. 7.1048, 7.1058, and 7.1074.
276Panel Report, para. 8.2.3(a)(i), (ii), and (v); see also paras. 7.998, 7.999, and 7.1094.
278The Panel made findings under Article III:4 of the GATT 1994 in respect of measures affecting
reading materials, films for theatrical release, and the electronic distribution of sound recordings. (Panel Report,
para. 8.2.4) The Panel separately found that claims under Article III:4 in respect of the 2001 Audiovisual
Products Regulation and the Audiovisual Products Importation Rule were not within its terms of reference.

F. Measures Pertaining to Audiovisual Products
153. The importation and distribution of audiovisual products in China is regulated by the Ministry
of Culture (the "MOC"). Similar to the cont ent review conducted in respect of electronic
publications, samples of audiovisual products are brought into China through temporary importation
procedures, and an application that includes a re port reviewing the content of the products to be
imported is submitted to the MOC for final conten t review. Once a product passes content review,
importation approval is granted a nd the import entity presents the approval documents to customs at
the time of importation.281
1. Measures Challenged as Inconsistent with China's Trading Rights
Commitments
154. The Panel examined whether several measures challenged by the United States prohibit or
otherwise affect the ability of foreign-invested ente rprises to import audiovisual products into China.
Having concluded that provisions of China' s foreign investment regulations (the Foreign Investment
Regulation, the Catalogue, and the Several Opinions )282 prohibit foreign-invested enterprises from
engaging in the importation of audi ovisual products, the Panel found th e provisions inconsistent with
China's obligation to grant the right to trade under China's Accession Protocol and Working Party
Report.283 The Panel separately concluded that Article 21 of the Audiovisual (Sub-)Distribution Rule,
a departmental rule issued by the MOC, denies qua lifying Chinese-foreign contractual joint ventures,
otherwise permitted to distribute a udiovisual products, the right to im port such products. As a result,
the Panel found that this provision is also inconsiste nt with China's obligation to grant the right to
trade.284
155. In addition, the Panel analyzed certain provisi ons contained in an administrative regulation
(the 2001 Audiovisual Products Regulation ) and a departmental rule (the Audiovisual Products
Importation Rule ) that prohibit entities from engaging in the importation of audiovisual products
unless they have been designated by the MOC. Th e Panel concluded that, in not establishing an

281Panel Report, paras. 7.731, 7.732, 7.892, and 7.901 (referring to China's responses to Panel
Questions 191 and 196). There is only one wholly St ate-owned enterprise—the China National Publications
Import and Export (Group) Corporation—that has been approved to import finished audiovisual products. ( Ibid.,
para. 7.779) The Panel record does not indicate how many entities are approved to import unfinished
audiovisual products.
282These findings relate to Article X:3 of the List of Prohibited Foreign Investment Industries contained
in the Catalogue, in conjunction with Articles 3 and 4 of the Foreign Investment Regulation, and Article 4 of the
Several Opinions.
283Panel Report, para. 8.1.2(a)(ii) and (v); see also paras. 7.351, 7.352, and 7.374.

application process or criteria for the MOC to designate entities that may import "finished"
285
audiovisual products, Article 27 of the 2001 Audiovisual Products Regulation and Article 8 of the
Audiovisual Products Importation Rule violate China's obligation, un der its Accession Protocol and
Working Party Report, to grant in a non-discretionary manner the right to trade.286
156. China does not appeal the above Panel findings of violation concerning China's regulations
and rules as they apply to the importation of au diovisual products. China does appeal, however,
various elements of the Panel's analysis of Chin a's defence of these measures under Article XX(a) of
the GATT 1994, as well as its ultimate finding, that the measures are not "necessary" to protect public
morals within the meaning of Article XX(a). 287 As explained above, the Panel analyzed certain
provisions found to be inconsiste nt with China's trading rights commitments on the assumption that
Article XX(a) is available to China as a defence. As it did in respect of various measures concerning
reading materials, the Panel likewise found that China had not demonstrated that provisions excluding
foreign-invested enterprises from being approve d as importers, or provisions relating to the
designation of import entities, are "necessary" to protect public morals in China.288
157. The United States also challenged as inconsistent with China's trading rights commitments
Article 5 of the 2001 Audiovisual Products Regulation and Article 7 of the Audiovisual Products
Importation Rule as they relate to the designation of entities allowed to import "unfinished"
audiovisual products—that is, master copies to be used to publish and manufacture copies for sale in
China.289 The Panel found that these provisions vi olate China's obligation to grant in a
non-discretionary manner the right to trade. 290 China appeals the Panel's finding that China's trading
rights commitments apply to China's measures con cerning "unfinished" audiovisual products. China
considers that these measures relate to content and associated services, and not to physical goods, and
thus are not subject to China's trading rights commit ments. Accordingly, China seeks reversal of the

285The Panel took note of the United States' claims concerning finished and unfinished audiovisual
products. (Panel Report, paras. 7.608 and 7.625; see also infra, footnote 289) The Unite d States asserted that
"finished" audiovisual products are produced and replicated outside of China and require no additional
production or replication in China before being made available to consumers. (Ibid., para. 7.608)
286Panel Report, para. 8.1.2(d)(ii) and (vi); see also paras. 7.633 and 7.690.
287China invoked Article XX(a) of the GATT 1994 in re spect of the following provisions as they relate
to the importation of audiovisual products: Article X:3 of the List of Prohibited Foreign Investment Industries
in the Catalogue, in conjunction with Articles 3 and 4 of the Foreign Investment Regulation ; Article 4 of the
Several Opinions ; Article 27 of the 2001 Audiovisual Products Regulation ; Article 8 of the Audiovisual
Products Importation Rule; and Article 21 of the Audiovisual (Sub-)Distribution Rule.
288Panel Report, paras. 7.849 and 7.868.
289Panel Report, paras. 7.625 and 7.642. See also supra, footnote 285. Article 5 of the 2001
Audiovisual Products Regulation and Article 7 of the Audiovisual Products Importation Rule may apply to both
finished and unfinished audiovisual products, but the Panel determined that the United States' claim concerned
only unfinished audiovisual products. (Panel Report, paras. 7.637 and 7.669)
290Panel Report, para. 8.1.2(d)(i) and (v); see also paras. 7.657 and 7.680.

Panel's findings that the provisions in these measur es are inconsistent with China's trading rights
commitments.291
2. Measures Challenged under the GATS
158. The Panel also made findings on various United States' claims that provisions of China's
measures regulating audiovisual pr oducts are inconsistent with Ch ina's market access and national
treatment commitments under Articles XVI and XVII, respectively, of the GATS. None of these
findings are appealed. Provisions in the List of Restricted Foreign Investment Industries in the
Catalogue, in conjunction with the Foreign Investment Regulation , as well as of the Audiovisual
(Sub-)Distribution Rule, limit foreign participation in Chinese-fo reign contractual joint ventures to no
more than 49 per cent. The Panel found that these provisions result in China acting inconsistently
with its market access commitment under Article XVI:2(f) of the GATS, not to impose, unless
otherwise scheduled, limitations on the participa tion of foreign capital in terms of a maximum
percentage shareholding limit. 292 The Panel also found that provisions of the Several Opinions and
the Audiovisual (Sub-)Distribution Rule violate Article XVII of the GATS because the former
prohibits joint ventures where the foreign partner holds "the dominant position" from engaging in the
distribution of audiovisual products (whereas like domestic service suppliers are permitted to supply
such services), and the latter imposes operating te rm requirements that discriminate against Chinese-
foreign contractual joint ventures.293
G. Measures Pertaining to Films for Theatrical Release
159. The importation and distribution of films for theat rical release is regulated by China's State
Administration on Radio, Film and Television (the "SARFT"). Samples of films are brought into
China through temporary importation procedures a nd submitted to the SARFT for final content
review. Once a film passes content review, impor tation approval is granted and the import entity
presents the approval documents to customs at the time of importation.294
160. The Panel considered China's measures prohib iting foreign-invested enterprises, foreign
entities not registered in China, and foreign indi viduals from engaging in the importation into China
of films for theatrical release. Having conclude d that provisions in China's foreign investment

291China did not invoke Article XX(a) as a defen ce to the inconsistency of Article 5 of the 2001
Audiovisual Products Regulation and Article 7 of the Audiovisual Products Importation Rule with China's
trading rights commitments in respect of unfinished audiovisual products.
292Panel Report, para. 8.2.3(c)(i); see also paras. 7.1395 and 7.1396.
293Panel Report, para. 8.2.3(c)(iii); see also paras. 7.1421 and 7.1425.
294Panel Report, paras. 7.500, 7.892, and 7.901 (refe rring to China's responses to Panel Questions 191
and 196). There is only one wholly State-owned entity —the China Film Import and Export Corporation—that
is approved to import films for theatrical release. (Ibid., para. 7.575)

regulations (the Foreign Investment Regulation , the Catalogue, and the Several Opinions)
295 prohibit
foreign-invested enterprises from engaging in the im portation of films for theatrical release, the Panel
found the provisions inconsistent with China's obligation to grant the right to trade under China's
Accession Protocol and Working Party Report.296 These findings are not appealed.
161. The Panel also examined Article 30 of the Film Regulation and Article 16 of the Film
Enterprise Rule, which require that the business of importi ng films shall be conducted by film import
enterprises that are designated or approved by the SARFT. 297 The Panel determined that these
provisions prohibit all enterprises in China, includi ng foreign-invested enterprises, as well as foreign
entities not registered in China and foreign individuals, from engaging in the importation of films into
China. The Panel therefore found that Article 30 of the Film Regulation and Article 16 of the Film
Enterprise Rule violate China's obligation to grant the right to trade under China's Accession Protocol
and Working Party Report.
298 Having considered that these provisions do not establish an application
process or criteria for the SARFT to designate film import entities 299, the Panel also found that these
provisions violate China's obligation, under its Accession Protocol and Working Party Report, to
grant in a non-discretionary manner the right to trade.300
162. China appeals the Panel's finding that China's trading rights commitments apply to Article 30
of the Film Regulation and Article 16 of the Film Enterprise Rule . China considers that these
measures concerning films for theatrical release relate to the content of films, and associated services,
and not to a physical good, and thus are not subject to China's trading rights commitments.
Accordingly, China seeks reversal of the Panel's findings that Article 30 of the Film Regulation and
Article 16 of the Film Enterprise Rule are inconsistent with China's trading rights commitments.301

295These findings relate to Article X:3 of the List of Prohibited Foreign Investment Industries contained
in the Catalogue, in conjunction with Articles 3 and 4 of the Foreign Investment Regulation, and Article 4 of the
Several Opinions.
296Panel Report, para. 8.1.2(a)(ii) and (v); see also paras. 7.351, 7.352, and 7.374.
297Article 30 of the Film Regulation states that film import entities must be "designated", whereas
Article 16 of the Film Enterprise Rule states that such entities must be "approved". China explained that the
term "designated" should be followed because, under China's legal system, the Film Regulation prevails over the
Film Enterprise Rule . The Panel stated that the evidence on the record did not demonstrate that the approval
requirement in the Film Enterprise Rule was not applied by China when determining who may conduct the
business of importing films. (Panel Report, paras. 7.587-7.590)
298Panel Report, para. 8.1.2(c)(iii) and (vii); see also paras. 7.576, 7.598, and 7.599.
299Panel Report, paras. 7.569 and 7.593.
300Panel Report, para. 8.1.2(c)(ii) and (vi); see also paras. 7.571 and 7.594.
301China did not invoke Article XX(a) as a defence to the inconsistency of Article 30 of the Film
Regulation and Article 16 of the Film Enterprise Rule with its trading rights commitments.

H. Measures Pertaining to the Electronic Distribution of Sound Recordings
163. The Panel examined whether the measures of China challenged by the United States prohibit
foreign-invested enterprises from distributing sound recordings through electronic means, such as the
Internet. The Panel reviewed Article X:7 of the Li st of Prohibited Foreign Investment Industries in
the Catalogue, in conjunction with Articles 3 and 4 of the Foreign Investment Regulation, Article 4 of
the Several Opinions , as well as provisions in two admini strative documents—Article II of the
Circular on Internet Culture and Article 8 of the Network Music Opinions. The Panel determined that
these provisions prohibit foreign-invested enterpri ses from engaging in the electronic distribution of
sound recordings, while like domestic service supp liers are not similarly prohibited. Having also
concluded that China's scheduled national treatme nt commitments cover the distribution of sound
recordings in electronic form, the Panel found that these provisions are inconsistent with Article XVII
of the GATS.302
164. China challenges these findings on appeal. Chin a disputes the Panel's conclusion that the
entry "Sound recording distribution services" in China's Schedule of Specific Commitments for
services ("China's GATS Schedule") 303 covers the electronic distribution of sound recordings.
Accordingly, China seeks reversal of the Panel's fi nding that the relevant measures are inconsistent
with Article XVII of the GATS.
I. Matters on Appeal
165. The appeal of China and the other appeal of the United States thus concern three sets of
findings in the Panel Report. First, China appeal s the Panel's findings that China's trading rights
commitments apply to its measures concerning films for theatrical release and unfinished audiovisual
products, and, as a consequence, seeks reversal of the Panel's findings that certain provisions of those
measures are inconsistent with China's trading rights commitments. According to China, the
measures at issue regulate services and content, a nd are therefore not covered by China's trading
rights commitments, which relate only to goods. S econdly, China challenges several elements of the
Panel's analysis under Article XX(a) of the GA TT 1994, as well as the Panel's ultimate finding that
various provisions of China's measures are not "n ecessary to protect public morals" in China within
the meaning of Article XX(a). In respect of the Panel's necessity analysis, the United States appeals,
and requests reversal of, the Panel's intermediate finding that the "State plan requirement" in
Article 42 of the Publications Regulation can be characterized as "nec essary", in the absence of
reasonably available alternatives, to protect publ ic morals in China within the meaning of

303The People's Republic of China, Schedule of Specific Commitments, GATS/SC/135.

Article XX(a). Finally, China appeals the Panel's finding that the entry "Sound recording distribution
services" in China's GATS Schedule covers the electronic distribution of sound recordings, and
therefore seeks reversal of the Panel's finding that certain provisions of the measures regulating such
distribution are inconsistent with China's scheduled national treatment commitments under
Article XVII of the GATS.
V. The Applicability of China's Trading Rights Commitments to Measures Pertaining to
Films for Theatrical Release and Unfinished Audiovisual Products
A. The Applicability of China's Trading Rights Commitments to Article 30 of the Film
Regulation and Article 16 of the Film Enterprise Rule
166. With respect to China's measures pertaining to films for theatrical release, the Panel found
that Article 30 of the Film Regulation and Article 16 of the Film Enterprise Rule
304:
(a) result in China acting inconsistently w ith paragraph 84(b) of China's Accession
Working Party Report and, hence, paragraph 1.2 of China's Accession Protocol; and
(b) result in China acting inconsistently with paragraph 5.1 of its Accession Protocol as
well as paragraphs 83(d) a nd 84(a) of China's Accession Working Party Report and,
hence, paragraph 1.2 of China's Accession Protocol.305
167. Paragraph 5.1 of China's Acce ssion Protocol imposes on China th e obligation to ensure that,
with the exception of certain goods set out in Annex 2A (which are not at issue in this dispute), "all
enterprises in China shall have the right" to im port and export all goods "throughout the customs
territory of China". 306 Paragraphs 83(d) and 84(a) of China's Accession Working Party Report
confirm China's obligation to grant the right to trade. 307 In addition, paragraph 84(b) of China's
Accession Working Party Report contains an obligation to grant in a non-discretionary manner the
right to trade to foreign enterprises and individuals.308

304The texts of these provisions are set out in Annex III to this Report.
305Panel Report, para. 8.1.2(c)(ii), (iii), (vi), and (vii); see also paras. 7.571, 7.576, 7.594, 7.598,
and 7.599.
306See supra, para. 136 and Annex III to this Report. China's obligation to grant the right to trade does
not apply to the goods listed in Annex 2A to China's Accession Protocol, which are reserved for importation and
exportation by State trading enterprises. In addition, for those goods listed in Annex 2B to China's Accession
Protocol, any limitations on the grant of trading rights were to be phased out pursuant to the schedule in that
Annex within three years after accession, that is, by 11 D ecember 2004. None of the products at issue in this
dispute falls within the scope of the products listed in Annex 2A or 2B.
307See supra, para. 137.
308See supra, para. 139.

168. It is not disputed that, pursuant to the releva nt provisions of China's measures pertaining to
films for theatrical release, namely, Article 30 of the Film Regulation and Article 16 of the Film
Enterprise Rule , only enterprises "designated" or "approved" 309 by the SARFT may engage in the
business of importing films into China. The Panel considered that China's measures pertaining to
films for theatrical re lease "necessarily affect" the import of goods. 310 Thus, the Panel found that
China had acted inconsistently with paragraphs 1.2 and 5.1 of China's Accession Protocol and
paragraphs 83(d) and 84(a) of China's Accession Work ing Party Report by failing to ensure that all
enterprises in China (including foreign-invested enterprises), foreign individuals, and foreign
enterprises not registered in China have the right to import cinematographic films. 311 Furthermore,
the Panel found that, because the SARFT enjoys discretion under these measures when designating or
approving enterprises for purposes of film importa tion, China also acted inconsistently with
paragraph 1.2 of its Accession Pr otocol and paragraph 84(b) of China's Accession Working Party
Report by failing to grant trading rights to foreign-invested enterprises in China in a non-discretionary
manner.312
169. China appeals the above findings of inconsiste ncy on the grounds that the Panel erred in
finding that China's trading rights commitments appl y to these provisions at all. According to China,
its measures pertaining to films for theatrical re lease do not regulate the importation of goods but,
rather, regulate the content of films and the services a ssociated with the importation of such content.
Yet, China's trading rights commitments in its Ac cession Protocol and Working Party Report apply
solely in respect of trade in goods. In other words, in claiming that the trading rights commitments do
not apply to the measures, China does not contest that these measures restrict who may import films,
but rather contends that what is imported by the enterprises designated/approved by the SARFT under
these measures is not a good. It follows, according to China, that the Panel's findings that Article 30
of the Film Regulation and Article 16 of the Film Enterprise Rule are subject to China's trading rights
commitments, along with its findings that these pr ovisions are inconsistent with such commitments,
must be reversed.

309Unlike Article 30 of the Film Regulation, which imposes a "designation" requirement, Article 16 of
the Film Enterprise Rule refers to the need to be "approved" by the SARFT. (See supra, footnote 209; see also
Panel Report, paras. 7.590-7.599)
311See Panel Report, paras. 7.576, 7.598, and 7.599. With respect to Chinese branches of foreign
enterprises not registered in China, the Panel made no finding of inconsistency because it noted that the United
States' claims and arguments did not include any assertions with respect to such branches. (See ibid.,
paras. 7.574 and 7.600)
312See Panel Report, paras. 7.571 and 7.594. According to the Panel, however, the United States had
neither asserted nor established that the discretion en joyed by the Chinese Government authority under these
provisions would affect foreign individuals, foreign enterprises not registered in China, or Chinese branches of
foreign enterprises not registered in China. Thus, the Panel did not make any finding of inconsistency under
paragraph 84(b) of China's Accession Working Party Report with respect to such individuals and enterprises.
(See ibid., paras. 7.570, 7.572, 7.595, and 7.596)

170. In this section, we address the following allega tions of error raised by China concerning the
Panel's findings. First, we examine China's cont ention that the Panel erroneously accepted a shift in
the subject matter of the United States' claim and, as a result, relieved the United States of the burden
of proving that China's measures concerning films for theatrical release could be scrutinized under
China's trading rights commitments. Secondly, we re view China's allegations of error regarding the
Panel's review of the measures pertaining to films for theatrical release.
1. The Panel's Acceptance of the Alleged "Shift" in the United States' Claim

171. Before addressing the substance of China's app eal, we consider China's contention that the
Panel wrongly allowed the United States to shift the subject of its claim and "manipulate the
ambiguity of the term 'film'" 313 in China's measures so as to le ad the Panel to scrutinize those
measures under China's trading rights commitments. More specifically, China maintains that the
United States shifted the subject of its claim during the course of the Panel proceedings from "films
for theatrical release" to "hard-copy cinematographic films", thus transforming the subject of its claim
from intangible content to tangible goods.314 China notes that, in its request for the establishment of a
panel and first written submission to the Panel, the United States alleged that China acted
inconsistently with its trading rights commitments by failing to grant to all foreign enterprises and
individuals the right to import "films for theatrical release". 315 In its first oral statement before the
Panel, however, the United States "suddenly" 316 asserted that it was "challenging measures that
prohibit foreign-invested enterprises from importi ng hard-copy cinematographic films, which are
tangible items".317 China further alleges that, by not findi ng that the United States had deliberately
shifted the subject of its claim, the Panel had to "s upplement[]" the United States' failure to fill in "a
logical gap" as to why China's measures, which re gulate content and services, could be inconsistent
with China's trading rights commitments, which apply only to trade in goods. 318 In response, the
United States argues that, contrary to China's asser tion that the United States shifted the focus of its
claim from "films for theatrical re lease" to "hard-copy cinematographic films", the goods subject to
the United States' claim have al ways been tangible goods—that is, hard-copy cinematographic films
used for projecting motion pictures.

314China's appellant's submission, paras. 201-203.
315China's appellant's submission, paras. 204 and 2 05 (referring to Request for the Establishment of a
Panel by the United States, WT/DS363/5, p. 7; and United States' first written submission to the Panel,
paras. 268 and 269).
317China's appellant's submission, para. 207 (quoting United States' oral statement at the first Panel
meeting, para. 11).

172. In order to assess whether, as argued by China, the United States "shifted" the subject matter
of its claim and, thereby, persuaded the Panel to apply China's trading rights commitments to
measures that—according to China—do not regul ate goods, we examine how the United States
formulated and developed its clai m before the Panel. In the United States' panel request, both the
Film Regulation and the Film Enterprise Rule are listed among the measures subject to the United
States' claim that China acted inc onsistently with its trading rights commitments. In its first written
submission to the Panel, the United States described both Article 30 of the Film Regulation and
Article 16 of the Film Enterprise Rule as "[s]pecific measures addressing the importation of films for
theatrical release", and alleged that these provisions are inconsistent with China's trading rights
commitments because they prohibit foreign-invested enterprises from engaging in the importation of
films and because the SARFT exercises discretion to decide who may import films. 319 In response,
China contended that the United States' claim was based on the false assu mption that films for
theatrical release are goods, and provided various reas ons as to why films for theatrical release should
not be regarded as goods. 320 Subsequently, in both its first oral statement and second written
submission, the United States countered each of th e reasons provided by China, including China's
assertion that films for theatrical release were "intangibl e" and therefore not "goods". In this context,
the United States emphasized that the subject of its claim—films for theatrical release—encompassed
not only the "intangible" content of films, but also the hard-copy cinematographic films carrying such
content, which are tangible.
321 Thus, we understand that, in refe rring to hard-copy cinematographic
films, the United States was not changing the subject of its claim but, rather, was responding to China'
arguments that films for theatrical release are not "goods".
173. Moreover, the Panel record shows that the United States provided relevant arguments and
evidence in support of its contention that films fo r theatrical release—which are regulated by China's
measures—are goods. For example, the United States explained why, in its view, the reasons invoked
by China as justifying the position that films are not goods were flawed. 322 China argued that films
for theatrical release are not goods because they are exploited thr ough a series of services; because
the commercial value of films for theatrical release lies in the revenue generated by these services;

319United States' first written submission to the Panel, paras. 61-68 and 268-270. See also Panel
Report, paras. 4.13, 4.14, 4.48, 7.488, 7.492, and 7.578-7.580.
320China's first written submission to the Panel, paras. 38-107. See also Panel Report, paras. 4.95-4.104
and 7.493-7.502.
321See United States' oral statement at the first Pane l meeting, para. 11; and United States' second
written submission to the Panel, para. 13. See also Pane l Report, paras. 4.199, 4.200, 4.301-4.303, and 7.503.
Furthermore, the United States confirmed before the Pane l that its claims should be understood as concerning
goods, stating that the subject of its claim is hard-cop y cinematographic film, in any tangible form, that can be
used to project motion pictures in a theatre. (Ibid., paras. 7.518 and 7.521)
322See United States' oral statement at the first Panel meeting, paras. 10-22; and United States' second
written submission to the Panel, paras. 13-29. See al so Panel Report, paras. 4.200-4.202, 4.302-4.308, and
7.503-7.510.

and because the delivery materials containing the content of films are mere accessories of such
services and have no commercial value of their own.
323 In response, the United States contended that
all of the relevant products subject to its claims concerning trading rights consist of a hard-copy
carrier medium containing content, and that China had not argued that reading materials, finished
audiovisual home entertainment ("AVHE") products , or finished sound recordings are not goods. 324
The United States further argued that the vast major ity of goods are commercially exploited through a
series of associated services and that China's ar gument would transform virtually all goods into
services.325 The United States added that Articles III:10 and IV of the GATT 1994, which deal with
cinematographic films, confirm that films for theatrical release are goods. 326 The United States also
referred to the international classification of products under the Harmonized Commodity Description
and Coding System of the World Customs Organization (the "Harmonized System") 327 and China's
WTO Schedule of Concession for goods, both of whic h contain a heading for "cinematographic film"
with embedded content. 328 Moreover, before the Panel, the United States reiterated that its claim
related to an integrated product, that is, the content of motion pictures integrated in the hard-copy film
reel, and that the existence of a good could not be negated by the fact that the film reel carried
"intangible" content.329
174. The above review of the record before the Panel leads us to the view that, as the United States
submits on appeal, "[i]n response to China's contenti on that a film for theatrical release is not a good
because it is not tangible, the United States made clear that the good subject to the [United States']
claim is in fact a tangible good i.e., hard-copy cinematographic film." 330 We, therefore, see no error
in the Panel's observation that the United States ' reference to hard-cop y cinematographic films
"merely clarified the meaning of the expression 'films for theatrical release', by confirming that this
expression is intended to describe goods ... that can be used for projecting motion pictures in

323See China's first written submission to the Panel, paras. 49-82. See also Panel Report,
paras. 4.96-4.101, 7.494-7.499, 7.515, and 7.516.
324See United States' oral statement at the first Pane l meeting, para. 11; and United States' second
written submission to the Panel, para. 14. See also Panel Report, para. 7.503.
325See United States' oral statement at the first Pane l meeting, para. 13; and United States' second
written submission to the Panel, paras. 15 and 16. See also Panel Report, paras. 4.304, 4.305, and 7.504.
326United States' second written submission to the Panel, paras. 26 and 27. See also Panel Report,
paras. 4.307, 7.506, and 7.519.
327Harmonized Commodity Description and Coding System, Explanatory Notes, 4th edn. (WCO,
2007), p. VI-3706-1 (Panel Exhibit US-53).
328Heading 3706 of China's Schedule of Concessions for goods reads as follows: "cinematographic
film, exposed and developed, whether or not incorporating sound track or consisting only of sound track".
(United States' oral statement at the first Panel meeti ng, para. 12; United States' second written submission to
the Panel, paras. 17 and 28) See also Panel Report, paras. 4.201, 4.308, and 7.507.
329See United States' oral statement at the first Pane l meeting, para. 11; and United States' second
written submission to the Panel, para. 14. See also Panel Report, para. 7.518.
330United States' appellee's submission, para. 133 (referring to United States' oral statement at the first
Panel meeting, para. 11).

theatres".331 We are also not persuaded that the Pa nel somehow relieved the United States of its
burden of showing that China's measures are subject to China's trading rights commitments.
2. The Panel's Assessment of China's Measures Pertaining to Films for
Theatrical Release
175. We turn now to China's specific allegations of errors regarding the Panel's assessment of
Article 30 of the Film Regulation and Article 16 of the Film Enterprise Rule . To recall, these
provisions prohibit any entities other than those designated/approved 332 by the SARFT from
conducting the business of importing films. Neither the Film Regulation nor the Film Enterprise Rule
specifies any criteria to be satisfied in order to obtain designation/approval to import. Moreover, the
only designated/approved importer is the China F ilm Import and Export Corporation, which is a
Chinese wholly State-owned enterprise.333
176. In the light of the similarity of the two provisi ons at issue and of China's arguments regarding
the applicability of its trading rights commitments to them, the Panel found that the reasons that led it
to conclude that Article 30 of the Film Regulation is subject to China's trading rights commitments
also applied, mutatis mutandis , to Article 16 of the Film Enterprise Rule .334 On appeal, China
presents arguments with respect to the Pa nel's finding regarding Article 30 of the Film Regulation ,
stating that the same arguments apply, mutatis mutandis, to the Panel's findings concerning Article 16
of the Film Enterprise Rule .335 In the following analysis, therefore, we will focus on the Panel's
analysis, and China's arguments on appeal, concerning Article 30 of the Film Regulation.
177. We recall that a panel's assessment of the meaning and content of a Member's municipal law
is subject to appellate review in order to determine whether the panel erred in its finding regarding the
consistency of the Member's municipal law with the WTO agreements. 336 For example, in China –
Auto Parts, the Appellate Body examined one provision of a Chinese Decree, focusing on the text and
context of the relevant provision in the Decree and the overall "structure and logic" of the Decree, so
as to determine whether the legal characterization by the panel was in error. 337 At the same time,

331Panel Report, para. 7.523.
332See supra, footnotes 297 and 309.
333Panel Report, para. 7.575.
334Panel Report, para. 7.584.
335See China's appellant's submission, footnote 155 to para. 219.
336The Appellate Body stated that the municipal law of WTO Members may serve not only as evidence
of facts, but also as evidence of compliance or non-compliance with international obligations. (Appellate Body
Report, India – Patents (US) , paras. 65, 66, and 68) See also Appellate Body Report, US – Section 211
Appropriations Act, para. 106; Appellate Body Report, US – Carbon Steel, paras. 156 and 157; Appellate Body
Report, US – Corrosion-Resistant Steel Sunset Review , para. 168; and Appellate Body Reports, China – Auto
Parts, para. 225.
337Appellate Body Reports, China – Auto Parts, paras. 225-245.

Article 17.6 of the DSU places some constraints on the Appellate Body's review of some elements of
a panel's analysis of municipal law. Where, fo r instance, a panel resorts to evidence of how a
municipal law has been applied, the opinions of experts, administrative practice, or pronouncements
of domestic courts, the panel's findings on such elements are more likely to be factual in nature
338, and
the Appellate Body will not lightly interfere with such findings.339
178. In this dispute, the issue of whether the Pa nel correctly characterized Article 30 of the Film
Regulation as subject to China's trading rights commitments is a legal issue within the scope of these
appellate proceedings. With this in mind, we ex amine the Panel's assessment of Article 30 of the
Film Regulation and the errors alleged by China with regard to such assessment in the following three
subsections. We begin with a brief review of th e parties' arguments during the Panel proceedings
with regard to Article 30 of the Film Regulation and the Panel's analysis and findings on that
provision. We then turn to China's specific alle gations of error, beginning with China's contention
that the Panel erred in assessing the meaning of the Chinese term " Dian Ying " in Article 30 of the
Film Regulation . Finally, we examine China's assertion that the Panel failed to establish how
Article 30 of the Film Regulation , which, according to China, regulates content and services
associated with such content, "necessarily affect[s]"340 who may import goods.
(a) The Panel's Findings on Article 30 of the Film Regulation
179. Before the Panel, China and the United States each submitted English translations of the
measures at issue. In the translations of the Film Regulation submitted by both parties, the term
"film" is used in Article 30. China maintained th at the term "film" was translated from the Chinese
term "Dian Ying" which, in China's view, refers to "motion pictures" or, in other words, the content of
"film as an artistic work" to be projected in theatres. 341 China therefore argued that Article 30
regulates who may import the content of films, ra ther than who may import physical goods. The
United States responded that the Chinese term " Dian Ying " could be translated as either "film" or
"motion picture", and that, in any event, "the good at issue is film for theatrical release, i.e., a physical
carrier medium that has content embedded on it".342
180. The Panel sought the advice of the independent translator at the United Nations Office
at Nairobi (the "UNON"). Specifically, the Panel asked the independent translator to provide
a translation to English of the Chinese term " Dian Ying " in, inter alia , Article 30 of the

338Appellate Body Report, US – Corrosion-Resistant Steel Sunset Review, para. 168.
339Appellate Body Reports, China – Auto Parts, para. 225.
340Panel Report, para. 7.543.
341Panel Report, para. 7.530.
342Panel Report, para. 7.534.

Film Regulation. In order to assist the translator, the Pa nel provided the Chinese text of the provision
and the arguments by China and the United States rega rding the English translation of the term. In
response to the Panel's request, the independent tr anslator of the UNON confirmed that the term
"film" was a "satisfactor[y]"343 English translation. Noting that th e meaning of this term has a "broad
scope"344, however, the translator went on to state that "there is considerable merit in China's
contention that ... the term ' Dian Ying' on its own is intended exclusively to refer to the content of a
film (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."345
181. The Panel did not expressly adopt the independe nt translator's advice or make its own
determination of the meaning of the term "film" (" Dian Ying") in Article 30 of the Film Regulation.
The Panel found it "not implausible" 346 that, as China contended, Article 30 regulates who may
conduct the business of bringing into China the cont ent that can be commercially exploited, and
considered it "somewhat less plausible" 347 that Article 30 regulates only who may import hard-copy
cinematographic films, which, as both parties agreed, are goods. 348 Nonetheless, the Panel found that
resolving the difference between Ch ina and the United States with resp ect to the meaning of the term
"Dian Ying" was not critical to its analysis in the light of China's explanation regarding the practice of
importing films. China explained to the Panel the practice of importing films to China as follows. A
designated film importing entity enters into a licen sing/distribution agreement with a foreign film
producer/licensor. After the content of the film is reviewed and approved by the SARFT, the
designated entity "proceeds with the customs clearan ce of the delivery materials", and such delivery
materials include hard-copy cinematographic films. 349 The Panel took specific note of China's
explanation that:
[i]f the importation of such foreign motion picture requires
importation of exposed and deve loped cinematographic film
containing such motion picture, the importation entity will import
such cinematographic film.
350

343Panel Report, para. 7.533.
344Panel Report, para. 7.533.
345Panel Report, para. 7.533.
346Panel Report, para. 7.535.
347Panel Report, para. 7.535. The Panel used the term "hard-copy cinematographic films" to refer to
either "internegative" films or "interpositive" films, both of which are exposed and developed. Internegative
and interpositive films are reproductions of the orig inal copy produced by the producer/licensor. An
internegative contains the visual part of the film wit hout sound track, whereas an in terpositive contains both the
visual part and the sound track. (Ibid., paras. 7.522 and 7.537)
348Panel Report, para. 7.524.
349Panel Report, para. 7.537.
350China's response to Panel Question 179 (referred to in Panel Report, footnote 415 to para. 7.538).
See also United States' appellee's submission, para. 130.

182. On this basis, the Panel found that, "if the te rm 'films' were understood as meaning 'contents
that can be commercially exploited by projection in theatres', ... in those cases where relevant content
is to be imported on hard-copy cinematographic f ilm, [Article] 30 would necessarily affect who may
engage in importing of hard-copy cinematographic films".
351 The Panel added that "[t]his is because
only licensed and designated film import entities are a llowed to be engaged in the business or activity
of importing relevant contents, including in cases wher e the carrier to be used to bring the contents
into China is" hard-copy cinematographic film. 352 Thus, having found that Article 30 would
necessarily affect the importation of hard-copy cine matographic films, and given that China did not
dispute that this provision restricts who may impor t films, the Panel found that Article 30 of the Film
Regulation is subject to China's trading rights commitments.353
(b) The Meaning of the Chinese Term " Dian Ying" in Article 30 of the
Film Regulation
183. On appeal, China contends that the Panel's finding that Article 30 would "necessarily affect"
who may engage in the importation of a good was in error, because the Panel should have "clearly
rule[d] out" 354 "hard-copy cinematographic film" as a possible meaning of the term "film" (" Dian
Ying") in the light of the evidence provided by the independent translator and the "plain language" 355
of the Film Regulation. China highlights the transl ator's statement that "there is considerable merit in
China's contention that ... the term ' Dian Ying ' on its own is intended exclusively to refer to the
content of a film (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." 356 Given this opinion, China argues, the Panel's failure to make
a clear finding as to the meaning of the term " Dian Ying" "seems difficult to justify". 357 In response,
the United States maintains that the distinction drawn by the translator between the content of a film
and the content-free material on which a film could be printed (such as film stock) did not assist the
Panel in analyzing the United States' claim, becau se the United States did not assert that unexposed,
content-free film stock was the good at issue. Rath er, the United States claimed that the good at issue
is an integrated product, namely, cinematographi c film with content embedded on it. Thus, in the
United States' view, China's reliance on the translator's opinion is "misplaced".358

351Panel Report, para. 7.543; see also paras. 7.538 and 7.539. The Panel also found that, if the term
"films" were understood as meaning "hard-copy cinematographic films", Article 30 would directly regulate who
may engage in importing such goods. (Ibid., para. 7.543)
352Panel Report, para. 7.538.
353Panel Report, para. 7.560.
356Panel Report, para. 7.533.

184. As shown in our above review of the Panel's analysis of Article 30 of the Film Regulation, the
Panel's finding that this provision affects who may engage in the import of goods did not hinge on the
issue of whether the term "film" (" Dian Ying") refers to hard-copy cinematographic film or to content
alone. Rather, the Panel found it unnecessary to de termine the meaning of the term because it found
that, even assuming, as contended by China, that the term " Dian Ying" in Article 30 refers exclusively
to content, this provision "would necessarily affect" 359 the import of a good whenever the content was
brought into China via a physical delivery material . Thus, the Panel's finding was made irrespective
of the precise meaning of the term " Dian Ying", because it found that Article 30 restricts who may
import films, and necessarily affects who may import a good when the content of films is carried by
physical, hard-copy cinematographic films. The Panel explicitly stated that it would have reached the
same conclusion – that China's trading rights comm itments apply to Article 30—even assuming that
the term " Dian Ying " had the meaning put forward by Chin a. Consequently, the independent
translator's opinion concerning the meaning of the term " Dian Ying" did not serve as a basis for the
Panel's ultimate finding.
185. China further contends that the plain language of the Film Regulation supports China's
position that the measure is about "the regulation of content, not goods". 360 In support of its
argument, China refers to Articles 1, 2, 5, 24 to 29, and 31 of the Film Regulation, which, according
to China, show that the measure is focused on the content that can be commercially exploited, rather
than the material used for the exploitation of films. China maintains, in this regard, that the Appellate
Body has the authority to examine the plain language of the Film Regulation , in the light of the
Appellate Body's findings in prior disputes that the assessment of a WTO Member's municipal law as
to its consistency with WTO obligations is a process of legal characterization and thus an issue of law
subject to appellate review.
361 China adds that, in any event, it has invoked Article 11 of the DSU and
claimed that the Panel failed to conduct an obj ective assessment of the facts in examining the Film
Regulation.
186. In response, the United States maintains that a panel's construction of a Member's municipal
law is a factual determination and, therefore, ma y be reviewed by the Appellate Body only to the
extent that the panel's assessment of the municipa l law is inconsistent with Article 11 of the DSU. 362
The United States further argues that the Appellate Bo dy is not in a position to examine China's laws
by looking beyond the facts examined by the Panel.

359Panel Report, paras. 7.539 and 7.543.
361China's appellant's submission, para. 234 (referring to Appellate Body Report, EC – Hormones ,
para. 132; and Appellate Body Report, US – Section 211 Appropriations Act , para. 105); China's response to
questioning at the oral hearing (referring to Appellate Body Reports, China – Auto Parts, para. 225).
362United States' response to questioning at the oral hearing.

187. In addressing a claim that a panel mischaracterized a Member's municipal law, the Appellate
Body is not limited to reviewing only those provision s of the law explicitly examined by the panel.
The Appellate Body has, in prior disputes, exam ined specific provisions, in the light of other
provisions and the overall structure of the relevant municipal law, so as to determine whether a panel
properly construed that law.
363 In this dispute, the provision examined by the Panel, and found to be
inconsistent with China's oblig ations, is Article 30 of the Film Regulation. In addition, Articles 2, 5,
and 31 of that Regulation were also discussed by th e parties before the Panel or reviewed by the
Panel.364 Article 2 defines the activities subject to the regulation, namely, the "production,
importation, exportation, distribution and projection of films" in China, as well as the types of films
concerned, "including feature films, documentary films, science and educational films, cartoon and
puppet films, and special subject films".365 According to China, Article 2 describes films according to
their content, and not in relation to the physical materials used. Article 5, in turn, establishes a
licensing system for conducting the activities listed in Article 2. China emphasizes that, in the context
of the licensing system under Article 5, the word "film" also relates to content. Finally, China argues
that Articles 24 to 29, and 31 of the Film Regulation confirm that the term "film" in the Film
Regulation relates to content, as only the content is s ubject to review and approval before importation
into China. Pointing to these provisions 366, China submits that the term "film" in Article 30 of the
Film Regulation has the same meaning, that is, content alone and not hard-copy cinematographic film.
188. In our view, none of these provisions contradicts the view that, where the content of a film is
carried by physical delivery materials, Article 30 of the Film Regulation will inevitably regulate who
may import goods for the plain reason that the conten t of a film is expressed through, and embedded
in, a physical good. Indeed, Article 31 of the Film Regulation reflects this reality. This provision
requires that the designated importing entity "undertake temporary film import procedures at
Customs" for a film submitted to the SARFT for c ontent review and that, once the film passes content
review, the designated entity finalize the import procedures at customs by submitting the approval
documents issued by the SARFT. This seems to indicate that, even if the Film Regulation is, as China
argues, "focused on" the content of films, Article 31 of the Regulation treats films as goods for
purposes of importation procedures at customs.

363See, for example, Appellate Body Reports, China – Auto Parts, paras. 225-245.
364See Panel Report, paras. 7.488, 7.512, 7.531, footnote 409 to para. 7.535, and footnote 413 to
para. 7.537.
366China also quoted Article 1 of the Film Regulation, which states:
These Regulations are formulated for the purposes of strengthening the
administration of the film industry, developing and promoting the film
undertakings, and satisfying the needs of people for cultural life, promoting
the construction of socialist material and spiritual civilization.
(China's appellant's submission, para. 222)

189. Finally, China argues that, "considering the nume rous elements on the record, and the Panel's
own acceptance that 'film' was most evidently to be interpreted as 'content'", the Panel also failed to
make an objective assessment of the facts, in violation of Article 11 of the DSU. 367 As noted above,
although the Panel acknowledged that Article 30 of the Film Regulation may be concerned with the
content of films, it did not pronounce upon the meaning of the term "film" (" Dian Ying ") or, in
particular, on the issue of whether the term referred exclusively to content independent of its physical
carrier. Thus, contrary to China's assertion, we do not consider that the Pa nel "accept[ed]" that the
term "film" should be interpreted as relating only to "content". We have addressed above China's
arguments regarding the Panel's alleged failure to rule out "hard-copy cinematographic film" as a
possible meaning of the term " Dian Ying" in the Film Regulation. China's claim under Article 11 of
the DSU is not supported by arguments additional to or different from those addressed above.368
190. In sum, we consider that the Panel did not err in refraining from making a finding on the
precise meaning of the term "film" (" Dian Ying") in Article 30 of the Film Regulation. Nor did the
Panel err in accepting "hard-copy cinematographic film" as a possible meaning of the term "film"
("Dian Ying").
(c) The Alleged "Incidental and Practical" Effects on Goods of
Article 30 of the Film Regulation and Their Relevance to the
Applicability of China's Trading Rights Commitments
191. China submits that the Panel failed to establish how the Film Regulation, which regulates the
content of films and associated services, could aff ect the importation of hard-copy cinematographic
films. More specifically, China maintains that hard-copy cinematographic film is imported
"simultaneously, physically in conjunction with the right to provide" a service, namely, the
commercial licensing, distribution and projection of the intangible content of the film.
369 C h i n a
further submits that, unlike the importation of numerous goods that "are traded to meet the demand of
services suppliers who use these goods to provide a service" 370, in the case of imported hard-copy
cinematographic films, "the demand of services supp liers is with respect to the content ... not with
respect to any good". 371 Thus, in China's view, "there can be no restriction on the [good]
independently from that applicable to the service". 372 Any effects that Article 30 of the Film

368We recall that a claim that a panel has failed to comply with its duties under Article 11 of the DSU
must stand by itself and should not be made merely as a subsidiary argument or claim in support of a claim that
a panel failed to construe or apply correctly a particular provision of a covered agreement. (See Appellate Body
Report, US – Steel Safeguards , para. 498; and Appellate Body Report, Chile – Price Band System
(Article 21.5 – Argentina), para. 238)

Regulation might have on trade in goods, therefore, are merely "incidental [and] practical"
373 and are
not subject to China's trading rights commitments.
192. In response, the United States contends that, as th e Panel correctly found, the mere fact that
the import transaction involving hard-copy cinematogr aphic films may not be the "'essential feature'
of the exploitation of the relevant film" 374 does not preclude the application of China's trading rights
commitments to the Film Regulation . The United States further submits that a film for theatrical
release is a good even if its commercial value resides primarily in its utility in the supply of film
projection services, and a measure restricting who may import a good is subj ect to China's trading
rights commitments.
193. We understand China to argue that, because the Film Regulation regulates trade in services, it
should be excluded from scrutiny under China's tr ading rights commitments, which are applicable
only to trade in goods. We note, in this regard , that the Appellate Body has found that a measure
could be simultaneously subject to obligations relating to trade in goods under the GATT 1994 and to
obligations relating to trade in services under the GATS. As the Appellate Body noted in Canada –
Periodicals, "[t]he entry into force of the GATS, as Annex 1B of the WTO Agreement, does not
diminish the scope of appl ication of the GATT 1994." 375 In EC – Bananas III , the Appellate Body
observed that, although the subject matter of th e GATT 1994 and that of the GATS are different,
particular measures "could be found to fall with in the scope of both the GATT 1994 and the GATS",
and that such measures include those "that involve a service relating to a particular good or a service
supplied in conjunction with a particular good." 376 These findings specifically concern the
relationship between the GATS and the GATT 1994, and thus do no t directly address the relationship
between China's trading rights comm itments and its commitments on trade in services. Yet, these
findings provide assistance in analyzing the issue of whether a measure can be simultaneously subject to
obligations relating to trade in goods and those relating to trade in services. Given that China's trading
rights commitments apply to trade in goods, the Appe llate Body findings in th ese earlier disputes are
also relevant to resolving the issue of whether meas ures regulating services may be subject to China's
trading rights commitments.
194. The Appellate Body's approach in the above two disputes implies that a m easure can regulate
both goods and services and that, as a result, the same measure can be subject to obligations affecting
trade in goods and obligations affecting trade in services. This does not necessarily mean that the same
measure would also be subject to China's tradi ng rights commitments, beca use a measure regulating

375Appellate Body Report, Canada – Periodicals, p. 19, DSR 1997:I, 449, at 465.
376Appellate Body Report, EC – Bananas III, para. 221.

goods may not affect who has the right to trade those goods. In this dispute, however, it is uncontested
that Article 30 of the Film Regulation restricts who may engage in the importation of films. The issue
raised by China's appeal is whether what is imported by the entity designated under Article 30 is a good.
In other words, in this dispute, the applicability of China's trading rights commitments to Article 30 of
the Film Regulation depends on the issue of whether that provision regulates goods. In this regard,
China maintains that "the import restrictions imposed" by Article 30 of the Film Regulation relate only
to the right to import "intangible content" of films through licensing services, and do not relate to "the
physical carrier" of such content.
377
195. We do not see the clear distinction drawn by China between "content" and "goods". Neither do
we consider that content and goods, and the regulati on thereof, are mutually exclusive. Content can
be embodied in a physical carrier, and the content a nd carrier together can form a good. For example,
in Canada – Periodicals , the Appellate Body found that "a periodical is a good comprised of two
components: editorial content an d advertising content. Both co mponents can be viewed as having
services attributes, but they combine to form a physical product—the periodical itself."378 Moreover, the
United States points out that China's Schedule of Concessions on goods, which contains the Harmonized
System heading 3706, defines as a good "cinematographic film, exposed and developed, whether or not
incorporating sound track or consis ting only of sound track". This c onfirms that a physical film reel
containing content is treated as a good under China's own tariff regime.379 We therefore share the view
that China's arguments "are premised on an artific ial dichotomy between film as mere content (which
China contends is not a good) and the physical carrier on which content may be embedded (which
China views as a good)".380
196. Moreover, as the Panel properly found, China's tr ading rights commitments refer to the right
to trade in "all goods". 381 The applicability of China's trading rights commitments to a measure is
triggered when that measure concerns who may im port a good. Thus, even if cinematographic films
are imported "simultaneously, phys ically in conjunction with the right to provide the service in
question"382, this does not imply that the effects of the Film Regulation on goods, and on the importers

378Appellate Body Report, Canada – Periodicals , p. 17, DSR 1997:I, 449, at 463. (footnote omitted)
See also United States' appellee's submission, para. 136 and footnote 217 thereto.
379See United States' appellee's submission, para. 131.
380United States' appellee's submission, para. 123 (referring to China's appellant's submission,
paras. 221, 232, 238, 244, and 245).
381Panel Report, para. 7.551 (quoting China's Accession Protocol, para. 5.1; and China's Accession
Working Party Report, para. 84(a)). We recall that China's obligation to grant the right to trade does not apply
to the goods listed in Annex 2A and, prior to 11 December 2004, Annex 2B to China's Accession Protocol, and
that none of the products at issue in this dispute falls within the scope of the products listed in Annex 2A or
Annex 2B. (See supra, footnote 306)

of those goods, are somehow removed from the sc ope of applicability of China's trading rights
commitments. Rather, the fact that cinematographic films are imported "simultaneously, physically in
conjunction with the right to provide the service in question" shows that, where physical carriers are
used for purposes of importing and licensing the content of films, Article 30 of the Film Regulation
has an inevitable, rather than " incidental"
383, effect on who may import goods. The inevitable effect
of Article 30 on the importation of goods confir ms the Panel's finding that Article 30 "would
necessarily affect" 384 who may engage in the importation of goods where relevant content is to be
imported on hard-copy cinematographic films. 385 In our view, therefore, the Panel correctly found
that the mere fact that the import transaction invo lving hard-copy cinematographic films may not be
the "'essential feature' of the exploitation of the relevant film" 386 does not preclude the application of
China's trading rights commitments to the Film Regulation.387
197. Finally, China asserts that the Panel's finding that Article 30 of the Film Regulation
necessarily affects who may import goods would unde rmine China's right to conduct content review
with respect to imported films. For example, Chin a argues, where a film fails to pass content review
and cannot be imported for release in China, the Pa nel's logic necessarily implies that China acted
inconsistently with its obligati ons regarding trade in goods, becau se the hard-copy cinematographic
film, in which the content is embodied, cannot be imported. 388 The United States maintains that,
according to China's example, the "right" being undermined by the Panel's finding appears to be
China's right to prevent importation of goods that vi olate China's standards of content. Yet, the
United States points out that it has challenged neith er China's right to conduct content review nor
China's right to bar the importation of goods containing prohibited content. 389 In our view, the Panel's
finding, which concerns China's restriction on w ho may import goods, has no implications for China's
ability to justify a prohibition on the imports of goods under the WTO Agreement. Thus, we are not

383China's appellant's submission, para. 240. (emphasis added)
384Panel Report, para. 7.543.
385China also maintains that the measur es at issue "do not have any direct legal effect to restrict the
importation of hard-copy cinematographic film." (China's a ppellant's submission, para. 238) In this respect, we
note that, in Canada – Periodicals, Canada submitted that the measure at issue "is a measure regulating trade in
services 'in their own right'" and therefore not subject to the GATT 1994, despite Canada's acknowledgement
that the measure had "effects on the physical good—the magazine as it crossed the border". (Appellate Body
Report, Canada – Periodicals, p. 17, DSR 1997:I, 449, at 463) Despite these arguments, both the panel and the
Appellate Body found that the measure at issue was subject to Article III:2 of the GATT 1994. (Panel Report,
Canada – Periodicals , para. 5.19; Appellate Body Report, Canada – Periodicals , p. 20, DSR 1997:I, 449,
at 465)
386Panel Report, para. 7.555.
387We note that sector 4.B of China's GATS Schedu le, which relates to wholesale trade services,
contains a footnote stating that "[t]he restrictions on mode 1 shall not undermine the rights of WTO Members to
the right to trade as stipulated in Chapter 5 of Ch ina's Protocol of accession to the WTO." (GATS/SC/135,
footnote 6) In our view, this footnote also sugges ts that China's commitments on trade in services cannot
diminish the scope of China's obligation to grant the right to trade.

persuaded that the Panel's finding leads to any "abs urd results which in turn may seriously undermine
the rights of WTO Members".390
198. In sum, we see no error in the Panel's finding that Article 30 of the Film Regulation is subject
to China's trading rights commitments, in that it "necessarily affect[s] who may engage in importing
of hard-copy cinematographic films" and, therefore, goods.391
(d) Conclusion
199. On the basis of our analysis in this section, we find that the Panel did not commit the errors
alleged by China in concluding that Article 30 of the Film Regulation , which allows "only ...
designated film import entities ... to be engaged in the business or activity of importing relevant
contents"392, is subject to China's trading rights comm itments because it necessarily affects who may
engage in importing hard-copy cinematographic film carrying relevant content (a good). Because the
reasons that led the Panel to c onclude that Article 30 of the Film Regulation was subject to China's
trading rights commitments also applied, mutatis mutandis, to Article 16 of the Film Enterprise Rule,
we also find that the Panel did not commit any error in finding that Article 16 of the Film Enterprise
Rule is subject to China's trading rights commitm ents under paragraphs 1.2 and 5.1 of China's
Accession Protocol and paragraphs 83(d) and 84(a) and (b) of China's Accession Working Party
Report.393
200. Consequently, we find that the Panel did not err, in para graphs 7.560 and 7.584 of the Panel
Report, in finding that Article 30 of the Film Regulation and Article 16 of the Film Enterprise Rule
are subject to China's trading rights commitments in paragraphs 1.2 and 5.1 of China's Accession
Protocol and paragraphs 83(d) a nd 84(a) and (b) of China's Acc ession Working Party Report. We
therefore uphold the Panel's conclusions, in paragraph 8.1.2(c)(ii), (iii), (vi), and (vii) of the Panel
Report394, that these provisions are inconsistent with China's trading rights commitments in
paragraphs 1.2 and 5.1 of China' s Accession Protocol and paragra phs 83(d) and 84(a) and (b) of
China's Accession Working Party Report.

391Panel Report, para. 7.543.
392Panel Report, para. 7.538.
393Panel Report, para. 7.584.
394See also Panel Report, paras. 7.571, 7.576, 7.594, 7.598, and 7.599.

B. The Applicability of China's Trading Right s Commitments to Article 5 of the 2001
Audiovisual Products Regulation and Ar ticle 7 of the Audiovisual Products
Importation Rule
201. China appeals the Panel's finding that Article 5 of the 2001 Audiovisual Products Regulation
and Article 7 of the Audiovisual Products Importation Rule
395 are inconsistent with China's obligation
under paragraph 1.2 of China's Accession Protocol and paragraph 84(b) of China's Accession
Working Party Report to grant in a non-discretionary manner the right to trade. 396 The Panel noted
that these provisions, which require that the impor tation of audiovisual products be conducted under a
licensing system, apply to both finished audiovisua l products and unfinishe d audiovisual products.
Unfinished audiovisual products are master copies to be used to publish and manufacture copies for
sale in China. 397 The Panel further noted that the United St ates' claims in respect of these measures
concerned only unfinishe d audiovisual products. 398 Although China "[did] not appear to dispute" 399
before the Panel that unfinished audiovisual pro ducts are goods, China maintained that its trading
rights commitments do not apply to Article 5 of the 2001 Audiovisual Products Regulation and
Article 7 of the Audiovisual Products Importation Rule because these provisions regulate "the
licensing of copyrights for the publication of copies of audiovisual content".400 The Panel noted that it
had examined, and rejected, similar arguments by China with respect to Article 30 of the Film
Regulation.401 The Panel thus applied the same reasoning, mutatis mutandis, to Article 5 of the 2001
Audiovisual Products Regulation and Article 7 of the Audiovisual Products Importation Rule , and
found them to be subject to China's trading rights commitments. 402 The Panel also concluded that
these provisions are inconsistent with paragr aph 1.2 of China's Accession Protocol and
paragraph 84(b) of China's Accession Working Party Report because, under these provisions, China
does not grant trading rights to foreign-invested enterprises in a "non-discretionary" manner.
403

395The text of these provisions is set out in Annex III to this Report.
396Panel Report, para. 8.1.2(d)(i) and (v).
397Panel Report, paras. 7.608, 7.625, and 7.642. See also supra, para. 157 and footnote 289 thereto.
398Panel Report, paras. 7.637, 7.639, and 7.672.
399Panel Report, para. 7.640.
401Panel Report, para. 7.651.
402Panel Report, paras. 7.652 and 7.674.
403Panel Report, paras. 7.657 and 7.680.

202. China asserts that the Panel erred in reaching the above findings because, with respect to
unfinished audiovisual products, Article 5 of the 2001 Audiovisual Products Regulation and Article 7
of the Audiovisual Products Importation Rule do not regulate the importation of goods but, rather,
regulate the service of the licensing of copyrights fo r the publication of copies of audiovisual content.
In this regard, China's arguments rest entirely on the assertion that, to the extent that the Panel's
findings were based on the same reasoning as the Panel employed in reaching its findings on
Article 30 of the Film Regulation and Article 16 of the Film Enterprise Rule, the Panel committed the
same errors of law in reaching its findings on Article 5 of the 2001 Audiovisual Products Regulation
and Article 7 of the Audiovisual Products Importation Rule.404
203. In subsection A above, we found that the Panel did not err in reaching its findings regarding
Article 30 of the Film Regulation and Article 16 of the Film Enterprise Rule. Therefore, we also find
that the Panel did not err in finding that Article 5 of the 2001 Audiovisual Products Regulation and
Article 7 of the Audiovisual Products Importation Rule are subject to China's obligation, under
paragraph 1.2 of its Accession Prot ocol and paragraph 84(b) of its Accession Working Party Report,
to grant the right to trade to foreign-invested enterprises in a non-discretionary manner.
204. On this basis, we find that the Panel did not err, in pa ragraphs 7.652 and 7.674 of the Panel
Report, in finding that Article 5 of the 2001 Audiovisual Products Regulation and Article 7 of the
Audiovisual Products Importation Rule are subject to China's obligation, in paragraph 1.2 of China's
Accession Protocol and paragraph 84(b) of China' s Accession Working Party Report, to grant in a
non-discretionary manner the right to trade. We therefore uphold the Panel's conclusions, in
paragraph 8.1.2(d)(i) and (v) of the Panel Report405, that these provisions are inconsistent with China's
obligation, in paragraph 1.2 of China's Accession Protocol and paragraph 84(b) of China's Accession
Working Party Report, to grant in a non-discretionary manner the right to trade.
VI. China's Defence under Article XX(a) of the GATT 1994
A. The Availability of a Defence under Article XX(a) of the GATT 1994
205. We now turn to the Panel's analysis of China's defence under Article XX(a) of the
GATT 1994. Relying upon the introductory clause of paragraph 5.1 of its Accession Protocol,
which reads: "Without prejudice to China's right to regulate trade in a manner consistent with the
WTO Agreement", China invoked Article XX as a defence. More specifically, China invoked

404China's appellant's submission, paras. 260 and 261.
405See also Panel Report, paras. 7.657 and 7.680.

Article XX(a) in order to justify the following provisions of China's measures that the Panel found to
be inconsistent with China's trading rights commitments
406:
(a) Articles X:2 and X:3 of the List of Prohibited Foreign Investment Industries in the
Catalogue, in conjunction with Articles 3 and 4 of the Foreign Investment
Regulation;
(b) Article 4 of the Several Opinions;
(c) Article 41, and Article 42 in conj unction with Article 41, of the Publications
Regulation;
(d) Article 27 of the 2001 Audiovisual Products Regulation;
(e) Article 8 of the Audiovisual Products Importation Rule; and
(f) Article 21 of the Audiovisual (Sub-)Distribution Rule.407
206. Before the Panel, China argued that the introduc tory clause of paragraph 5.1 is an exception
to China's obligation to grant the right to trad e. China argued that this clause constitutes the
expression of a general right of WTO Members to adopt or maintain certain measures that pursue
legitimate policy objectives. Accordi ng to China, the "right to regulate trade" means the right to take
measures for the purpose of regulating trade, and the right to import and export goods is one element
of such trade. China submitted that reference to the "WTO Agreement" is a reference to the WTO
Agreement and all its Annexes. Since China's obligation in paragraph 5.1 concerns the right to import
and export goods, China's right to regulate trad e must be interpreted in conjunction with WTO

406China did not invoke Article XX(a) to the extent that these measures and provisions concern the
import of films for theatrical release and unfinished audiovisual products. (Panel Report, para. 7.726) China
also did not invoke Article XX(a) as a defence to the United States' clai ms with respect to the Film Regulation
and the Film Enterprise Rule , or the claims regarding unfinished audiovisual products under Article 5 of the
2001 Audiovisual Products Regulation and Article 7 of the Audiovisual Products Importation Rule . As
discussed above, China argued that its trading rights commitments did not apply, at all, to these measures,
because the measures regulate services and not goods. (See supra , section V of this Report; see also Panel
Report, paras. 7.540, 7.584, 7.649, and 7.674) China also did not invoke Article XX(a) to justify the measures
that the Panel found to be inconsistent with Article I II:4 of the GATT 1994. Nor did China seek to justify,
under Article XIV(a) of the GATS, the measures that the Panel had found to be inconsistent with Articles XVI
and XVII of the GATS.
407The text of these provisions is set out in Annex III to this Report. The Panel found that these
provisions, and certain specific requirements contained within them, restrict the right to import goods into
China. The Panel found each of the relevant requirements to be inconsistent with either: (i) China's obligation
to grant the right to trade (paragraph 5.1 of China's Accession Protocol, as well as paragraphs 83(d) and 84(a)
of China's Accession Working Party Report and, hence, paragraph 1.2 of China's Accession Protocol); or
(ii) China's obligation to grant in a non-discretionary manner the right to trade (paragraph 84(b) of China's
Accession Working Party Report and, hence, paragraph 1.2 of China's Accession Protocol).

agreements applicable to trade in goods, incl uding the GATT 1994 and Article XX thereof.
Accordingly, China argued that it has the right under paragraph 5.1 to impose restrictions and
conditions on the right to import and export, pr ovided that these measures are consistent with
Article XX of the GATT 1994. China asserted that such right to regulate trade does not amount to a
right to exclude products from the scope of China's trading rights commitments, but rather to adopt or
maintain measures that are consistent with the WTO Agreement. To interpret the "without prejudice"
clause differently would, in China's view, fail to give meaning to all of the words in paragraph 5.1.
408
207. The United States, on the other hand, emphasized that paragraph 5.1 of China's Accession
Protocol provides a specific, self-contained, comp lete, and agreed set of products excepted from
China's obligation to grant the right to trade, name ly, those listed in Annexes 2A and 2B. The United
States argued that the "right to regulate trade" does not permit China to reserve certain products to
State trading because this would render these Annexes superfluous and amount not simply to
regulating trade, but to eliminating China's tradi ng rights commitments altogether. The United States
also argued 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
considered that the introductory clause of paragr aph 5.1 allows China to require that goods being
imported into China satisfy othe r requirements allowed under the WTO Agreement , such as import
licensing, TBT, and SPS requirements, but cannot detract from China's commitments to allow all
foreign enterprises, all foreign individuals, and a ll enterprises in China to trade in the goods being
regulated.
409
208. At the outset of its analysis, the Panel stated that:
... China's invocation 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 under
the Accession Protocol, which appears to be China's position, or
whether Article XX could be invoked on ly as a defence to a breach of
a GATT 1994 obligation.
410

408China's arguments are summarized in paragraphs 7.239-7.241, 7.244, and 7.245 of the Panel Report.
409The United States' arguments are summarized in paragraphs 7.242 and 7.243 of the Panel Report.
410Panel Report, para. 7.743.

209. The Panel did not resolve this issue. Instead, th e Panel decided first to analyze the merits of
China's defence under Article XX(a) before deciding whether Article XX(a) is available as a defence
to a breach of China's trading rights commitments under its Accession Protocol.
411 The Panel
explained that it would:
... proceed on the assumption that Article XX(a) is available to China
as a defence for 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).
412
210. Ultimately, the Panel determined that China ha d not demonstrated the "necessity", within the
meaning of Article XX(a), of its measures, and did not, therefore, return to the issue of whether
Article XX(a) is a defence available to China in this case. The Panel included the following statement
in the final section of its Report, setting out its conclusions and recommendations:
Because China has in any event not established 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.
413
211. China has appealed the substance of the Pa nel's findings under Article XX(a) of the
GATT 1994. China requests us to: (i) reverse the Panel's finding that China has not demonstrated
that the measures that China sought to justify un der Article XX(a) of the GATT 1994 are "necessary"
to protect public morals within the meaning of that provision; (ii) complete the analysis with regard
to the chapeau of Article XX of the GATT 1994 and find that China's measures comply with the
requirements of the chapeau; and (iii) find that Article XX(a) of the GATT 1994 is available to China
to justify measures found to be inconsistent with the trading rights commitments in its Accession
Protocol.

411The Panel noted that the United States had, referring to the arguendo approach adopted by the
Appellate Body in US – Shrimp (Thailand) / US – Customs Bond Directive , invited the Panel to take the same
approach in this dispute. In that case, the United States invoked Article XX(d) of the GATT 1994 to defend the
measure at issue (a bond requirement) that had been found to be inconsistent with the Ad Note to Article VI:2
and 3 of the GATT 1994 and Article 18.1 of the Anti-Dumping Agreement. The Appellate Body found that the
bond requirement was not "necessary" within the meaning of Article XX(d) and did not return to the issue of
whether Article XX(d) was available to justify a measur e that is inconsistent with the requirements of the
Ad Note and the Anti-Dumping Agreement.
412Panel Report, para. 7.745.
413Panel Report, para. 8.2(a)(ii).

212. On appeal, the United States notes the approach taken by the Panel, and states that its
response to China's appeal of the Panel's analysis under Article XX(a) of the GATT 1994 is "without
prejudice to the question of whether Article XX(a) is applicable or provides a defense for China in
this dispute."414
213. We observe that reliance upon an assumption arguendo is a legal technique that an
adjudicator may use in order to enhance simplicit y and efficiency in decision-making. Although
panels and the Appellate Body may choose to employ this technique in particular circumstances, it
may not always provide a solid foundation upon which to rest legal conclusions. Use of the technique
may detract from a clear enunciation of the relevant WTO law and create difficulties for
implementation. Recourse to this technique may also be problematic for certai n types of legal issues,
for example, issues that go to the jurisdiction of a panel or preliminary questions on which the
substance of a subsequent analysis depends. The purpose of WTO dispute settlement is to resolve
disputes in a manner that preserves the rights and obligations of WTO Members and clarifies existing
provisions of the covered agreements in accordance with the customary rules of interpretation of
public international law.
415 In doing so, panels and the Appella te Body are not bound to favour the
most expedient approach or that suggested by one or more of the parties to the dispute. Rather, panels
and the Appellate Body must adopt an analytical methodology or structure appropriate for resolution
of the matters before them, and which enables them to make an objective assessment of the relevant
matters and make such findings as will assist the DSB in making the recommendations or in giving
the rulings provided for in the covered agreements.416
214. In this case, China asserted th at the introductory clause of paragraph 5.1 of its Accession
Protocol allowed it to justify the pr ovisions of its measures found to be inconsistent with its trading
rights commitments as necessary to protect public morals in China within the meaning of
Article XX(a) of the GATT 1994. The Panel did no t decide whether paragraph 5.1 gave China access
to this defence. Instead , the Panel proceeded on the assumption that such a defence was available.
Yet, if China cannot rely on Article XX(a) to defend its measures as ones that protect public morals in
China, the findings of inconsistency with China's trading rights commitments would be the end of the
matter, and any analysis of the measures under Article XX(a) would be unnecessary. Moreover,
certain elements of the Panel's reasoning under Article XX(a), notably its analysis of the appropriate
restrictive effect to be taken into account, depended , at least to some extent, on the availability of

414United States' appellee's submission, footnote 14 to paragraph 10. At the oral hearing in this appeal,
the United States requested us to adopt the same arguendo approach as the Panel, that is, to review the Panel's
findings under Article XX(a) of the GATT 1994 base d on the assumption that Article XX(a) is a defence
available to China in this dispute.
415Article 3.2 of the DSU.
416Article 11 of the DSU.

Article XX(a) as a defence to a violation of China's trading rights commitments.
417 Thus, these parts
of the Panel's analysis rest upon an uncertain foundation as a result of the absence of a ruling on the
applicability of Article XX(a) in this case. In a ddition, the absence of clarity on the issue of whether
China may rely on Article XX(a) as a defence to a violation of paragraph 5.1 of its Accession Protocol
may leave the participants uncertain as to the regulatory scope that China enjoys in implementation
and as to whether any implementing measure is, in f act, consistent with China's WTO obligations or
susceptible to further challenge in proceedings under Article 21.5 of the DSU.418
215. In our view, assuming arguendo that China can invoke Article XX(a) could be at odds with
the objective of promoting security and predictab ility through dispute settlement, and may not assist
in the resolution of this dispute, in particular b ecause such an approach risks creating uncertainty with
respect to China's implementation obligations. We no te that the question of whether the introductory
clause of paragraph 5.1 allows China to assert a de fence under Article XX(a) is an issue of legal
interpretation falling within the scope of Article 17.6 of the DSU. For these reasons, we have decided
to examine this issue ourselves.
216. The first two sentences of paragraph 5.1 of China's Accession Protocol provide:
Without prejudice to China's right to regulate trade in a manner
consistent with the WTO Agreement, China shall progressively
liberalize the availability and scope of the right to trade, so that, within
three years after accession, all enterpri ses in China shall have the 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.
217. We recall that China argued that the introductory clause of paragraph 5.1 of its Accession
Protocol enables it to justify, under Article XX(a) of the GATT 1994, measures found to be
inconsistent with its trading rights commitments. In examining whether this is so, we must seek to

417In its analysis of the "restrictive impact" of the inconsistent measures, the Panel found it
"appropriate", in this case, "to consider two different types of restrictive impact":
... not only the restrictive impact the m easures at issue have on imports of
relevant products, but also the restrictive 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 commitments, it makes sense to consider how much these
measures restrict the right to import.
(Panel Report, para. 7.788 (emphasis added)) We address China's appeal of this finding in section VI.B.3 of this
Report.
418The European Communities expresses similar concer ns regarding the uncertainty that may result
absent a ruling on the applicability of Article XX(a) in the circumstances of this case. (European Communities'

understand the meaning of that introductory clause, as well as its relationship to the remainder of the
sentence within which it is situated.
218. Looking first to the overall structure of the firs t sentence of paragraph 5.1, we note that the
sentence contains a commitment, or obligation, undertaken by China, namely, to progressively
liberalize the right to trade and ensure that, within three years of accession, all enterprises in China
have the right to import and export all goods. 419 This obligation is, however, qualified by the
introductory clause of the first sentence: "Without prejudice to China's right to regulate trade in a
manner consistent with the WTO Agreement".
219. An obligation that is "without prejudice to" a right may not detrimentally affect, encroach
upon, or impair such right. 420 In the introductory clause of paragraph 5.1, the "right" that may not be
impaired is "China's right to regulate trade". Th is right is itself further qualified by the phrase "in a
manner consistent with the WTO Agreement". We examine the content of each of these phrases in
turn.
220. In the abstract, "rights" may encompass both entitlements or powers, and immunities or
protected interests.421 Within the first sentence of paragraph 5. 1, the word "right" is used twice. In
the introductory clause, China is identified as enjoying a "right" to regulate trade. Subsequently,
China is identified as being subject to an obligation to grant the "right" to trade. The first time the
word "right" is used, it seems to us to refer to an authority, or power that China enjoys, whereas the
second time the word is used, it refers to a legal entitlement that China is under an obligation to grant

419Paragraph 5.1 provides that China's obligation to grant the right to import and export all goods does
not apply to the specific goods liste d in Annex 2A to China's Accession Protocol, the import and export of
which may be reserved to State trading enterprises in accordance with that Annex. Thus, Annex 2A carves out
certain goods from the scope of China's obligation to grant the right to trade. For all goods not listed in
Annex 2A, including all of the goods at issue in this dispute, China is subject to an obligation to grant all
enterprises in China the right to import and export such goods, irrespective of the meaning and scope of "China's
right to regulate trade in a manner consistent with the WTO Agreement". The qu estion of the meaning and
operation of the introductory clause to paragraph 5.1—"Without prejudice to China's right to regulate trade in a
manner consistent with the WTO Agreement"—is distin ct from the question of whether China has acted
inconsistently with the obligation set out in the first sent ence of paragraph 5.1. Thus, we do not agree with the
argument made by the United States to the Panel that accepting that China's "right to regulate trade" may justify
certain restrictions on trading rights would, in effect, permit China to add new goods to the Annex 2A list.
420The Panel referred to the following dictionary definitions of "without prejudice to": "without
detriment to any existing right or claim; spec. in LAW, without damage to one's own rights or claims" ( Shorter
Oxford English Dictionary , 5th edn., W.R. Trumble, A. Stevenson (eds.) (Oxford University Press, 2002),
Vol. 2, p. 2324); and "[w]ithout loss of any rights; in a way that does not harm or cancel the legal rights or
privileges of a party" (Black's Law Dictionary, 7th edn., B.A. Garner (ed.) (West Group, 1999), p. 1596). (Panel
421Among the definitions of "right" are: "[e]ntitlement or justifiable cl aim ... to act in a certain way",
and "[a] legal, equitable, or moral title or claim to the possession of ... authority, the enjoyment of privileges or
immunities, etc." ( Shorter Oxford English Dictionary , 5th edn., W.R. Trumble, A. Stevenson (eds.) (Oxford
University Press, 2002), Vol. 2, p. 2583.); as well as "a recognized and protected interest the violation of which
is a wrong" (Black's Law Dictionary, 7th edn., B.A. Garner (ed.) (West Group, 1999), p. 1322).

to all enterprises in China.
422 The next component of the phrase "China's right to regulate trade" is the
verb "regulate". As noted by the Panel, to "regulat e" means to "[c]ontrol, govern, or direct by rule or
regulations; subject to guidance or restrictions".423 As for the word "trade", it is used as a noun in the
phrase "China's right to regulate trade" 424, and seems to refer, generally, to commerce between
nations.425
221. Thus, our analysis so far suggests that the phrase "China's right to regulate trade" is a
reference to China's power to subject international commerce to regulation. As explained above, this
power may not be impaired by China's ob ligation to grant the right to trade, provided that China
regulates trade "in a manner consistent with the WTO Agreement".
222. We read the phrase "in a manner consistent with the WTO Agreement" as referring to the
WTO Agreement as a whole, including its Annexes. We note, in this respect, that we see the "right to
regulate", in the abstract, as an inherent power en joyed by a Member's government, rather than a right
bestowed by international treaties such as the WTO Agreement . With respect to trade, the WTO
Agreement and its Annexes instead operate to, among ot her things, discipline the exercise of each
Member's inherent power to regulate by requiring WTO Members to comply with the obligations that
they have assumed thereunder. When what is bei ng regulated is trade, then the reference in the
introductory clause to "consistent with the WTO Agreement" constrains the exercise of that regulatory
power such that China's regulatory measures must be shown to conform to WTO disciplines.
223. We observe, in this regard, that WTO Me mbers' regulatory requirements may be WTO-
consistent in one of two ways. First, they may simply not contravene any WTO obligation. Secondly,
even if they contravene a WTO obligation, they ma y be justified under an applicable exception. The
reference to "a manner consistent with the WTO Ag reement" seems to us to encompass both types of
WTO-consistency. Thus, we read the phrase "right to regulate trade in a manner consistent with the
WTO Agreement" as a reference to: (i) rights that the covered agreements affirmatively recognize as

422Thus, the direct beneficiaries of China's obligation to grant the "right to trade" in paragraph 5.1 are
not other WTO Members, as such, but rather, enterprises in China.
423Shorter Oxford English Dictionary, 5th edn., W.R. Trumble, A. Stevenson (eds.) (Oxford University
Press, 2002), Vol. 2, p. 2516. See Panel Report, para. 7.256.
424As a noun, trade is defined as: "[b]uying a nd selling or exchange of commodities for profit, spec.
between nations; commerce, trading …". ( Shorter Oxford English Dictionary , 5th edn., W.R. Trumble,
A. Stevenson (eds.) (Oxford University Press, 2002), Vol. 2, p 3316)
425We note that the word "trade" is used three times in the first sentence of paragraph 5.1. The first
time is as a noun in "China's right to regulate trade". Th e second and third times, it is used as a verb in the
phrase "right to trade". Paragraph 5.1 expressly defines "the right to trade" as "the right to import and export
goods", which in turn suggests that, in the phrase "the right to trade", the verb "trade" means "import and
export". Such meaning is consistent with, but narrower in scope than, the dictionary definition of the verb trade:
"[e]ngage in trade or co mmerce, pursue trade". ( Shorter Oxford English Dictionary , 5th edn., W.R. Trumble,
A. Stevenson (eds.) (Oxford University Press, 2002), Vol. 2, p. 3316)

accruing to WTO Members, namely, the power of Members to take specific types of regulatory
measures in respect of trade in goods when t hose measures satisfy prescribed WTO disciplines and
meet specified criteria; and (ii) certain rights to take regulatory action that derogates from obligations
under the WTO Agreement—that is, to relevant exceptions.
224. Certain paragraphs of China's Accession Work ing Party Report, which elaborate China's
trading rights commitments, also provide context for and inform the scope of the WTO-consistent
governmental regulation that may not be impaired by China's obligation to grant the right to trade.
Paragraph 84(b), in particular, seems to us to identify a subset of governmental regulation that
constitutes an exercise of regulatory powers that the covered agreements a ffirmatively recognize as
accruing to WTO Members. This paragraph specifi es that "foreign enterprises and individuals with
trading rights ha[ve] to comply with all WTO- consistent requirements related to importing and
exporting, such as those concerni ng import licensing, TBT and SPS." 426 We read this as a
confirmation that China's obligation to grant the right to trade cannot impair China's power to impose
WTO-consistent import licensing, TBT, and SPS measures.427
225. As stated, we see the language of paragraph 84(b) as shedding light on the types of regulatory
measures in respect of trade in goods that the c overed agreements affirmatively recognize that China
may take, provided that such regulatory measures satisfy prescribed disciplines and meet specified
conditions. We note, in this regard, that the t ypes of WTO-consistent requirements that may, under
paragraph 84(b), be imposed by China are not limite d to requirements that apply directly to goods
themselves428, nor to requirements that apply to the activity of importing or exporting. 429 W e a l s o

426The Panel explained that it viewed this sentence as providing that:
... even though they are foreign ente rprises and individuals "with trading
rights" (in that the Accession Protocol pr escribes that they must be granted
such rights), such enterprises and individuals must still comply with "all
WTO-consistent requirements related to importing and exporting, such as
those concerning import licensing, TBT and SPS".
(Panel Report, para. 7.262)
427The disciplines that the WTO Agreement, including its Annexes, imposes upon a Member's use of
SPS, TBT, and import licensing measures seek to ensure that such measures may be employed only in particular
circumstances and subject to specific conditions. These disciplines preser ve the power of Members to adopt
certain measures in the exercise of their right to regulate trade in goods, while at the same time ensuring that the
use of such measures is carefully circumscribed so as to comport with specific objectives recognized as
legitimate and so as to minimize the extent to which the exercise of such rights may constitute a barrier to trade
in goods or discriminate against the goods of other Members. The Agreement on the Application of Sanitary
and Phytosanitary Measures (the "SPS Agreement "), the Agreement on Technical Barriers to Trade (the "TBT
Agreement "), the Agreement on Import Licensing Procedures , and the GATT 1994 all recognize and embody
this balance.
428Import licensing requirements, for example, are re quirements relating to the activity of importing
goods. Typically, licensing requirements and their attendant procedures apply to and are satisfied by those who
wish to import the goods, rather than by the goods themselves.
429SPS and TBT measures may be applied to goods th at are imported, and may also be applied to
domestic goods. They may be applied at the border, or internally. In essence, th ey are measures regulating
goods.

note that the words "such as" in paragraph 84(b) of China's Accession Working Party Report ("WTO-
consistent requirements related to importing and exporting, such as those concerning import licensing,
TBT and SPS") indicate that import licensing, TB T, and SPS requirements illustrate, but do not
exhaust, the type of WTO-consistent requirements relating to trade that may be imposed by China
even if their imposition entails some limitation on th e right of enterprises in China to import and
export all goods.
226. We recall, in this respect, our understanding of the relati onship between the introductory
clause and the remainder of the first sentence of paragraph 5.1. Under paragraph 5.1, China
undertakes a commitment in respect of traders, in the form of a commitment to grant to all enterprises
in China the right to import and export goods. At th e same time, this commit ment, or obligation, is
made subject to, and may not detrimenta lly affect, China's right to regulate trade in a manner
consistent with the WTO Agreement. We see the obligations assumed by China in respect of trading
rights, which relate to traders, and the obligati ons imposed on all WTO Members in respect of their
regulation of trade in goods, as closely intertwined. This is particularly true of China's trading rights
commitments, on the one hand, and the obligati ons imposed on all WTO Members under Articles III
and XI of the GATT 1994, on the other hand, as ce rtain WTO Members expressly recognized during
the negotiations on China's accession to the WTO.
430 Such interlinkage is also reflected in
paragraph 5.1 itself. Read as a whole, this provision is clearly concerned with trade in goods. The
first two sentences relate to the entitlements that Chin a must give to potential importers and exporters
of goods. The next, or third sentence of paragraph 5.1, provides that:
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, purch ase, transportation, distribution or
use, including their direct access to end-users.431
227. The close relationship between restrictions on entities engaged in trade and GATT obligations
relating to trade in goods has also been recognized in previous GATT panel and WTO panel and
Appellate Body reports, where measures that did not directly regulate goods, or the importation of
goods, have nonetheless been found to contravene GATT obligations. T hus, for example, restrictions
imposed on investors, wholesalers, and manufacturers, as well as on points of sale and ports of entry,

430This is reflected in paragraph 80 of China's Accession Working Party Report. That paragraph
describes the restrictions on the right to trade that China maintained at the time, and adds that some members of
the Working Party "stated their view that such restricti ons were inconsistent with WTO requirements, including
Articles XI and III of GATT 1994".
431We note that the wording of this commitment closely follows, but is not identical to, the language of
Article III:4 of the GATT 1994. More specifically, the above commitment in paragraph 5.1 refers to "including
their direct access to end-users", which is a phrase not used in Article III:4 itself. In addition, not all of the
language of the first sentence, and none of the second sentence, of Article III:4 is reproduced in paragraph 5.1.

have been found to be inconsistent with Article III:4 or Article XI:1 of the GATT 1947 or 1994. 432 In
addition, the Illustrative List in Annex 1 to the Agreement on Trade-Related Investment Measures (the
"TRIMs Agreement ") sets out a number of requirements imposed on enterprises that are deemed to be
inconsistent with either Article III:4 or Article XI:1 of the GATT 1994, and Article 3 of the TRIMs
Agreement states that all exceptions under the GATT 1994 apply, as appropriate, to the provisions of
the TRIMs Agreement. These considerations suggest that measures that restrict the rights of traders
may violate GATT obligations with respect to trade in goods.
228. Returning to the introductory clause of paragr aph 5.1, we recall our observation above that
the reference to China's power to regulate trade "in a manner consistent with the WTO Agreement"
seems to us to encompass both China's power to take regulatory action provi ded that its measures
satisfy prescribed WTO disciplines and meet specif ied conditions (for example, an SPS measure that
conforms to the SPS Agreement ) and China's power to take regulatory action that derogates from
WTO obligations that would otherwise constrain Chin a's exercise of such power—that is, to relevant
exceptions.
229. China's power to regulate trade in goods is disciplined by the obligations set out in Annex 1A
of the WTO Agreement. In our view, the introductory clause of paragraph 5.1 cannot be interpreted in
a way that would allow a complainant to deny Ch ina access to a defence merely by asserting a claim
under paragraph 5.1 and by refraining from asserting a claim under other provisions of the covered
agreements relating to trade in goods that apply to the same or closely linked measures, and which set

432With respect to Article III:4 of the GATT 1994, the panel in India – Autos found that "indigenization
requirements" (requirements to use a minimum amount of domestically produced parts) and "trade balancing
requirements" (requirements to export products of an equivalent value to the imported products) imposed on
automobile manufacturers were inconsistent with Article III:4 of the GATT 1994. (Panel Report, India – Autos,
paras. 7.195-7.198 and 7.307-7.309) Similarly, in China – Auto Parts, the Appellate Body found that measures
that applied to automobile manufacturers cr eated incentives for those manufacturers to limit their use of
imported parts relative to domestic parts, or to avoid entirely the use of imported auto parts, and were, therefore,
inconsistent with Article III:4 of the GATT 1994. (Appellate Body Reports, China – Auto Parts , paras. 195
and 196; see also Appellate Body Report, US – FSC (Article 21.5 – EC) , para. 212) Requirements that
imported products be sold or distributed only through specific points of sale or specific channels have also been
found to violate Article III:4 (see the Panel and Appellate Body Reports in Korea – Various Measures on Beef ;
and GATT Panel Report, US – Malt Beverages , para. 5.38), as have purchase undertakings that conditioned
investment approval upon the acceptance by investors of undertakings to purchase goods of domestic origin
(GATT Panel Report, Canada – FIRA, para. 6.1). As for Article XI:1, the GATT panel in Canada – Provincial
Liquor Boards (EEC) found that restrictions on points of sale were a restriction on importation (GATT Panel
Report, Canada – Provincial Liquor Boards (EEC ), para. 4.25), and, in Colombia – Ports of Entry , the panel
found that a restriction on the ports through which rele vant goods could enter Colombia constituted a restriction
on importation within the meaning of Article XI:1 (Panel Report, Colombia – Ports of Entry, para. 7.275).

out obligations that are closely linked to China's trading rights commitments.
433 Rather, whether
China may, in the absence of a specific claim of inconsistency with the GATT 1994, justify its
measure under Article XX of the GATT 1994 must in each case depend on the relationship between
the measure found to be inconsis tent with China's trading rights commitments, on the one hand, and
China's regulation of trade in goods, on the other hand.
230. All of the above suggests to us that the in troductory clause of paragraph 5.1 should be
interpreted as follows. Any exercise of China's ri ght to regulate trade will be protected under the
introductory clause of paragraph 5.1 only if it is consistent with the WTO Agreement. This will be the
case when China's measures regulating trade are of a type that the WTO Agreement recognizes that
Members may take when they satisfy prescribed disci plines and meet specified conditions. Yet, these
are not the only types of WTO-consistent measure s that may be protected under the introductory
clause of paragraph 5.1. Whether a measure re gulating those who may engage in the import and
export of goods falls within the scope of China's right to regulate trade may also depend on whether
the measure has a clearly discernable, objective link to the regulation of trade in the goods at issue. In
considering whether such a link is discernable, it may be relevant whether the measure regulating who
may engage in trade is clearly and intrinsically related to the objective of regulating the goods that are
traded. In addition, such a link may often be di scerned from the fact that the measure in question
regulates the right to import and export particular goods. This is because the regulation of who may
import and export specific goods will normally be objec tively related to, and w ill often form part of,
the regulation of trade in those goods. Whether the necessary objective link exis ts in a specific case
needs to be established through careful scrutiny of th e nature, design, structure, and function of the
measure, often in conjunction with an examina tion of the regulatory context within which it is
situated. When such a link exis ts, then China may seek to show that, because its measure complies
with the conditions of a GATT 1994 exception, the me asure represents an exercise of China's power

433In this dispute, the United States challenged a variety of provisions within various Chinese measures
as inconsistent with paragraph 5.1 of China's Accession Protocol. All of the provisions challenged by the
United States regulate the right to import the products at issue into China. The United States did not raise
claims under any other provisions of the covered agreements, notably under Article III:4 or Article XI:1 of the
GATT 1994, with respect to these provisions. As explained, supra, in paragraphs 151 and 152, the United
States did, however, raise a number of claims under Article III:4 in respect of the distribution of the relevant
products. With respect to one provision—Article 16 of the Film Enterprise Rule —the United States raised
claims that China had act ed inconsistently with both Article III:4 of the GATT 1994 and its trading rights
commitments. That provision relates to both the importation of films for theatrical rel ease, in its first sentence,
and the distribution of films for theatrical release, in its second se ntence. Ultimately, the Panel found that the
United States had not made out its claim under Article III:4 of the GATT 1994 regarding films for theatrical
release. (Panel Report, para. 7.1699) The United States further claimed that the provisions relating to the
distribution of the relevant products that it alleged to be incons istent with Article III:4 were also inconsistent
with China's obligations under the third sentence of paragraph 5.1 of China's Accession Protocol, which refers
to China's obligation to accord to imported goods national treatment under Article III of the GATT 1994,
especially paragraph 4 thereof. In respect of such claims, the Panel either exercised judicial economy or found
that the United States had not made out its claim. (Ibid., paras. 7.1709 and 7.1710)

to regulate trade in a manner consistent with the WTO Agreement and, as such, may not be impaired
by China's trading rights commitments.
231. Turning to the specific measures that China seeks to justify in this case, we note that China
asserted, before the Panel, that its measures form part of a broader regulatory scheme covering the
goods at issue. According to China, it regulates th ese goods through a content review mechanism, for
both imported and domestic goods, that operates to prev ent the dissemination of cultural goods with a
content that has a negative impact on public morals in China. In other word s, China emphasized that
the requirements and provisions found to be incons istent with China's trading rights commitments
under its Accession Protocol and Working Party Report all form part of a broader regime regulating
trade in the specific goods at issue.
232. The Panel examined the relationship between each of the provisions it found to be
inconsistent with China's trading rights commitment s, as well as China's content review mechanism
for the relevant products. The Panel found that certain of the inconsistent provisions, notably
Articles 41 and 42 of the Publications Regulation, are contained in a legal instrument that, itself, sets
out such a content review mechanism.
434 With respect to other provisions contained in instruments
that do not themselves incorporate a content review mechanism, the Panel accepted China's argument
that these "are not isolated measures [but] are the re sult of its system of selecting importers with the
content review mechanism in mind". 435 We also note that there was much evidence before the Panel
concerning the extensive nature of China's c ontent review system for the relevant goods 436, and that
the United States did not contest that the provisions restricting trading rights are part of China's
system for reviewing the content of the relevant goods. 437 Moreover, the United States challenged, as
inconsistent with Article III:4 of the GATT 1994, va rious provisions regulating the distribution of the
relevant goods within China, several of which ar e contained in the same Chinese measures as other
provisions regulating importation of those goods that the Panel found to be inconsistent with China's
trading rights commitments.438
233. For all these reasons, we consider that the provisions that China seeks to justify have a clearly
discernable, objective link to China's regulation of trad e in the relevant products. In the light of this
relationship between provisions of China's measures that are inconsistent with China's trading rights
commitments, and China's regulation of trade in th e relevant products, we find that China may rely

434Panel Report, para. 7.767.
435Panel Report, para. 7.779; see also paras. 7.773 and 7.774.
436See, in particular, Panel Report, section VII.C.2.
437As discussed further below, the United States did contend that the provisions restricting trading
rights are not "necessary" to protect public morals.
438See supra, footnote 433.

upon the introductory clause of paragraph 5.1 of it s Accession Protocol and seek to justify these
provisions as necessary to protect public morals in Ch ina, within the meaning of Article XX(a) of the
GATT 1994. Successful justification of these pr ovisions, however, requires China to have
demonstrated that they comply with the requirements of Article XX of the GATT 1994 and, therefore,
constitute the exercise of its right to regulate trade in a manner consistent with the WTO Agreement .
The Panel found that China had not successfully made out such a defence, and we now turn to review
that finding.
B. The "Necessity" Test under Article XX(a) of the GATT 1994
234. The Panel found that China had not demonstrated that any of the provisions
439 that China
sought to justify are "necessary to protect public mora ls" within the meaning of Article XX(a) of the
GATT 1994.440 On appeal, China challenges this conclusi on. More specifically, China contends that
the Panel erred in finding: (i) that the State- ownership requirement in Article 42(2) of the
Publications Regulation makes no material contribution to the protection of public morals in China;
(ii) that the provisions excluding foreign-invested enterprises from engaging in the importation of the
relevant products 441 make no material contribution to the protection of public morals in China;
(iii) that the restrictive effect of the provisions on "those wishing to engage in importing" is relevant
for assessing the necessity of such provisions under Artic le XX(a); and (iv) that at least one of the
alternative measures proposed by the United Stat es (that is, giving the Chinese Government sole
responsibility for conducting content review) was an a lternative "reasonably available" to China. In
addition, China requests the Appellate Body to co mplete the analysis and find its measures to be
"necessary" to protect public morals within the m eaning of Article XX(a) and consistent with the
chapeau of Article XX of the GATT 1994.
235. The United States requests the Appellate Body to uphold these four elements of the Panel's
analysis appealed by China and the Panel's ultimate conclusion that China had not demonstrated that
any of the relevant measures are "necessary to protect public morals" within the meaning of
Article XX(a) of the GATT 1994. In its other a ppeal, the United States requests us to reverse or
declare "moot and of no legal effect" an "intermedi ate finding" by the Panel that the requirement of

439Articles X:2 and X:3 of the List of Prohibited Foreign Investment Industries in the Catalogue, in
conjunction with Articles 3 and 4 of the Foreign Investment Regulation ; Article 4 of the Several Opinions ;
Article 41, and Article 42 in conjunction with Article 41, of the Publications Regulation; Article 27 of the 2001
Audiovisual Products Regulation ; Article 8 of the Audiovisual Products Importation Rule ; and Article 21 of
the Audiovisual (Sub-)Distribution Rule.
440Panel Report, para. 8.2(a)(i). See also paras. 7.911 and 7.913.
441This exclusion is set out in the following provisions: Articles X:2 and X:3 of the List of Prohibited
Foreign Investment Industries in 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.

conformity with China's State plan requirement can be characterized as "necessary", in the absence of
reasonably available alternatives, to protect public morals in China.442
236. We begin by addressing "some concerns" 443 raised by the United States about the analytical
approach taken by the Panel in its analysis of "necessity" under Article XX(a) of the GATT 1994.
Thereafter, we address, in turn, specific aspects of the Panel's analysis of: (i) the contribution of
China's measures to the protection of public morals in China; (ii) the restrictive effect of China's
measures; and (iii) whether an appropriate alterna tive measure is reasonably available to China. If
necessary, we will thereafter addr ess China's request to complete the analysis with respect to
Article XX(a) and the chapeau of Article XX of the GATT 1994.
1. The Panel's Analytical Approach to the "Necessity" Test under Article XX(a)
237. The United States expresses "some concerns" rega rding the Panel's approach to analyzing the
"necessity" of China's measures. 444 The United States' concerns relate to a "two step" 445 approach,
allegedly taken by the Panel in examin ing, first, whether China had made a prima facie case that the
measures at issue were "necessary" within the meaning of Article XX(a), and examining only
subsequently whether reasonably available WTO-cons istent alternatives had been identified. The
Panel drew on a statement made by the Appellate Body in Brazil – Retreaded Tyres.
446 However, the
United States submits, other Appella te Body reports, in particular US – Gambling and Korea –
Various Measures on Beef , described a single process. 447 Moreover, according to the United States,
the text of Article XX(a) sets out a single crite rion, "necessary", which also suggests a "single,
integrated, yet multifaceted inquiry".448 The United States adds that the preliminary conclusion of the
Panel that the State plan requirement is "necessar y" to protect public morals "in the absence of

442See Panel Report, para. 7.836. We note that the Panel stated that the St ate plan requirement in
Article 42 of the Publications Regulation could be characterized as "necessary" in the sense of Article XX(a) of
the GATT 1994 "in the absence of reasonably available alternatives". Ultimately, however, the Panel found that
this requirement could not be justified, because Chin a had not demonstrated that a less trade-restrictive
alternative proposed by the United States was not reasonably available to it. (Ibid., paras. 7.906 and 7.907)
443United States' other appellant's submission, para. 26.
444The United States expresses these concerns in its other appellant's submission in the context of its
claim relating to the State plan requirement.
445United States' other appellant's submission, para. 26.
446United States' other appellant's submission, para. 26 (referring to Panel Report, para. 7.786, in turn
quoting Appellate Body Report, Brazil – Retreaded Tyres , para. 178). The Appellate Body stated that a panel
must consider the importance of the interests or values at stake, the extent of the contribution made by the
measure to the achievement of the releva nt objective, and the measure's trade restrictiveness, and that "[i]f this
analysis yields a preliminary conclu sion that the measure is necessary, this result must be confirmed by
comparing the measure with possible alternatives, whic h may be less trade restrictive while providing an
equivalent contribution to the achievement of the objective."
447United States' other appellant's submission, para. 26 (referring to Appellate Body Report, US –
Gambling, para. 307; and Appellate Body Report, Korea – Various Measures on Beef, para. 166).
448United States' other appellant's submission, para. 27.

reasonably available alternatives"
449 introduces confusion, because the term "necessary" is used in a
different sense in this intermediate finding, on the one hand, and in its ultimate finding—that the State
plan requirement is not "necessary" in view of a reasonably available alternative—on the other
hand.450
238. In response to questioning at the oral hearing in this appeal, the United States clarified that it
is not raising a claim of error with respect to the way in which the Panel applied the "necessity"
test.451 Instead, the United States stated that it woul d welcome clarification from the Appellate Body
that an Article XX analysis should be approached in an integrated fashion. The United States
acknowledged that, in analyzing the "necessity" of a measure, a panel cannot simultaneously assess all
relevant factors and undertake the necessary "weighi ng and balancing" with respect to the contested
measure and proposed alternative measures.
239. The Appellate Body has previously considered the proper approach to take in analyzing the
"necessity" of a measure in several appeals, in particular: Korea – Various Measures on Beef (in the
context of Article XX(d) of the GATT 1994); US – Gambling (in the context of Article XIV(a) of the
GATS452); and in Brazil – Retreaded Tyres (in the context of Article XX(b) of the GATT 1994). In
each of these cases, the Appella te Body explained that an asse ssment of "necessity" involves
"weighing and balancing" a number of distinct f actors relating both to the measure sought to be
justified as "necessary" and to possible alternative measures that may be reasonably available to the
responding Member to achieve its desired objective.
240. In US – Gambling , for example, the Appellate Bo dy addressed, in the context of
Article XIV(a) of the GATS, the proper means of assessing "necessity" through a process of
"weighing and balancing" a number of factors. Th e Appellate Body explained that the process begins
with an assessment of the relative importance of th e interests or values furthered by the challenged
measure. A panel should then turn to the other f actors that are to be weighed and balanced, which
will in most cases include: (i) the contribution of th e measure to the realization of the ends pursued
by it; and (ii) the restrictive effect of the meas ure on international commerce. Additional factors may
be relevant in specific cases. Once a panel has id entified the factors to be weighed and balanced, a

449Panel Report, para. 7.836.
450United States' other appellant's submission, para. 27.
451We note that the United States did not specifically identify this concern in its Notice of Other
Appeal.
452In US – Gambling , the Appellate Body stated that, due to the similar language used in both
provisions—in particular the term "necessary" and the requirements set out in their respective chapeaux—
previous decisions under Article XX of the GATT 1994 we re relevant to its analysis under Article XIV of the
GATS. (Appellate Body Report, US – Gambling, para. 291) For the same reasons, the decision of the Appellate
Body in US – Gambling dealing with the interpretation of Article XIV of the GATS is relevant to the analysis of
Article XX called for in this dispute.

comparison of the challenged measure and possible alternatives should be undertaken, and the results
considered in the light of the importance of the objective pursued.453
241. In Brazil – Retreaded Tyres the Appellate Body described the process in the context of an
analysis of "necessity" under Article XX(b) of th e GATT 1994. The Appellate Body observed that a
panel must consider the relevant factors, particularly the importance of the interests or values at stake,
the extent of the contribution made by the measure to the achievement of the relevant objective, and
the measure's trade restrictiveness. The Appellate Bo dy stated that, if such an analysis "yields a
preliminary conclusion" that a measure is neces sary, then the necessity of the measure must be
"confirmed" by comparing the measure with possible alternatives, in the light of the importance of the
interests or values at stake.454
242. We do not see that the Appellate Body's approach to the "necessity" analysis in Brazil –
Retreaded Tyres differs from that in US – Gambling , which in turn referred to Korea – Various
Measures on Beef.455 In each case, a sequential process of weighing and balancing a series of factors
was involved. US – Gambling sets out a sequence by using the phrases: "The process begins with an
assessment of the 'relative importance' of the interests or values furthered by the challenged
measure"456; " Having ascertained the importance of the particular interests at stake, a panel should
then turn to the other factors that are to be 'weighed and balanced'" 457; and "A comparison between
the challenged measure and possible alternatives should then be undertaken". 458 The description of
this sequence in Brazil – Retreaded Tyres mentions, first, the relevant factors to be weighed and
balanced for the measure sought to be justified, and continues that the result of this analysis "must be
confirmed by comparing the measure with possible alternatives, which may be less trade restrictive
while providing an equivalent contributi on to the achievement of the objective".
459 Although the
language used is not identical, both reports articulat e the same approach and, like the Appellate Body
report in Korea – Various Measures on Beef , emphasize the need to identify relevant factors and
undertake a weighing and balancing process includi ng, where relevant, with respect to proposed

453Appellate Body Report, US – Gambling , paras. 306-308. In paragraph 305, the Appellate Body
quoted from paragraph 166 of Appellate Body Report, Korea – Various Measures on Beef.
455In articulating the pr oper approach in Brazil – Retreaded Tyres , the Appellate Body referred to its
report in US – Gambling without distinguishing that case or suggesting any intention to depart from the
approach articulated in US – Gambling (or, for that matter, Korea – Various Measures on Beef ). (Appellate
Body Report, Brazil – Retreaded Tyres , footnote 319 to para. 178 (referring to Appellate Body Report, US –
Gambling, para. 307))
456Appellate Body Report, US – Gambling , para. 306. (footnote omitted; emphasis added) See also
Appellate Body Report, Brazil – Retreaded Tyres , para. 143; and Appellate Body Report, EC – Asbestos ,
para. 172.
458Appellate Body Report, US – Gambling, para. 307. (emphasis added)

alternative measures that may be less trade restric tive while making an equivalent contribution to the
relevant objective. These three reports also a ll recognize that a comprehensive analysis of the
"necessity" of a measure is a sequential process. As such, the process must logically begin with a first
step, proceed through a number of additional steps, and yield a final conclusion.
243. In the present case, the Panel was required to assess the "necessity" within the meaning of
Article XX(a) of multiple provisions that it had found to be inconsiste nt with China's trading rights
commitments. The Panel did so in a number of step s. First, the Panel considered the relationship
between the provisions and China's stated objective (to protect public morals by avoiding the
dissemination of goods containing prohibited content within China).
460 The Panel assumed that each
of the types of prohibited content in China's meas ures could, if it were brought into China, have a
negative impact on "public morals" in China w ithin the meaning of Article XX(a) of the
GATT 1994.461 Next, the Panel identified the importance of the objective pursued ("the protection of
public morals ranks among the most important values or interests pursued by Members as a matter of
public policy"462) and the level of protection sought by China ("a high level of protection of public
morals").463 Up to this point in its analysis, the Pane l's analysis dealt collectively with all of the
provisions that China sought to justify.
244. In the next stage of its analysis, the Panel addressed separately each provision that it had
found to be inconsistent with China's trading rights commitments. 464 For each, the Panel:
(i) identified the contribution made to the realiza tion of the objective pursued; (ii) identified the
restrictive impact on trade and on those wishing to import; and (iii) "weighed and balanced" three
factors, namely, the extent of the contribution, the restrictive impact, and the "fact that the protection

460Panel Report, paras. 7.751-7.793.
461The Panel set out the list of the types of content that may not be included in publications and noted
that the United States did not specifi cally contest that the dissemination of materials containing the types of
content listed as prohibited by China could have a negative impact on public morals in China. (Panel Report,
paras. 7.760-7.763)
462Panel Report, para. 7.817.
463Panel Report, para. 7.819.
464For the purposes of its analysis, the Panel grouped certain similar provisions together. The "criteria
provisions" comprise: (i) the requirement in Article 42 of the Publications Regulation that approval of a
publications import entity must conform to the State pl an, and (ii) the requiremen t in Article 42(4) of the
Publications Regulation that publication import entities have a suitable organization and qualified personnel.
The "discretion provisions" consist of: (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
"exclusion provisions" consist of: (i) the requirement in Article 42(2) of the Publications Regulation that
publication import entities be wholly State-owned; (ii) Articles X:2 and X:3 of the List of Prohibited Foreign
Investment Industries in the Catalogue, in conjunction with 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. (Panel Report, para. 7.814) We do not use the same nomenclature in this Report.

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."465
245. Having weighed and balanced these factor s for each provision, the Panel reached a
"conclusion" for each such provision. The Panel ch aracterized the suitable organization and qualified
personnel requirement and the State plan requireme nt as "necessary", "in the absence of reasonably
available alternatives", to protect public morals in China. 466 For each of the other provisions, the
Panel "concluded" that China had no t demonstrated that the requirement in question is "necessary" to
protect public morals within the meaning of Article XX(a).467
246. Once it had completed this exercise with respect to all of the provisions, the Panel turned to
consider whether, in respect of the two require ments that it had characterized as "necessary", a less
restrictive alternative measure was reasonably availabl e. In analyzing the United States' proposal that
the Chinese Government be given sole responsib ility for conducting content review, the Panel
examined the restrictive effect that such alte rnative would have ("significantly less restrictive" 468), the
contribution that the alternative w ould make to the objective of protecting public morals ("at least
equivalent to"469), and weighed these factors together with the importance of the interest at stake and
China's desired high level of protection. 470 Finally, the Panel found that China had not demonstrated
that the proposed alternative is not a genuine alternative or is not reasonably available. 471 Having
done so, the Panel then reached its overall conclusion, namely, that "none of the provisions of China's
measures which we have determined to be incons istent with China's trading rights commitments
under the Accession Protocol is 'necessary' within the meaning of Article XX(a)."472
247. As the above summary reveals, the Panel, c onfronted with the task of analyzing the
"necessity" of multiple provisions and requirements, undertook an analysis that was, in part,
aggregated and relevant to all such provisions and requirements and, in part, disaggregated and
specific to each provision or requirement. The Panel's analysis also involved distinct steps

465Panel Report, para. 7.828.
466Panel Report, paras. 7.828 and 7.836.
467Panel Report, para. 7.848 (the designation requirement in Article 41 of the Publications Regulation);
para. 7.849 (the designation requirements in Article 27 of the 2001 Audiovisual Products Regulation and
Article 8 of the Audiovisual Products Importation Rule ); para. 7.863 (the State-ownership requirement in
Article 42 of the Publications Regulation ); and para. 7.868 (the provisions excluding foreign-invested
enterprises from engaging in the importation of the relevant products in Articles X:2 and X:3 of the List of
Prohibited Foreign Investment Industries in 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).
468Panel Report, para. 7.897.
469Panel Report, para. 7.898.
470Panel Report, para. 7.899.
471Panel Report, para. 7.908.
472Panel Report, para. 7.911.

contemplated under the "weighing and balancing" test. The Panel did not, however, complete all of
the analytical steps relevant to each provision in consecutive paragraphs of its Report. With respect to
the State plan requirement, for example, the Panel completed the first part of its "weighing and
balancing" exercise, and expressed a "conclusion" on the "necessity" of that requirement.
473 Having
done so, however, it did not turn to the next step in its analysis—the assess ment of the alternatives
proposed by the United States—until seven pages later. 474
248. In separating parts of its overall analysis of specific provisions in this way, the Panel may
have created some confusion. In particular, the Panel's use of the word "conclude" in setting out its
intermediate findings risks misleading a reader, as do es its characterization of certain requirements as
"necessary" before it had considered the availability of a less restrictive alternative measure. Yet, a
careful reading of the Panel's analysis of the necess ity of the State plan requirement, in its entirety,
makes clear that the Panel included all relevant factors in its weighing and balancing exercise,
including with respect to the alternative measures proposed by the United States. Read in this broader
context, it is clear that the "conclusion" reached by the Panel after having completed one part of the
overall weighing and balancing process did not constitu te a "finding" that the State plan requirement
is "necessary" in the sense of Article XX(a) of the GATT 1994. Rather, this conclusion was in the
nature of a preliminary result, an indication that th e Panel had completed certain steps of its analysis.
Moreover, the Panel was careful to add the qualification that its "conclusion" was reached only "in the
absence of reasonably available alternatives". Ha d there not been a less restrictive alternative
measure reasonably available to China, the Panel' s intermediate finding would have stood as part of
an ultimate finding of necessity. Given the outcome of the Panel's analysis of the alternative measure
proposed by the United States, however, it did not.
249. The challenge faced by the Panel in deciding how to tackle the series of factors to be weighed
and balanced in its analysis of the "necessity " of the multiple provisions it had found to be
inconsistent with China's trading rights commitm ents was heightened by the large number of
measures challenged by the United States in this disput e. The Panel chose to group together all of the
relevant provisions for purposes of certain steps of its analysis but to analyze these provisions
individually for purposes of other steps in its anal ysis. While this was not necessarily the only way
that the Panel could have approached its task, we do not see that, in the circumstances of this case, the
Panel's approach amounted to error or contradicted the approach set out in previous Appellate Body
reports.

473Panel Report, para. 7.836.
474Panel Report, para. 7.869. In the intervening seven pages the Panel weighed and balanced relevant
factors for several other provisions and "concluded", for each, that it could not be characterized as "necessary"
to protect public morals within the meaning of Article XX(a) of the GATT 1994. (Ibid., paras. 7.837-7.868)

2. The Contribution of China's Measures to the Protection of Public Morals in
China
250. In this subsection, we address claims by China that the Panel erred in finding that the State-
ownership requirement and the provisions excl uding foreign-invested enterprises from being
approved or designated import entities 475 are not "necessary" to protect public morals in China; as
well as the claim by the United States that the Panel erred in finding that the State plan requirement
can be characterized as "necessary" , in the absence of reasonably ava ilable alternatives, to protect
public morals in China. All these claims of error relate to the Panel's analysis of the contribution
made by China's measures to the protection of public morals in China.
251. We recall the Appellate Body's finding, in Korea – Various Measures on Beef , that the term
"necessary", in the abstract, refers to a range of degrees of necessity. 476 The Appellate Body
explained that determining whether a measure is "necessary" involves a process of weighing and
balancing a series of factors that prominently in clude the contribution made by the measure to secure
compliance with the law or regulation at issue, the importance of the common interests or values
protected by that law or regulation, and the accompanying impact of the law or regulation on imports
or exports.
477 The greater the contribution a measure mak es to the objective pursued, the more likely
it is to be characterized as "necessary".478
252. In Brazil – Retreaded Tyres, the Appellate Body clarified how the analysis of the contribution
made by a challenged measure to the achievement of the objective pursued is to be undertaken. The
Appellate Body noted that a party seeking to de monstrate that its measures are "necessary" should
seek to establish such necessity thro ugh "evidence or data, pertaining to the past or the present",
establishing that the measures at issue contribut e to the achievement of the objectives pursued. 479 In
examining the evidence put forward, a panel must always assess the actual contribution made by the
measure to the objective pursued.
253. However, this is not the only type of demonstr ation that could establish such a contribution.
The Appellate Body explained that a panel is not bound to find that a measure does not make a
contribution to the objective pursued merely because such contribution is not "immediately
observable" or because, "[i]n the short-term, it may prove difficult to isolate the contribution [made

475These exclusions are set out in the following provisions: Articles X:2 and X:3 of the List of
Prohibited Foreign Investment Industries in 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.
476Appellate Body Report, Korea – Various Measures on Beef, para. 161.
477Appellate Body Report, Korea – Various Measures on Beef, para. 164.
478Appellate Body Report, Korea – Various Measures on Beef, para. 163.
479Appellate Body Report, Brazil – Retreaded Tyres, para. 151.

by] one specific measure from those attributable to the other measures that are part of the same
comprehensive policy".
480 Accordingly, the Appellate Body stated in Brazil – Retreaded Tyres, that:
... a panel might conclude that [a measure] is necessary on the basis
of a demonstration that [it] is apt to produce a material contribution
to the achievement of its objective. This demonstration could consist
of quantitative projections in th e future, or qualitative reasoning
based on a set of hypotheses that are tested and supported by
sufficient evidence.
481
254. With these considerations in mind, we turn to ou r analysis of the participants' claims relating
to the contribution of the State-ownership requirement, the provisions excluding foreign-invested
enterprises from engaging in the importation of the relevant products, and the State plan requirement
to the protection of public morals in China.
(a) The State-Ownership Requirement
255. China appeals the Panel's finding regardi ng the "necessity" of the State-ownership
requirement. We recall that this requirement, set out in Article 42(2), in conjunction with Article 41,
of the Publications Regulation , requires that an enterprise be w holly State-owned in order to be
eligible for approval as a publications import entity. After having identified va rious factors relevant
to its analysis of the necessity of this requirement, the Panel weighed and balanced them as follows:
[W]e note, first of all, that the pr otection of public morals is a highly
important governmental interest and that China has adopted a high
level of protection of public morals wi thin its territory. This said, ...
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
requirement in question limits imports of relevant products, it is clear
that it completely excludes particular 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 "necessary" to protect public morals in China.
482
256. China requests the Appellate Body to reverse this finding. China alleges that in reaching this
finding the Panel misrepresented two arguments made by China in relation to the State-ownership
requirement and that this resulted in a failure to assess objectively the material contribution of this
requirement to the protection of public morals. According to China, these misrepresentations resulted

480This is so, for instance, where a measure is part of a comprehensive policy comprising a multiplicity
of interacting measures or where th e results of a measure can only be evaluated with the benefit of time.
(Appellate Body Report, Brazil – Retreaded Tyres, para. 151)
481Appellate Body Report, Brazil – Retreaded Tyres, para. 151.

in errors of law and a failure by the Panel to ma ke an objective assessment of the matter before it, in
violation of Article 11 of the DSU.483
257. First, China asserts that it explained to the Panel that the Chinese Government could not
require enterprises with private investment in Chin a to bear the substantial cost of performing the
policy function of content review, but could require only those enterprises in which the State owns all
of the equity to bear the cost of carrying out content review. 484 China alleges that the Panel
mistakenly reduced this argument to a mere "cos t analysis" and failed to recognize that China's
argument in fact related to the balance between th e performance of a public policy function (content
review) and the cost associated with performing this public policy function. 485 Secondly, China
alleges that the Panel misrepresented China's argum ent that only wholly State-owned enterprises are
capable of satisfying the requirement in Article 42(4) of the Publications Regulation that publication
import entities must have a suitable organization and qualified personnel. China alleges that the Panel
erred in evaluating this argument exclusively under the prism of "cost", when its argument was not
only about cost but also about the capacity to pe rform content review in a manner that preserves
China's desired level of protection.486
258. The United States contends that by stating that, "[i]n China's view, privately-owned
enterprises cannot be expected to pay fo r performing a public interest function" 487, the Panel fully
captured China's argument. The United States furthe r argues that the Panel was correct in pointing
out that non-State-owned publication import entities could be expected to face incentives and respond
to dissuasive sanctions just as State-owned ente rprises do under the current Chinese measures. The
United States adds that China had offered very limited information on the cost of content review. The
United States also asserts that the Panel did not misrepresent China's argument concerning the
requirement for a suitable organization and qualifie d personnel. The United States argues that the
Panel's statement that it was not convinced that pr ivately owned enterprises would be unable to attract
qualified personnel, or that they would be unable to obtain the organizational know-how needed to

483China's appellant's submission, paras. 15-30 and 37. In response to questioning at the oral hearing in
this appeal, China clarified that it was not making a claim with respect to the way the Panel applied the
"necessity" test to the State-ownership requirement. Instead, China takes issue with the Panel's representation of
China's arguments in the Panel Report and the Panel's assessment of those arguments . China stated that the
alleged misrepresentations led to a failure to make an objective assessment of the matter.
484China's appellant's submission, paras. 17-20 (referring in footnotes to Panel Report, para. 7.853;
China's responses to Panel Questions 46(a), 185, 188(b), and 195; China's first written submission to the Panel,
paras. 153, 196, and 197; and China's second written submission to the Panel, para. 104).
485China's appellant's submission, paras. 18-20.
486China's appellant's submission, paras. 27-29.
487United States' appellee's submission, para. 14 (quoting Panel Report, para. 7.854, in turn referring to
China's second written submission to the Panel, para. 104).

properly conduct content review, make clear that th e Panel did not limit itself to considering the cost
of compliance with the requirement of a suitable organization and qualified personnel.
488
259. At the outset of our analysis, we note that China argued before the Panel that:
State-owned enterprises are entrusted with the content review because
China considers that only State-ow ned enterprises should be called on
to bear the cost of the review, wh ich relates solely to the public
interest.489 (footnote omitted)
260. We also note that, in response to a question by the Panel as to the reasons for permitting only
wholly State-owned enterprises to import the relevant products, China stated:
The reason behind this requirement is that the cost incurred in the
course of the content review is subs tantial and relates solely to the
public interest. The government be lieves that it can only require
wholly state-owned enterprises, in which the state owns all equity, to
bear the burden and it is not in a position to require private investors to
bear this burden.
490
261. The Panel reflected this argument as follows:
China does not contend that publication import entities need to be
wholly state-owned because they perform a public policy function.
Rather, China contends that they need to be wholly state-owned
because content review is costly. In China's view, privately-owned
enterprises cannot be expected to pa y for performing a public interest
function.
491 (footnote omitted)
262. In our view, the Panel's statement that "C hina does not contend that publication import
entities need to be wholly state-owned b ecause they perform a public policy function" 492 is somewhat
imprecise. While it is true that China did not argue that the public policy function was the sole reason
for the State-ownership requirement, China did rely on the balance reached between the performance
of a public policy function and the cost associated w ith performing this public policy function. Thus,
the public policy function was one of two component s of China's argument as to why publication
import entities need to be wholly State-owned.

489China's second written submission to the Panel, para. 104.
490China's response to Panel Question 46(a). See also Panel Report, para. 7.853 and footnote 581
thereto.
491Panel Report, para. 7.854.
492Panel Report, para. 7.854.

263. Overall, however, we do not see that the Panel failed to consider the public policy component
of China's argument. While the Panel's analysis 493 focuses on the cost component, this alone does not
establish that the Panel ignored the public policy co mponent of China's argument. As we see it, in
assessing China's argument, the Panel decided to cons ider first whether content review was indeed
costly, as China asserted. The Panel requested Chin a to provide an estimate of such costs to import
entities. China replied that it was unable to do so. China explained, however, that the cost of content
review consists of: (i) human resources cost; (ii) cost of equipment, facilities, and premises used for
content review; and (iii) losses incurred from co mpensation for customers in case of failure of
ordered publications to pass content review.494 Having noted that it had been presented with only very
limited evidence in this regard, the Panel found th at China had not demonstrated that the cost
associated with content review would be so high that it would be unreasonable to impose it on private
enterprises495, or that only wholly State-owned enterprises "are able, or should be expected, to bear the
cost associated with content review". 496 The Panel also observed that "it is not apparent that wholly
state-owned enterprises would be inherently more car eful in conducting content review than privately
owned ones."497 Moreover, the two-pronged nature of China's argument is properly reflected in the
Panel's statement that, "[i]n China's view, privatel y-owned enterprises cannot be expected to pay for
performing a public interest function." 498 This demonstrates that the Panel did not consider the cost
element of China's argument in isolation, but rath er in relation to the public policy function. Thus,
while the Panel could have analyzed the public polic y component of China's argument in more depth,
we acknowledge that the Panel was constrained by the fact that only limited evidence had been
submitted by China in relation to that argument.
264. China further alleges that the Panel misrepresented its argument that only wholly State-owned
enterprises are capable of satisfying the requirement in Article 42(4) of the Publications Regulation
that publication import entities must have a suitabl e organization and qualified personnel, by reducing
China's submission to an argument relating only to cost.
265. We note that the Panel asked China to expl ain whether the requirement that publication
import entities have a suitable organization and qualif ied personnel could be met by enterprises other
than wholly State-owned enterprises. China responde d that it could not, and stated that "a specific
organizational structure is required which, for the reasons stated above , can only be met by wholly

493See Panel Report, paras. 7.854-7.856.
494China's response to Panel Question 185.
495Panel Report, para. 7.856.
496Panel Report, para. 7.857.
497Panel Report, para. 7.854.
498Panel Report, para. 7.854.

state-owned enterprises."
499 This reference to what was "stated above" seems to relate to China's
response to the Panel's previous question relating to the State-ownership requirement: "The reason
behind this requirement is that the cost incurred in the course of the content re view is substantial and
relates solely to the public interest."500
266. The Panel reflected this argument as follows:
... China advances an additional argument in support of the state
ownership condition—that only whol ly state-owned enterprises are
currently capable of satisfying the condition that publication import
entities need to have a suitable or ganization and qua lified personnel.
China appears to suggest that this is because of the cost involved in
satisfying the condition.
501 (footnote omitted)
267. It is not clear to us that this statement can be characterized as a "misrepresentation" of China's
argument. China itself responded in a very brief ma nner to the Panel's question, referring simply to
"the reasons stated above". China did not argue before the Panel that the public policy function of
content review was the sole reason or the main reason why only State-owned enterprises could have a
suitable organization and qualified personnel. Nor did China explain how, in its view, the policy
function of content review leads to the conseque nce that only wholly State-owned enterprises would
be capable of satisfying the requirement that pub lication import entities have a suitable organization
and qualified personnel. In any even t, the Panel stated that it was not convinced that enterprises with
private investment would be unable to attract qualif ied personnel, or that they would be unable to
obtain the organizational know-how needed to conduct content review properly.502 This demonstrates
that the Panel did not reduce China's argument solely to a cost component, but also considered the
public policy function of content review.
268. China further alleges that, by misrepresenting Ch ina's arguments, the Panel failed to make an
objective assessment of the matter before it as required by Article 11 of the DSU. We have found
above that the Panel did not misrepresent China's arguments. However, even if we were to accept that
the Panel did misrepresent China's arguments, we do not think that this led to a failure by the Panel in
assessing whether the State-ownership requirement ma de a contribution to the protection of public
morals in China or that it follows that China has demonstrated that the requirement is "necessary" to
protect public morals in China within the meaning of Article XX(a) of the GATT 1994. China neither

499China's response to Panel Question 46(b). (footnote omitted; emphasis added)
500China's response to Panel Question 46(a). In response to questioning at the oral hearing, China did
not point to other arguments or evidence on record.
501Panel Report, para. 7.858.
502Panel Report, para. 7.858.

explains why the Panel would have found that the State-ownership requirement is necessary to the
protection of public morals in China if the Pa nel had properly understood China's arguments, nor
identifies evidence in the Panel reco rd demonstrating that some amount of private investment in an
import entity would preclude the hiring of qualif ied personnel or the establishment of a suitable
organizational structure. We do not agree that the Panel would have come to the conclusion that the
State-ownership requirement makes a contribution to the protection of public morals in China if it had
considered China's argument in a different way. China did not establish a connection between the
exclusive ownership of the State in the equity of an import entity and that entity's contribution to the
protection of public morals in China.
269. We therefore find that the Panel did not err, in para graphs 7.860 and 7.863 of the Panel
Report, in its finding regarding the contribution to the protection of public morals in China made by
the State-ownership requirement in Article 42(2) of the Publications Regulation and we reject China's
claim that the Panel failed to make an objective assess ment of the matter before it, in violation of
Article 11 of the DSU.
(b) The Exclusion of Foreign-Invested Enterprises
270. China appeals the Panel's finding that Chin a has not demonstrated that the provisions 503
prohibiting foreign-invested enterprises from engaging in the importation of the products at issue are
"necessary" to protect public morals in China.504
271. The Panel found that the effect of Articles X:2 and X:3 of the List of Prohibited Foreign
Investment Industries in the Catalogue, in conjunction with Articles 3 and 4 of the Foreign
Investment Regulation , is to prohibit any foreign-invested enterprise in China from engaging in the
importation of books, news papers, periodicals, electronic publi cations, or audiovisual products
(including sound recordings and films for theatrical release). 505 The Panel also found that Article 4 of
the Several Opinions directs relevant agencies to ensure, through promulgation of appropriate rules,
that no foreign-invested enterprise in China can la wfully import books, newspapers, periodicals, films
for theatrical release, other audiovisual produc ts (including sound recordings), or electronic
publications.506 Furthermore, the Panel found that the legal effect of Article 21 of the Audiovisual

503Articles X:2 and X:3 of the List of Prohibited Foreign Investment Industries in 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.
504Panel Report, para. 7.868.
505Panel Report, para. 7.348.
506Panel Report, para. 7.372. The Panel noted that the United States' claims in respect of these products
related only to physical products. (Ibid., para. 7.371)

(Sub-)Distribution Rule is that Chinese-foreign contractual joint ventures for the sub-distribution of
audiovisual products do not have, and cannot obta in, the right to import audiovisual products.
507 The
Panel considered that these provisions excluding foreign-invested enterprises from engaging in
importing are intended to reflect the fact that other measures stipulate that only wholly State-owned
enterprises are permitted to import the relevant products.
508
272. China contends that the Panel relied on its finding concerning the State-ownership
requirement to conclude that the provisions excl uding foreign-invested enterprises from engaging in
importing do not contribute to the protection of public morals in China. China argues that, because
the Panel's finding concerning the State-owne rship requirement is erroneous, "by necessary
implication"509, the Panel's finding in respect of the provi sions excluding foreign-invested enterprises
from importing is also in error.
273. In addition, China submits that foreign-inv ested enterprises may not have the requisite
understanding and knowledge of the applicable standa rds of Chinese public morals and would not be
capable of efficiently communicating with the admini strative authorities, and that the Panel's finding
on the exclusion of foreign-invested enterprises cont radicts the finding made elsewhere by the Panel
that requiring qualified review personnel contributes ma terially to the protection of public morals in
China.510 According to China, the Panel's failure to address certa in arguments relating to the
contribution of the provisions excluding foreign-invested enterprises to the protection of public
morals in China constitutes a failure to make an objective assessment of the matter before it as
required by Article 11 of the DSU.
274. The United States asserts that it is not clear that China presented to the Panel its argument
concerning the foreign-invested enterprises' a lleged lack of understandi ng and knowledge of the
applicable standards of public morals.
511 In addition, the United Stat es argues that China's concern
that enterprises with private investment "may not have" 512 certain qualifications does not logically
lead to the conclusion that these enterprises do not or could not have these qualifications. Regarding
China's allegation that the Panel's finding on the excl usion of foreign-invested enterprises contradicts

507Panel Report, para. 7.703. The Panel expl ained that according to Article 2 of the Audiovisual
(Sub-)Distribution Rule 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 video
CDs with audiovisual recorded contents. (Ibid., para. 7.701)
508Panel Report, paras. 7.773, 7.776, 7.779, and 7.865.
509China's appellant's submission, paras. 32 and 33 (referring to Panel Report, para. 7.865).

the finding made earlier by the Panel, that requiri ng qualified review personnel contributes materially
to the protection of public morals in China, the Un ited States contends that there is no contradiction
because China provides no reason to believe that fore ign-invested enterprises would be unable to hire
qualified personnel.
275. At the outset, we note that the Panel's finding concerning the exclusion of foreign-invested
enterprises was based on the same reasoning as its finding relating to the State-ownership
requirement. The Panel referred back to its previous finding that it was not persuaded 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 review. 513 Having considered that the provisions prohibiting foreign-
invested enterprises from engaging in the importati on of the products at issue reflect the same
prohibition as the State-ownership requirement, "by necessary implication" 514, the Panel was also not
persuaded that the provisions prohibiting foreig n-invested enterprises from being approved or
designated import entities of the relevant products c ontribute to the protection of public morals in
China.
276. We also observe that China's appeal of the Pa nel's finding relating to the provisions excluding
foreign-invested enterprises from engaging in the importation of the relevant products relies upon the
same reasons as those advanced by China with r espect to the Panel's finding on the State-ownership
requirement. We consider that the exclusion of fo reign-invested enterprises and the requirement that
import entities be wholly State-owned overlap to a large degree, in that both preclude foreign-invested
enterprises from engaging in importing.515 Because we have found above that the Panel committed no
error in its finding regarding the contribution to th e protection of public morals in China made by the
State-ownership requirement, we also reject, for th e same reasons, China's claim that the Panel erred
in finding that China has not demonstrated that th e provisions contribute to the protection of public
morals in China.516

513Panel Report, para. 7.865. The finding that the Pa nel refers to is contained in paragraphs 7.860
and 7.863 of the Panel Report.
514Panel Report, para. 7.865.
515The State-ownership requirement also excludes Chinese-owned enterprises that are not wholly State-
owned from engaging in importing.
516Panel Report, paras. 7.865 and 7.868.

277. We now turn to China's allegation that the Panel failed to make an objective assessment of the
matter before it as required by Article 11 of the DSU because it failed to address China's argument
that professionals performing content review must be familiar with Chinese values and public morals,
and capable of efficiently communicating with an d understanding the authorities. We note that
China's argument is reflected in the Panel's summary of China's arguments
517, as well as in the Panel's
analysis of the "necessity" of the State-ow nership requirement. As explained above 518, in analyzing
China's defence of the State-ownership requirement, the Panel was not convinced that enterprises with
private investment would be unable to attract qua lified personnel or unable to obtain the expertise
needed to conduct content review properly. In our view, such reasoning—with which we agree—
applies equally to the arguments made by China in defence of its provisions excluding foreign-
invested enterprises from engaging in importation. The mere fact that an entity involves some foreign
investment does not necessarily imply that content review would be carried out by professionals who
are not familiar with Chinese values and public mo rals, or incapable of efficiently communicating
with and understanding the authorities. In fact, tho se carrying out these functions could be the same
individuals, with the same qualifications and capabiliti es, irrespective of the ownership of the equity
of the import entity. Thus, China did not establish th at the exclusion of foreign-invested enterprises
from engaging in the importation of the relevant products contributes to the protection of public
morals in China. We see no indication that the Pa nel did not reasonably consider China's claim or
otherwise failed to make an objective assessment of the matter.
278. We therefore find that the Panel did not err, in para graphs 7.865 and 7.868 of the Panel
Report, in its finding regarding the contribution made by the provisions excluding foreign-invested
enterprises from engaging in the importa tion of the relevant products and we reject China's claim that
the Panel failed to make an objective assessment of the matter before it in violation of Article 11 of
the DSU.
(c) The State Plan Requirement
279. The United States requests the Appellate Body to re verse, or to "declare moot and of no legal
effect"
519 the Panel's intermediate finding regardin g the "necessity" within the meaning of
Article XX(a) of the GATT 1994 of the requirement of conformity with China's State plan for the
total number, structure, and distribution of publi cation import entities contained in Article 42 of the
Publications Regulation (the "State plan requirement"). The Panel found that this requirement can

517Panel Report, para. 7.801.
518Supra, para. 267.
519United States' other appellant's submission, para. 43.

make a material contribution to the protection of public morals. 520 Weighing this contribution
together with the other relevant factors, the Panel took 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 absence of reasonably ava ilable alternatives, the State plan
requirement in Article 42 of the Publications Regulation can be
characterized as "necessary" to protect public morals in China.
521
280. In a subsequent part of its analysis, the Pane l found that the United States had proposed an
alternative measure that would have a significantly less restrictive impact, would make an equivalent
or better contribution to the objective of protecting public morals in China 522, and was reasonably
available to China.523 We address China's appeal of this finding of the Panel in subsection B.3 below.
Overall, the Panel found that China had not succeeded in justifying the State plan requirement under
Article XX(a) of the GATT 1994.524
281. Article 42 of the Publications Regulation sets out eight requirements for the approval of
publication import entities. The last of these is th at publication import entities may only be approved
if they are in conformity with the State plan for the number, structure, and geographical coverage of
publication import entities.
525

520The Panel found:
[S]ince 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 ap plicable content review requirements,
e.g., through the annual inspections.
(Panel Report, para. 7.832)
521Panel Report, para. 7.836.
522Panel Report, para. 7.899.
523Panel Report, para. 7.908.
524Panel Report, para. 7.911.
525Article 42 of the Publications Regulation is reproduced in Annex III to this Report.

282. China did not provide the State plan or specific in formation about its content to the Panel. In
response to a request by the Panel to provide the "State's plans", China stated that "[t]he plans concern
the quantity, geographical and pro duct coverage of publication import entities. However, such plans
are not available in written form."
526 China did, however, refer to the "State's plans" as prescribing
development consistent with the selection of a limited number of import entities with extensive
geographic coverage.527 China explained to the Panel that the requirement to have a small number of
companies with extensive geographic coverage en sures that import entities, through branches, have
premises in a large number of customs areas, so that no entry gate into the Chinese market is
overlooked. In the same section of its first wr itten submission—although w ithout referring explicitly
to the State plan—China explained that, "for the content review to be efficient and smooth" 528, it is
necessary that only a limited number of entities be au thorized to engage in the importation of the
relevant products. China further asserted that limiting the number of importation entities "enables the
administrative authorities to have efficient control over whether those entities comply with the rules
and procedures on inappropriate content."529
283. The Panel understood China to contend that the St ate plan requirement is designed to ensure,
first, that only a limited number of import entities are approved, and, secondly, that each approved
import entity has an extensive geographical presence, through branches, in a large number of customs
areas.530 The Panel found that limiting the number of import entities can make a material contribution
to the protection of public morals in China. The Panel based this finding on two considerations: (i) a
limitation on the number of publication import entities would make it easier for the GAPP to interact
with these entities and to ensure the consistency of their content review; and (ii) a limitation on the
number of import entities would allow the GAPP to devote more time to conduct annual inspections
of compliance with the content review requirements.531 Although the Panel was not persuaded that, in
itself, a wide geographical distribution of the branches of import entities makes a significant
contribution to the protection of pub lic morals, the Panel noted that there appeared to be a close link
between the desired wide geographical distribution of the branches and the desired limitation on the
number of import entities, and viewed both elements as "forming a single whole".532

526China's response to Panel Question 44.
527China's first written submission to the Panel, para. 214.
528China's first written submission to the Panel, para. 216.
529China's first written submission to the Panel, para. 218.
530Panel Report, para. 7.831.
531Panel Report, para. 7.832. See also supra, footnote 520.
532Panel Report, para. 7.833.

284. In its other appeal, the United States contends th at the Panel erred in reaching an intermediate
finding that the State plan requirement makes a material contribution to the protection of public
morals in China. Referring to the Appellate Body reports in US – Gambling and Korea – Various
Measures on Beef , the United States maintains that the State plan requirement is not significantly
closer to the pole of "indispensable" than to the opposite pole of "simply making a contribution".533
285. The United States alleges that, because China di d not submit the State plan, nor provide any
information about the content of the plan, the Panel did not actually examine the State plan. Thus, the
Panel could not have known what China meant wh en it asserted that there was a "limited number" 534
of publication import entities. In addition, the United States submits that the requirement that
publication import entities have branches in a larg e number of customs areas undermines the alleged
benefits that the Panel presumed to flow from an y limit the State plan may place on the number of
import entities. Furthermore, the United States takes issue with the Panel's assumption that a
limitation on the number of publication import entities would allow the GAPP to devote more time to
conduct its annual inspections of the entities' comp liance with content review requirements, in
particular because China's failure to provide information regarding the nature of the GAPP's annual
inspections makes it impossible to assess what add itional burden would be caused by an increase in
the number of import entities.
286. The United States claims, in the alternative, that , if the Appellate Body were to find that the
Panel's analysis concerning the State plan requi rement does not constitute a "misinterpretation and
misapplication" of Article XX(a) of the GATT 1994, then the Panel's disregard of significant facts
relating to this requirement, including the fact that it did not know the content of the State plan,
constitutes an error in the appreciation of the eviden ce. This, asserts the United States, is because the
Panel made a finding that has no evidentiary basis in the record, and is therefore inconsistent with
Article 11 of the DSU.
287. China requests the Appellate Body to dismiss the United States' other appeal and to uphold
the Panel's intermediate finding that the State plan requirement is apt to make a material contribution
to the protection of public morals in China. Ch ina disputes the United Stat es' contention that China
failed to put forward evidence about the operation of the State plan requirement. China contends that
it explained to the Panel that the State plan is not available in written form, and that the plan is
concerned with the quantity, geographical and pro duct coverage of publication import entities. China

533United States' other appellant's submission, paras. 28 and 29 (referring to Panel Report, para 7.785;
Appellate Body Report, US – Gambling, para. 310; and Appellate Body Report, Korea – Various Measures on
Beef, para. 161).
534United States' other appellant's submission, para. 34.

maintains that this response, toge ther with "circumstantial evidence"
535 contained in several exhibits
submitted to the Panel, provided a sufficient basi s for the Panel's finding that the State plan
requirement makes a material contribution to the prot ection of public morals in China. In addition,
China submits that the Panel correctly inferred th at imposing a limit on the number of publication
import entities allows the GAPP to devote more time to conduct its annual inspections of such entities'
compliance with content review requirements.536
288. We recall that, in US – Gambling, the Appellate Body stated that a panel must independently
and objectively assess the "necessity" of the measure be fore it, based on the ev idence in the record.537
The Appellate Body also affirmed that it is for the responding party to make a prima facie case that
its measure is "necessary" by putting forward eviden ce and arguments that enable the panel to assess
the challenged measure in the light of the relevant factors to be "weighed and balanced".538
289. In the present case, the burden of demonstrating that its measures are "necessary" to protect
public morals within the meaning of Article XX(a) of the GATT 1994 resided with China. In order to
meet this burden, China was required to presen t arguments and adduce evidence relating to the
contribution of the State plan requirement to the pr otection of public morals in China, thus enabling
the Panel to determine the "necessity" of that requirement.
290. Before turning to the substance of the Unite d States' other appeal, we wish to address a
preliminary matter. The Panel stated at the outset of its analysis that it would "consider whether [the
State plan requirement] makes a contribution to the realization of ... the protection of public morals in
China".539 This language suggests that the Panel intended to assess the actual contribution of the
State plan requirement to the protection of public mora ls in China. The Panel then stated that it could
"see that limiting the number of import entities can make a material contribution ".540 Finally, in its
conclusion, the Panel stated that "the require ment of conformity with the State plan is apt to make a
material contribution to the protection of public morals". 541 This statement does not appear to relate
to the actual contribution of the State plan requirement to the protection of public morals in China. In
fact, the language used at the outset of, and during, its analysis does not match the language in the
Panel's conclusion that the State plan is "apt to make a material contribution to the protection of

535China's appellee's submission, footnote 12 to para. 15 (referring to Panel Exhibit US-13, supra,
footnote 172; Panel Exhibit CN-26, supra, footnote 141; and Panel Exhibits CN-33 through CN-37, supra,
footnote 172).
536China's appellee's submission, para. 30 (referring to Panel Exhibit CN-22, supra, footnote 140).
539Panel Report, para. 7.830. (emphasis added)
540Panel Report, para. 7.832. (emphasis added)
541Panel Report, para. 7.836. (emphasis added)

public morals in China". It is, therefore, unclear to us whether the Panel was assessing the actual
contribution of the State plan requirement to the prot ection of public morals in China, or the extent to
which the requirement was apt to make such a contribution.
291. We understand the Panel to have reached its finding regarding the contribution to the
protection of public morals made by the State plan requirement on the basis of an assumption that the
State plan requirement imposed a limitation on the number of import entities and on the basis of two
inferences it drew from this assumption, namely: (i ) that a limitation on the number of publication
import entities would make it easier for the GAPP to interact with these entities and to ensure
consistency of the review work; and (ii) that a limitation on the number of import entities would
allow the GAPP to devote more time to conduct a nnual inspections of compliance with the content
review requirements.
542
292. We note that the Panel did not cite any eviden ce in support of its assumption that the State
plan requirement imposed a limitation on the number of import entities. We also note that the Panel
did not explain why the contribution made by the presumed limitation in the State plan requirement
would be a "material" one. We further note that, wh ile China asserted before the Panel that the State
plan requirement constitutes a limitation on the number of import entities, China did not point the
Panel to evidence supporting that assertion or eviden ce providing information about the operation of
the State plan, or the nature of the limitation contained in the State plan.
293. In its appellee's submission, China maintains th at the State plan requirement "does [not] set
any quantitative threshold to the number of ... enterprises which can be approved."
543 Yet elsewhere
in its appellee's submission, China contends that the State plan contributes to limiting the number of
approved import entities. 544 China points to certain exhibits contained in the Panel record that,
according to China, support the Pa nel's finding that the State plan requirement is apt to make a
material contribution to the protection of public morals in China. China points to an exhibit that was
submitted by the United States to the Panel containing a newspaper article. China submits that this
article makes reference to the number of entiti es authorized to engage in the importation of
publications.545 This newspaper article states that, in January 2008, there were 42 approved
publications import entities in China. However, the newspaper article does not explicitly refer to the

542Panel Report, para. 7.832.
544China's appellee's submission, footnote 12 to para. 15. In response to questioning at the oral hearing
in this appeal, China explained that the State plan does not contain a fixed number for publication import
entities, but rather a statement dealing with the number of publication import entities in a flexible manner.
545China's appellee's submission, footnote 12 to para. 15 (referring to Exhibit US-13, supra,
footnote 172). The United States refers to the same number of approved publication import entities in
paragraph 10 of its other appellant's submission.

State plan. It does not establish th e existence of the State plan, nor does it provide information about
any restrictions or limitations provided for in such a plan. Moreover, this article does not indicate
whether the number of entities approved corresponds to the number of entities foreseen in the State
plan. China also points to a number of exhibits consisting of statistical reports published by the
GAPP showing the general categories of publications and audiovisual products that are imported each
year.
546 While these exhibits provide some information about past trade flows, they do not provide
information about the content of the State plan or any limitation on the number of import entities
contained therein. Furthermore, China makes re ference to the 2006 annual report of the CNPIEC. 547
According to China, this report demonstrates that the State plan, although contributing to limiting the
number of approved import entities, does not result in limiting growth in the number of imported
publications. Again, however, this report contains no information on the limitation of the number of
import entities set out in the State plan. Furthermor e, we do not see that th e evidence referred to by
China contains any information about the geographical or product coverage of the State plan.
294. In reaching its finding regarding the contribution made by the State plan requirement to the
protection of public morals in China, the Panel simply stated that limiting the number of import
entities "can make a material contribution"
548 to the protection of public morals in China. Yet, the
Panel neither addressed quantitative projections nor provided qualitative reasoning based on evidence
before it to support that finding. The Panel Report contains no discussion of how or to what extent
the State plan requirement can or does make a cont ribution. For these reasons, we disagree with the
Panel's finding that China had met its burden of pr oof regarding the contribution of the State plan
requirement to the protection of public morals in China.
295. We nonetheless address China's additional argument that the Panel correctly inferred that the
assumed limitation on the number of publication import entities would allow the GAPP to devote
more time to conduct its annual inspections of the entities' compliance with the content review
requirements. China asserts that, contrary to what the United States alleges, it did provide evidence in
support of this argument.
549
296. In our view, the evidence in the Panel record do es not establish that any State plan contains a
limitation on the number of publication import entiti es, or that any such limitation would allow the
GAPP to devote more time to c onduct its annual inspections of the entities' compliance with content

546China's appellee's submission, footnote 12 to para. 15 (referring to Panel Exhibits CN-33 through
CN-37, supra, footnote 172).
547China's appellee's submission, footnote 12 to para. 15 (referring to Panel Exhibit CN-26, supra,
footnote 141).
548Panel Report, para. 7.832.
549China's appellee's submission, para. 30 (referring to Panel Exhibit CN-22, supra, footnote 140).

review requirements. The Panel exhibit that China relies upon as supporting the latter argument 550
does not explain the scope of annual inspections carri ed out by the GAPP, or specify the parameters
of the verification carried out by the GAPP. Rath er, it simply stipulates what kind of documentation
an import entity must submit to the authorities in the context of the annual inspection of compliance
with the content review requirements. 551 In any event, because we have found that the Panel wrongly
assumed that the State plan requirement imposes a limitation on the number of import entities, the
inferences that the Panel drew from this assumption have no basis.
297. For all these reasons, we find that the Panel erred, in paragr aph 7.836 of the Panel Report, in
finding that the State plan requirement in Article 42 of the Publications Regulation is apt to make a
material contribution to the protection of public morals and that, in the absence of a reasonably
available alternative, it can be characterized as "necessary" to protect public morals in China.
298. The United States claims in the alternative that, if the Appellate Body finds that the Panel's
analysis concerning the State plan requirement does not constitute a misinterpretation and
misapplication of Article XX(a) of the GATT 1994, th en the Panel's disregard of significant facts
relating to this requirement, including the fact that it did not know the content of the State plan,
constitutes an error in the appreciation of the ev idence because the Panel made a finding that has no
evidentiary basis in the record, and is therefore inconsistent with Article 11 of the DSU.
299. We have found that the Panel erred in finding that the State plan requirement is apt to make a
material contribution to the protection of public morals in China and can be characterized as
"necessary", in the absence of reasonably available alte rnatives, to protect public morals in China.
Consequently, the condition upon which the United St ates' alternative claim under Article 11 of the
DSU rests is not fulfilled and we do not address this claim.
3. The Restrictive Effect of the Measures

300. As part of the "weighing and balancing" test for assessing whether the measures at issue are
"necessary" to the protection of public morals in China, the Panel analyzed the restrictive effect of the
measures on international trade. The Panel found it "appropriate", in this case, "to consider two
different types of restrictive impact".552 More specifically, the Panel explained that:

550Paragraph IV of the Notice on Approving and Issuing License for Importing Publications and
Carrying Out Annual Inspection System (Panel Exhibit CN-22, supra, footnote 140).
551We note that paragraph V.2 of this Notice stipul ates that the GAPP will undertake an "examination
and verification" on the basis of the material described in paragraph IV. The Notice, however, does not set out
any criteria for that examination and verification.
552Panel Report, para. 7.788.

... we think that in the case before us, an additional 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 restrictive 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 commitments, it makes sense to
consider how much these measures restrict the right to import.
553
In its subsequent analysis, the Panel assessed for ea ch of the relevant provisions both the restrictive
effect of the provisions on imports and the restric tive effect of the provisions on "those wishing to
engage in importing". 554 The Panel noted that evidence subm itted by China showed that the number
of titles of newspapers and pub lications imported into China had increased from 2002 to 2006.
However, the Panel found that this increase did not necessarily indicate that China's measures had not
had any trade-restrictive effects, because the statis tics did not indicate what import levels might have
been if the measures had not been imposed.555
301. On appeal, China alleges that the Panel erred in including an assessment of the effect on those
wishing to engage in importing in its assessment of the restrictive effect of the measures at issue.
China contends that, in so doing, the Pane l placed an "unsustainable burden of proof" 556 on China.
Moreover, China alleges that the Panel's reasoning is circular because it relied on the restrictive effect
of the measures both in finding that the measures at issue constitute a violation of China's obligation
to grant the right to trade under paragraph 5.1 of Ch ina's Accession Protocol and in finding that the
measures are not "necessary" within the meaning of Article XX(a) of the GATT 1994.
China contends that the Panel mistakenly adopted an approach similar to that of the panel in
US – Gasoline .557 This approach, according to Chin a, leads to the "absurd situation" 558 that the
challenged measures can never be justified, becau se the reasons why the measures were found to be
inconsistent with paragraph 5.1 of China's Accessi on Protocol are the same as the reasons given for
why they are not "necessary" in the context of Article XX(a) of the GATT 1994.

553Panel Report, para. 7.788.
554See Panel Report, paras. 7.826 and 7.827, for the suitable organization and qualified personnel
requirement; paras. 7.834 and 7.835, for the State plan requirement; paras. 7.845-7.847, for Article 41 of the
Publications Regulation , Article 27 of the 2001 Audiovisual Products Regulation , and Article 8 of the
Audiovisual Products Importation Rule ; paras. 7.861 and 7.862, for the State-ownership requirement; and
paras. 7.866 and 7.867, for the provisions excluding foreign-invested enterprises from engaging in the
importation of the relevant products.
555See Panel Report, paras. 7.826, 7.834, 7.846, 7.861, and 7.866.
557China's appellant's submission, para. 44 (referring to Appellate Body Report, US – Gasoline , p. 16,
DSR 1996:I, 3, at 15).

302. The United States contends that the Panel did not err in taking into account the restrictive
effect on those wishing to engage in importing but was simply "adapting" 559 the weighing and
balancing approach taken by the Appellate Body in US – Gambling and Brazil – Retreaded Tyres to
the particular situation it confronted in this dispute. For the United States, it was "logical" 560 for the
Panel to consider the restrictive effect of the measures not only on imports but also on enterprises
because, in the present case, the Panel was, on an arguendo basis, applying Article XX(a) to a
situation where the Panel had found an inconsistenc y with respect to China's obligations concerning
the treatment of enterprises, rather than an incons istency regarding China's obligations concerning the
treatment of goods.
303. At the outset of our analysis, we recall that the assessment of the restrictive effect of a
measure on international trade is part of the "weighing and balancing" approach for assessing
"necessity"—including within the meaning of Ar ticle XX(a) of the GATT 1994—employed by WTO
panels and the Appellate Body. 561 The text of Article XX(a), however, refers only to measures
"necessary to protect public morals". It does not, therefore, provide explicit guidance on the question
of whether, in assessing "necessity", a panel may take into account only the restrictive effect the
measures have on imports of releva nt products, or whether a panel may also consider the restrictive
effect of the measures on importers or potential importers. The text of Article XX(a) does not
specifically refer to "imports" or "importers" or, in different terms, "products" or "traders". However,
the chapeau of Article XX of the GATT 1994 refers in a somewhat different context to "restrictions
on international trade".
304. In Korea – Various Measures on Beef , the Appellate Body referred to the preamble of the
GATT 1994 and stated that the extent to which a measure produces restrictive effects "on
international commerce" should be taken into account in assessing "necessity".
562 In the same way as
the preamble of the GATT 1994 includes the objectiv es of reducing barriers to trade and eliminating
discriminatory treatment in international commerce563, paragraph 84(b) of China's Accession Working
Party Report, concerning the grant of trading rights to "foreign enterprises and individuals", includes a
commitment that "any requirements for obtaining trading rights … would not constitute a barrier to
trade".

561See supra, subsection VI.B.
562Appellate Body Report, Korea – Various Measures on Beef, para. 163 and footnote 105 thereto.
563Preamble to the GATT 1994, third recital.

305. The Appellate Body's "necessity" analysis in Korea – Various Measures on Beef was
undertaken in respect of a measure inconsistent with Article III:4 of the GATT 1994. This provision
requires that no less favourable treatment be accorded not only in respect of laws, regulations and
requirements directly regulating like products, but also in relation to measures affecting their internal
sale, offering for sale, purchase, transportation, distribution or use. This suggests that effects on those
who sell, purchase, transport, distribute, or use the products are not beyond scrutiny under
Article III:4.
564 This is also consistent with the purpose of Article III:4, which seeks to preserve
equality of competitive opportunities for imported pr oducts as compared to like domestic products. 565
Such competitive opportunities can be affected in a variety of ways, not only by measures directly
regulating products and restricting imports.
306. In our view, therefore, while in principle a panel must assess the restrictive effect of a
measure on international commerce, this test must be applied in the light of the specific obligation of
the covered agreements that the respective measure in fringes. The assessment of the restrictive effect
to be taken into account in a particular dis pute may, in appropriate cases, extend beyond an
assessment of the restrictive effect on imported products, as this assessment must be undertaken in the
light of the measure at issue, the specific oblig ation of the covered agreements that the measure
infringes, and the defence being invoked.
307. In the present case, the Panel found China' s measures to be inconsistent with, inter alia ,
China's obligation in paragraph 5.1 of its Accessi on Protocol to grant the right to trade to all
enterprises with respect to goods. This obligation is not only concerned with the question of what can
be traded, but more directly with the question of who is entitled to engage in trading. In view of, on
the one hand, China's measures, which impose a restriction on who can engage in importing the
relevant products, and, on the other hand, the nature of the specific obligation in paragraph 5.1, which
stipulates who China must permit to engage in importing, we see no error in the Panel's tailoring its
assessment of the restrictive effect of the provisi ons of China's measures to take into account the
restrictive effect on beneficiaries of the right to trade. Indeed, this approach seems all the more
appropriate in the light of our finding above that, by virtue of the introductory clause of paragraph 5.1
of China's Accession Protocol, China may, in th is case, invoke Article XX(a) of the GATT 1994 to
justify the provisions found to be inconsistent with its trading rights commitments under its Accession
Protocol and Working Party Report.

564According to Article I:1 of the GATT 1994, "all matters referred to in paragraphs 2 and 4 of
Article III" are also subject to the requirement that any advantage, favour, privilege, or immunity be accorded to
the like product. This also suggests a broad coverage and consideration of trade effects.
565Appellate Body Report, Korea – Various Measures on Beef, paras. 135 and 136. See also Appellate
Body Report, Japan – Alcoholic Beverages II, p. 16, DSR 1996:I, 97, at 109-110.

308. We turn next to China's allegation that the Pa nel committed a "logical error" in finding that
the provisions of its measures are not "necessary" for essentially the same reasons as the ones for
which the Panel found those provisions to be in violation of China's trading rights commitments.
China suggests that the restrictive effect of a meas ure could be relevant to a panel's analysis of
whether a measure is consistent with an obligation, or its analysis of whether that measure can be
justified under an exception, but that it could not be relevant for both questions. We disagree. The
fact that the restrictive effect of a measure is relevant in one context does not preclude that it may also
be relevant in the other. In analyzing whether the provisions of China's measures are inconsistent
with Article 5.1 of China's Acce ssion Protocol, the Panel assessed whether the provisions restrict the
enterprises that may engage in importing. Thereafte r, in analyzing whether the provisions could be
justified as "necessary" under Article XX (a) of the GATT 1994, the Panel assessed to what extent the
provisions restrict those wishing to engage in importing, as well as how the restrictive effect comports
with the degree of contribution to the achievement of the objective, and the societal importance and
value of the legitimate objective concerned. 566 The restrictive effect of the provision was relevant to
each of these distinct analytical inquiries. Theref ore, we do not believe that the Panel's approach
constitutes circular reasoning. On the contrary, it is the result of a proper sequential analysis.567
309. We also do not consider that, as China alleges, the Panel committed a mistake similar to that
of the panel in US – Gasoline .568 In that case, the panel assessed the United States' Article XX(g)
defence to a finding of violation of Article III:4 of the GATT 1994. The Appellate Body faulted the
panel for having assessed whether the less favourable treatment of imported products was related to
the conservation of natural resources, rather than whether the measure at issue was related to the
conservation of natural resources. In the present case, the Panel did examine whether the Chinese
measures at issue were necessary to protect public morals, and, for each relevant provision or

566We note that in analyzing a defe nce of a measure found to be in consistent with the GATT 1994, a
panel may also have to assess the consistency of the measure with the chapeau of Article XX, which would
require the panel to analyze whether the measure is applied in a manner that constitutes "a disguised restriction
on international trade" or "arbitrary or unjustifiable discrimination". (emphasis added)
567The approach of the panel in US – Gambling also illustrates this logical sequence. The panel
assessed restrictions on market access in its analysis of Articles XVI:2(a) and XVI:2(c) of the GATS.
Subsequently, in its analysis of necessity in the cont ext of Article XIV of the GATS, the panel assessed the
restrictive effect of the measures at issue in that di spute and agreed with Antigua and Barbuda that the United
States' measures had the effect of a "total prohibition, which is the most trade-restrictive approach possible."
568Appellate Body Report, US – Gasoline, p. 16, DSR 1996:I, 3, at 15.

requirement, assessed its restrictive effect on imports and on potential importers.
569 In our view, this
demonstrates that the Panel correctly assessed the restrictive effect of the specific measures at issue.
310. Furthermore, the Panel did not, as China alleg es, place an "unsustainable burden of proof" 570
on China merely by deciding to take account of the restrictive effect of the measures at issue on those
wishing to engage in importing. The less restrictive the effects of the measure, the more likely it is to
be characterized as "necessary". 571 Consequently, if a Member chooses to adopt a very restrictive
measure, it will have to ensure that the measure is car efully designed so that the other elements to be
taken into account in weighing and balancing the factors relevant to an assessment of the "necessity"
of the measure will "outweigh" such restrictive effect. In the present case, the Panel identified
differences in the restrictive effect on potential impo rters of the different measures at issue in this
dispute. The Panel found that the State-ownershi p requirement and the provisions excluding foreign-
invested enterprises from engaging in the importation of the relevant products are the most restrictive
provisions, because they a priori exclude certain enterprises from the right to engage in importing the
relevant products. 572 However, the Panel found a lesser restrictive effect in China's State plan
requirement and in the suitable organization and pe rsonnel requirement. With respect to both, the
Panel found that the requirements did not a priori exclude particular enterprises in China from the
right to engage in importing. 573 In addition, the Panel characteri zed both of these latter requirements
as "necessary", in the absence of a reasonably available alternative, to protect public morals in China.
This demonstrates, in our view, that the Panel's assessment of the restrictive effect of China's
measures did not impose an "unsustainable" burden on China. Instead the Panel's analysis shows that
the burden was surmountable.
311. For all these reasons, we find that the Panel did not err 574 in taking into account the restrictive
effect that the relevant provisions and requirement s have on those wishing to engage in importing as
part of its assessment of the restrictive effect of the measures found to be in consistent with China's
trading rights commitments.

569The Panel assessed the restrictive effect of the requirement that import entities have a suitable
organization and qualified personnel (Panel Report, paras. 7.826 and 7.827); it considered the restrictive effect
of the requirement that import entities conform to China's State plan (para. 7.835); it examined the restrictive
effects of "the designation requirements" contained in Article 41 of the Publications Regulation, Article 27 of
the 2001 Audiovisual Products Regulation , and Article 8 of the Audiovisual Products Importation Rule (see
paras. 7.845-7.847); and it evaluated the restrictiv e effects of the State-ownership requirement and the
exclusions relating to foreign-invested enterprises (paras. 7.861, 7.862, 7.866, and 7.867, respectively).
571Appellate Body Report, Korea – Various Measures on Beef , para. 163. See also Appellate Body
572Panel Report, paras. 7.862 and 7.867.
573Panel Report, paras. 7.827 and 7.835.
574In paragraphs 7.826, 7.827, 7.834, 7.835, 7.846, 7.847, 7.861, 7.862, 7.866, and 7.867 of the Panel
Report.

4. Reasonably Available Alternative Measure
312. We turn next to China's appeal with respect to the Panel's analysis of whether a less restrictive
measure is reasonably available to China as an alternative means of re alizing its objective of
protecting public morals. To recall, the Panel fo und that the suitable organization and qualified
personnel requirement and the State plan requirement are "necessary" to protect public morals in
China, in the absence of reasonably available alternatives.575 In order to reach a final determination as
to whether or not China had demonstrated the "n ecessity" of these two requirements, the Panel turned
to consider alternative measures proposed by the United States and, in particular, the proposal that the
Chinese Government be given sole responsibilit y for conducting content review. The Panel
considered that this proposal is an alternative th at would be significantly less restrictive and would
make a contribution to the protection of public morals in China that is at least equivalent to the
contribution made by the suitable organization and qualified personnel requirement and the State plan
requirement.576 The Panel then examined whether the propo sed alternative is reasonably available to
China and concluded that China had not demonstr ated that this alternative is not "reasonably
available".577
313. China appeals this finding and submits that the proposed alterna tive—that the Chinese
Government be given sole responsibility fo r conducting content review—is not "reasonably
available", because it is merely theoretical in nature and would impose an undue and excessive burden
on China. China alleges that the Panel erred in law and failed to pr operly address arguments it
presented for purposes of demonstrating that the proposed alternative is not "reasonably available".
314. The United States contends that China failed to submit evidence in support of its position that
adopting the United States' proposal would impose an undue burden on China. Instead, the evidence
before the Panel established that the Chinese Govern ment does have the capacity to carry out content
review, because Chinese authorities already carry out content review of films imported for theatrical
release, electronic publications, and audiovisual products.
315. In its analysis of reasonably available alterna tives, the Panel indicated that it would examine
whether at least one of the alternatives propo sed by the United States "constitutes a genuine
alternative and is reasonably available, taking in to account the interest being pursued and China's
desired level of protection". 578 The Panel chose to focus on the United States' proposal that the
Chinese Government be given sole responsibility fo r conducting content revi ew of all relevant

575Panel Report, paras. 7.828 and 7.836.
576Panel Report, para. 7.898.
577Panel Report, para. 7.908; see also paras. 7.911 and 8.2(a)(i).
578Panel Report, para. 7.886.

products imported into China.
579 Under this proposed alternative, there would be no restriction on
who could import the relevant products , and import entities would have no role in the content review
process. Rather, the Chinese Government would c onduct content review and take a final decision
before any imported products could clear customs.580
316. In the first part of its analysis of this pr oposed alternative measure, the Panel assessed the
contribution the alternative measure would make to the protection of public morals, and its restrictive
impact, and then compared these to the Panel's previ ous analysis of those same factors with respect to
the suitable organization and qualif ied personnel requirement and the State plan requirement. The
Panel found that:
... implementing the [United States'] proposal would make a
contribution that is at least equiva lent to that of the relevant two
[requirements]. At the same ti me, the [United States'] 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 products than [these requirements].
581
317. In the second part of its analysis, the Panel considered whether the United States' proposal
was an alternative that is "reasonably available" to China and found that China had not demonstrated
that the alternative proposed by the United States would impose an undue burden on China. 582
China's appeal focuses on this finding by the Panel.
318. Before examining China's appeal, we set out pertinent interpretations from previous Appellate
Body reports concerning the question of what constitu tes a "reasonably available alternative", as well
as the appropriate allocation of the burden of proof in relation to such alternatives. In Korea –
Various Measures on Beef and EC – Asbestos, the Appellate Body clarified that, as part of an overall
evaluation of "necessity" using the "weighing and balancing" process, a panel must examine whether
the responding party could reasonably be expected to employ an alternative measure, consistent (or
less inconsistent) with the covered agreements, that would achieve the objectives pursued by the
measure at issue. An alternative measure may be found not to be "reasonably available" where it is

579As further alternatives, the United States proposed that a foreign-invested enterprise could develop
the expertise to conduct content review for a particular type of product. The foreign-invested enterprise could
complete the review and then import the publication into China, or it could perform the content review either
while importation is underway and/or once the importation was complete, but before the good is released into
commerce in China. Alternatively, the foreign-invested enterprise importing the good into China could hire
specialized domestic entities with the appropriate expertise to conduct the content review process before, during,
or after importation. (See Panel Report, paras. 7.873 and 7.874. See also United States' oral statement at the
first Panel meeting, para. 35; and United States' response to Panel Question 21)
580Panel Report, para. 7.887.
581See Panel Report, para. 7.898.
582Panel Report, para. 7.906.

merely theoretical in nature, for instance, where the responding party 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".583 Moreover, a "reasonably available" alternative measure must be a measure
that would preserve the responding party's right to ach ieve its desired level of protection with respect
to the objective pursued under Article XX of the GATT 1994.584
319. As regards the burden of proof with respect to "reasonably available alternatives", the
Appellate Body explained in US – Gambling that a responding party invoking Article XIV(a) of the
GATS bears the burden of demonstrating that its GATS-inconsistent measure is "necessary" to
achieve the objective of protecting public morals. This burden does not imply that the responding
party must take the initiative to demonstrate that there are no reasonably available alternatives that
would achieve its objectives. When, however, the co mplaining party identifies an alternative measure
that, in its view, the responding party should 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, why the proposed a lternative is not a genuine alternative or is not
"reasonably available". If a responding party demons trates that the alternative is not "reasonably
available", in the light of the interests or valu es being pursued and the party's desired level of
protection, it follows that the challenged measure must be "necessary".
585
320. Turning to China's appeal, we first recall that China submits that the Panel erred in its
analysis of the restrictive effect of the proposed alternative measure because it made the same "error"
as China alleges it to have made in analyzing the restrictive effect of China's measures, namely, taking
account of the restrictive effect of the measures on those wishing to engage in importing. 586 F o r
China, because the Panel's assessment was based on a flawed interpretation of the scope of the
restrictive effect of the measure to be consider ed, the Panel could not have established that the
proposed alternative measure would have a less restrictive impact on trade.
321. We have rejected above China's claim on appeal that the Panel erred in examining not only
the restrictive effect on imports but also the restrictive effect on potential importers.587 It follows that,
for the same reasons, we do not accept that, in its an alysis of the alternative measure proposed by the
United States—which the Panel found to have "significantly less restrictive impact, specifically on

584Appellate Body Report, EC – Asbestos , paras. 172-174. See also Appellate Body Report, Korea –
Various Measures on Beef, para. 180; and Appellate Body Report, Brazil – Retreaded Tyres, para. 156.
585Appellate Body Report, US – Gambling, paras. 309-311.
586We note that China refers to its appeal regarding the Panel's analysis of restrictive effect in this
regards. (See supra, subsection VI.B.3)
587See supra, para. 309.

those who wish to engage in importing"
588—the Panel erred merely because it took account of the
impact the alternative measure would have on potential importers.
322. China's main arguments on appeal allege that the Panel erred in law and failed to properly
address arguments presented by China in finding th at the proposed altern ative—that the Chinese
Government be given sole res ponsibility for conducting content revi ew—is reasonably available to
China. China contends that this proposed alternative would impose an undue financial and
administrative burden on China. China emphasize s that, in the current system, importation entities
participate in the content review process, and that, in particular with respect to reading materials,
these importation entities carry most of the burden of content review. The alternative considered by
the Panel would require China to engage in "tremendous restructuring" 589 and create a new, multi-
level structure for content review within the Government. 590 China points, in addition, to the large
quantities of imported reading materials and to ti me constraints, especially for newspapers and
periodicals, which mean that the content review mechanism must have a wi de geographic coverage,
sufficient manpower, and a capacity to respond quickly. To expect the Chinese Government to
assume sole responsibility for the conduct of content review would require the training and
assignment of a large number of qualified content reviewers to numerous locations.
591 China adds
that the Panel erred in failing to find that "substantial technical difficulties" 592 demonstrate that the
proposed alternative is not reasonably available to China. The Panel simply assumed that time-
sensitive publications could be submitted electr onically to the Chinese Government for content
review, when in fact the Government would have to implement a completely upgraded electronic
communications system to perform efficiently such an electronic review. 593 China also contends that,
if content review were performed at a single centr al location, according to the proposed alternative,
this would make it impossible to "double check" c ontent at the customs level, as is done under the
current system.594
323. The United States responds that, because China failed to submit evidence substantiating its
position that adopting the United States' proposal wo uld impose an undue burden on China, the Panel
rightly found that China had failed to establish that content review under the sole responsibility of the
Chinese Government is not reasonably available to it. Instead, the evidence before the Panel
suggested that the Chinese Government does have the capacity to carry out content review, because

588Panel Report, para. 7.899.
590China's appellant's submission, paras. 56 and 57.
591China's appellant's submission, paras. 62-65.
592China's appellant's submission, para. 67 (referring to Appellate Body Report, US – Gambling ,
para. 308).

Chinese authorities already carry out content review of films imported for theatrical release, electronic
publications, and audiovisual pr oducts. In addition, the United States asserts, China has not
responded to the Panel's observation that China could charge fees to defray additional expense
involved in its performance of content revi ew and that, in fact, Article 44 of the Publications
Regulation already provides for that option. The United States adds that, because the Chinese
Government owns 100 per cent of the equity in the importation entities, the Government is in effect
already financing content review of imported publications.
324. In reviewing the Panel's analysis of whether content review under the sole responsibility of
the Chinese Government is an alternative measure reasonably available to China, we note first that the
Panel articulated the proper approach to its analysis. 595 The Panel first scrutinized the alternative
measure proposed by the United States and compar ed it to the existing measures in terms of
contribution to the protection of public morals in China and restrictive impact. The Panel then
assessed whether China had demonstrated that the proposed alternative measure is not reasonably
available because it would impose an undue financ ial and administrative burden on China. The
Panel's analysis makes clear that the Panel cons idered that the burden of establishing that the
alternative is not reasonably available rested on Ch ina and, indeed, China does not contend otherwise
on appeal.
325. In our view, the Panel did not ignore the fact that the proposal put forward by the United
States would require changes to the current system , and that these could entail additional costs for
China. To the contrary, the Panel noted Chin a's argument that implementing the United States'
proposal "would impose an undue burden", create the risk of "undue delays", and demand "substantial
resources" given the large quantities of imports invol ved and the time-sensitive nature of newspapers
and periodicals.596 The Panel expressly recognized that the alternative might require China to allocate
additional human and financial resources to content review authorities, in particular for content
review of reading materials. 597 This recognition was, however, te mpered by additional observations
that the Panel considered pertinent. Thus, the Panel observed that, for products other than reading
materials (electronic publications, audiovisual produc ts and films for theatrical release), the Chinese
Government already makes the final content review decision under its current system. 598 In addition,
the Panel was not convinced that the cost to the Chinese Government would necessarily be higher
under the alternative proposed by the United States. Given that, at present, all import entities are
wholly owned by the State, it was "not apparent" to the Panel that the cost to the Chinese Government

595We note that the Panel referred, in pa ragraph 7.870, to Appellate Body Report, US – Gambling ,
para. 311; and, in paragraph 7.871, to Appellate Body Report, Brazil – Retreaded Tyres, para. 156.
596Panel Report, para. 7.902 (referring to China's response to Panel Question 185).
597Panel Report, para. 7.903.
598Panel Report, para. 7.901.

of having non-incorporated offices of the Gove rnment of China conduct content review would
necessarily be higher than the cost of having in corporated State-owned enterprises conduct such
review.
599 The Panel observed that, in any event, Chin a had not provided any data or estimate that
would suggest that the cost to the Chinese Government would be unreasonably high or even
prohibitive, and that Article 44 of the Publication Regulation already authorizes the Government to
charge fees for providing a content review service, which could lessen any financial burden associated
with the proposed alternative measure.600
326. After having set out the above reasoning, th e Panel determined that China had not
"demonstrated that the alternative proposed by the United States would impose on China an undue
burden, whether financial or otherwise"601 and that, accordingly, China had not "demonstrated that the
alternative proposed by the United States is not 'reasonably available' to it."602
327. We are not persuaded that the Pa nel erred in the above analysis. The Panel did not find that
the proposed alternative measure involves no cost or burden to China. As the Appellate Body report
in US – Gambling makes clear, an alternative measure s hould not be found not to be reasonably
available merely because it involves some change or administrative cost. 603 Changing an existing
measure may involve cost and a Member cannot dem onstrate that no reasonably available alternative
exists merely by showing that no cheaper alternativ e exists. Rather, in order to establish that an
alternative measure is not "reasonably available", th e respondent must establish that the alternative
measure would impose an undue burden on it, and it must support such an assertion with sufficient
evidence.604
328. In the present case, China did not provide eviden ce to the Panel substantiating the likely
nature or magnitude of the costs that would be asso ciated with the proposed alternative, as compared
to the current system. Nor has Ch ina, in its appeal, pointed to sp ecific evidence in the Panel record

599Panel Report, para. 7.904.
600Panel Report, para. 7.905. Indeed, in response to the Panel's question whether the Government could
charge fees for the review of content in respect of the products relevant to this dispute, China answered that
content review conducted by the Government was "not only a matter of money". (China's response to Panel
Question 195)
601Panel Report, para. 7.906.
602Panel Report, para. 7.907. The Panel also noted that China had not argued that the proposed
alternative would be WTO-inconsistent, and that the Pane l saw "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". (Ibid.)
603We observe, in this regard, that a Member's right to secure a high level of protection with respect to
one of the objectives listed in Article XX of the GATT 1994 has been recognized by the Appellate Body in
Korea – Various Measures on Beef . However, the Appellate Body also noted that implementing such choice
through a WTO-consistent measure may entail higher costs for its national budget. (See Appellate Body Report,
Korea – Various Measures on Beef, para. 181)

that would allow us to conclude that the Panel erred in failing to attribute sufficient significance to the
evidence of financial and administrative burden that may attach to the proposed alternative measure.
Instead, China simply argues that the proposal would involve "tremendous restructuring" and would
"obviously put on China an excessively heavy financial and administrative burden". 605 However, as
we see it, adopting any alternative measure will, by definition, involve some change, and this alone
does not suffice to demonstrate that the alternative would impose an undue burden.
329. We are also not convinced that China establis hed that the proposed alternative measure
involves substantial technical difficulties. On appeal , China contends that the alternative proposed by
the United States would require the establishment of an electronic sampling system and the upgrading
of the current electronic transmission system, and that it is unclear how, under such a system,
elements of content found to be contrary to pub lic morals could be rem oved from relevant products
before they are imported.
330. In response to a request at the oral hearing in this appeal to point to evidence in the Panel
record establishing such substantial technical di fficulty, China referred us to its first written
submission
606 and to an exhibit containing the report on operations of the CNPIEC, an approved,
wholly State-owned publication import entity. 607 Neither of these documents addresses directly the
current technology systems within the Chinese Gove rnment, or the technical difficulties that might
arise in the implementation of the proposed alte rnative measure. The report on operations explains
that the CNPIEC makes full use of Internet technology to improve the efficiency of its content review.
China, however, has not explained why the Chinese Government could not use this same technology
if it were to be entrusted with sole responsibility for content review.
331. Lastly, we are not persuaded by China's argume nt on appeal that the proposed alternative
would make it impossible to "double check" 608 content at customs. China's argument in this regard
assumes that the alternative put forward by the Un ited States necessarily implies that content review
would be carried out in a single, central location. We do not see any such necessary implication.
Indeed, China itself seems to acknowledge as much in arguing that the costs of implementing the
proposed alternative would be high because, inter alia, the alternative would require the training and
assignment of a large number of qualified content reviewers to numerous locations.
609

606China's first written submission to the Panel, para. 225.
607Panel Exhibit CN-26, supra, footnote 141.

332. Accordingly, having reviewed the Panel's analysis of the limited evidence before it, as well as
the additional arguments made by China on appeal, we find that the Panel did not err, in
paragraph 7.908 of the Panel Report, in finding that at least one of the alternative measures proposed
by the United States is an alternative "reasonably available" to China.
333. In addition, China claims that the Panel faile d to make an objective assessment of the matter
before it, as required by Article 11 of the DSU. China asserts that, in response to a question by the
Panel, it explained that importers carry most of the burden of reviewing the content of imported
reading materials, while the Government's involveme nt is rather limited. China contends that the
Panel misrepresented this position when it stated th at "China has not asserted that its Government
would lack the capacity to make content review decisions with regard to books, newspapers or
periodicals"
610, and thereby failed to make an objective assess ment of the facts before it, in violation
of Article 11 of the DSU.611
334. We note that, in the course of its analysis, the Panel stated:
We recognize that implementing the [United States'] proposal might
make it necessary for China to allocate additional human and
financial resources to the authorities tasked with performing content
review.
612
In our view, this statement by the Panel demonstr ates that the Panel correct ly understood China's
argument. In recognizing that additional resources may be necessary, the Panel implicitly recognized
that China's content review authorities may not cu rrently have the human and financial resources for
reviewing the content of all imported reading materi als. In its appellant's submission, China itself
recognizes that, in making the above statemen t, the Panel acknowledged China's argument. 613 Thus,
in our view, it cannot be said that the Panel faile d to consider China's argument and we are not
persuaded that the Panel misrepresented China's po sition. Rather, the Panel considered that the
additional resources that may be required to adopt an alternative approach to content review had not
been shown to amount to an undue burden. We are th erefore of the view that the Panel did not fail to
make an objective assessment of the matter in conclu ding that an alternative measure is "reasonably
available" to China.
335. Finally, it may be useful to indicate what we are not saying in reaching the above conclusion.
We are not holding that China is under an obligation to ensure that the Chinese Government assumes
sole responsibility for conducting content review. Rather, we are agreeing with the Panel that the

612Panel Report, para. 7.903.

United States has demonstrated that the proposed alternative would be less restrictive and would make
a contribution that is at least equivalent to the contribution made by the measures at issue to securing
China's desired level of protection of public morals. China, in turn, has not demonstrated that this
alternative is not reasonably available. This does not mean that having the Chinese Government
assume sole responsibility for conducting content review is the only alternative available to China, nor
that China must adopt such a scheme. It does mean that China has not successfully justified under
Article XX(a) of the GATT 1994 the provisions an d requirements found to be inconsistent with
China's trading rights commitments under its Acc ession Protocol and Working Party Report. It
follows, therefore, that China is under an obligation to bring those measures into conformity with its
obligations under the covered agre ements, including its trading rights commitments. Like all WTO
Members, China retains the prerogative to select its preferred method of implementing the rulings and
recommendations of the DSB for measures found to be inconsistent with its obligations under the
covered agreements.
C. Summary and Conclusion on Article XX(a) of the GATT 1994
336. We have found above that: (i) by virtue of the introductory clause of paragraph 5.1 of China's
Accession Protocol, China may, in this case, invoke Article XX(a) of the GATT 1994 to justify the
provisions and requirements found to be inconsiste nt with its trading rights commitments under its
Accession Protocol and Accession Working Party Repor t; (ii) the Panel did not err in its finding
regarding the contribution to the protection of public morals in China made by the State-ownership
requirement in Article 42(2) of the Publications Regulation; (iii) the Panel did not err in its finding
regarding the contribution to the protection of public morals made by the provisions excluding
foreign-invested enterprises from engaging in the impo rtation of the relevant products; (iv) the Panel
erred in finding that the State plan requirement in Article 42 of the Publications Regulation is apt to
make a material contribution to the protection of public morals and that, in the absence of a
reasonably available alternative, it can be charact erized as "necessary" to protect public morals in
China; (v) the Panel did not err in taking account of the restrictive effect that the measures at issue
have on those wishing to engage in importing as part of its assessment of the restrictive effect of the
provisions of China's measures found to be inconsis tent with its trading rights commitments; and
(vi) the Panel did not err in finding that at least one of the alternative measures proposed by the
United States is an alternative "reasonably available" to China.
614

614In the light of these findings, we need not address China's request that we complete the analysis and
find its measures to be "necessary" to protect public mo rals within the meaning of Article XX(a) and consistent
with the chapeau of Article XX of the GATT 1994.

337. For all these reasons, we uphold the Panel's conclusion, in paragraph 8.2(a)(i) of the Panel
Report, that China has not demonstrated that the re levant provisions are "necessary" to protect public
morals, within the meaning of Article XX(a) of the GATT 1994 and that, as a result, China has not
demonstrated that these provisions are justified under Article XX(a).
615
VII. Scope of China's GATS Schedule Entry "Sound Recording Distribution Services"
A. Introduction
338. We now turn to the Panel's analysis of the scope of China's GATS Schedule entry on "Sound
recording distribution services". The Panel inte rpreted China's GATS Schedule and reached the
conclusion that the entry "Sound recording distribution services", under the heading of "Audiovisual
Services" in sector 2.D of that Schedule, "extends to the distribution of sound recordings in non-
physical form, notably through electronic means".
616 On this basis, the Panel proceeded to find that:
[t]he Circular on Internet Culture (Article II), the Network Music
Opinions (Article 8), and the Several Opinions (Article 4), each is
inconsistent with China's nati onal treatment commitments under
Article XVII of the GATS. Article X:7 of the [List] of Prohibited
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.617
339. Each of the provisions found by the Panel to be inconsistent with China's obligations under
Article XVII of the GATS prohibits foreign-inv ested enterprises from engaging in the electronic
distribution of sound recordings in China, while like domestic service suppliers are not similarly
prohibited.
618
340. China appeals the Panel's finding that th e above provisions in China's measures are
inconsistent with Article XVII of the GATS. More specifically, China contends that the Panel erred
in interpreting the entry "Sound recording dist ribution services" in China's GATS Schedule as
encompassing distribution by electronic means.
341. According to China, the Panel erred in its analys is of the ordinary meaning to be given to the
entry "Sound recording distribution services", taken in its context and in the light of the object and
purpose of the treaty, and in concluding that an an alysis of this entry based on supplementary means
of interpretation under Article 32 of the Vienna Convention confirmed its earlier analysis under

615See also Panel Report, para. 7.911.
616Panel Report, para. 7.1265.
617Panel Report, para. 8.2.3(b)(i).
618Panel Report, paras. 7.1300-7.1311. The texts of these provisions along with an excerpt from
China's GATS Schedule are set out in Annex III to this Report.

Article 31 of the Vienna Convention .619 Moreover, China contends that, since the application of
Articles 31 and 32 of the Vienna Convention yields an "inconclusive"620 result, the Panel should have,
in the face of "such a high le vel of ambiguity", applied the in dubio mitius principle and "refrained
from adopting the interpretation which was the least favourable to China."621
342. The United States responds that the Panel did not err in its analysis under Articles 31 and 32
of the Vienna Convention and correctly found that China's GATS commitment on "Sound recording
distribution services" in sector 2.D of its Schedule includes the electronic distribution of sound
recordings. Thus, the United States contends that th e Panel correctly found that the relevant measures
are inconsistent with 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."
622
343. Below, we review discrete elements of the Pa nel's analysis of China's GATS Schedule entry
in the light of the specific claims of error raised by China on appeal. Before doing so, we outline the
overall approach employed by the Panel.
344. In seeking to ascertain the meaning of the en try "Sound recording distribution services", the
Panel began by consulting dictiona ry definitions of the terms "sound recording" and "distribution
services". According to the Panel, dictionary defi nitions suggested that China's commitment covers
the distribution of sound recordings in electronic form. 623 The Panel then tu rned to analyze the
context in which the relevant entry is situated. Specifically, the Panel examined: (i) the immediate
context provided by the heading of, as well as va rious other entries within, sector 2.D (Audiovisual
Services) of China's GATS Schedule; (ii) th e context provided by China's commitment on
distribution services in sector 4 (Distribution Services ) of its GATS Schedule; (iii) certain provisions
of the GATS itself; and (iv) certain GATS Schedules of other Members. The Panel found that
several of these contextual elements suggested th at "Sound recording distribution services" covers the
distribution of sound recordings in electronic fo rm. The Panel considered that the remaining
contextual elements are "consistent with"
624, do not "address" 625, or do not "contradict" 626, such a
view. Overall, the Panel consider ed that its analysis of context supported the view that the entry
"Sound recording distribution services" in China's GATS Schedule covers the distribution of content

623Panel Report, para. 7.1181.
624Panel Report, para. 7.1202.
625Panel Report, para. 7.1201.
626Panel Report, para. 7.1194.

in non-physical form.
627 Next, the Panel reviewed the object and purpose of the GATS, as reflected in
the preamble of that Agreement, and found that its interpretation of China's commitment on "Sound
recording distribution services" was "consistent with" this object and purpose. 628 Having thus
interpreted the entry "Sound recording distribution services" in China's GATS Schedule in the light of
the various elements prescribed under Article 31 of the Vienna Convention , the Panel "reached the
preliminary conclusion that [China's] commitment extends to sound recordings distributed in non-
physical form, through technologies such as the Internet."629
345. The Panel considered it useful to have rec ourse to supplementary means of interpretation
under Article 32 of the Vienna Convention to confirm this preliminary conclusion. 630 Under
Article 32 of the Vienna Convention, the Panel reviewed the Services Sectoral Classification List 631
and the 1993 Explanatory Note on Scheduling of Initial Commitments in Trade in Services (the "1993
Scheduling Guidelines") 632, as preparatory work, and certain circumstances surrounding the
conclusion of China's Accession Protocol and GATS Schedule. The Panel found that the relevant
preparatory work "confirmed" its view, under Article 31 of the Vienna Convention, of the scope of the
entry in China's GATS Schedule. 633 As for the circumstances surrounding the conclusion of the
treaty, the Panel was not persuaded that these ci rcumstances supported China's position that "Sound
recording distribution services" cannot extend to the electronic distribution of sound recordings.
Accordingly, the Panel deemed these ci rcumstances to be "consistent with"
634 its analysis under
Article 31 of the Vienna Convention.
346. On the basis of all of the above reasoning, the Panel found that:
... the inscription of "sound recording distribution services" under the
heading of Audiovisual Services (S ector 2.D) of China's Services
Schedule extends to the distribution of sound recordings in non-
physical form, notably through electronic means.635

627Panel Report, para. 7.1203.
628Panel Report, para. 7.1219.
629Panel Report, para. 7.1220. The Panel found that the United States' claims were not, as alleged by
China, limited to claims relating to the digital distribution of sound recordings over the Internet. Instead, the
Panel accepted that the claims in respect of "digital distribution" also referred to other forms of digital
communication, "which might include, for example, mobile telephone networks". (Ibid., para. 7.1152)
630Panel Report, para. 7.1221.
631MTN.GNS/W/120, 10 July 1991.
632MTN.GNS/W/164, 3 September 1993.
633Panel Report, para. 7.1234.
634Panel Report, para. 7.1247.
635Panel Report, para. 7.1265.

B. Article 31 of the Vienna Convention
347. China challenges several elements of the Panel's analysis and findings under Article 31(1) of
the Vienna Convention. According to that provision:
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.
1. Ordinary Meaning and the Panel's Use of Dictionary Definitions
348. The Appellate Body has previously held that, while a panel may start with the dictionary
definitions of the terms to be interpreted, in the process of discerning the ordinary meaning,
dictionaries alone are not necessarily capable of resolving complex questions of interpretation because
they typically catalogue all meanings of words.
636 Dictionaries are important guides to, but not
dispositive of, the meaning of words appearing in treaties. 637 For these reasons, the Appellate Body
has cautioned panels against equating the "ordinary meaning" of a term with the definition provided
by dictionaries. Under Article 31 of the Vienna Convention, the "ordinary meaning" of treaty terms
may be ascertained only in their context and in th e light of the object and purpose of the treaty. 638 In
this respect, the Appellate Body has explained th at interpretation pursuant to the customary rule
codified in Article 31 of the Vienna Convention is ultimately a holistic exercise that should not be
mechanically subdivided into rigid components.639
349. The relevant entry in China's GATS Schedule reads "Sound recording distribution services".
This entry is inscribed under sector 2.D "Audiovisual Services". 640 According to China, this entry
covers only the distribution of sound recordings in physical form, for example, music embedded on
compact discs ("CDs"). The United States, in c ontrast, maintains that the entry encompasses the
distribution of sound recordings in both physical and electronic form, for example, through the
Internet or by other electronic means.

636Appellate Body Report, US – Gambling, para. 164. See also Appellate Body Report, US – Softwood
Lumber IV, para. 59; Appellate Body Report, Canada – Aircraft, para. 153; and Appellate Body Report, EC –
Asbestos, para. 92.
637Appellate Body Report, US – Offset Act (Byrd Amendment), para. 248.
638See also Appellate Body Report, US – Gambling, paras. 166 and 167.
639Appellate Body Report, EC – Chicken Cuts, para. 176.
640This entry is not based on the Services Sectoral Classification List that would correspond to this part
of China's Schedule (MTN.GNS/W/120, 10 July 1991, at sector 2.D), nor does it refer to the 1991 United
Nations Provisional Central Product Classification (the "CPC").

350. The Panel began its interpretation of this entry by reviewing several dictionary meanings of
the terms "recording" and "distribution". The Panel found that the definition of "recording"—
"Recorded material; a recorded broadcast, performance"
641—was the most relevant for the purpose of
interpreting the term "recording" in the entry "S ound recording distributio n services" in China's
GATS Schedule. 642 The Panel then considered that the term "recorded material" in this dictionary
definition meant the "material that is recorded" and not the "recording material". 643 Based on this
definition, the Panel reasoned that the term "r ecording" cannot be limited to sound embedded on
physical media, but refers to the content, regardless of the technology of storage or distribution of the
sound.644
351. Regarding the term "distribution", the Pane l analyzed one dictionary definition—"the
dispersal of commodities among cons umers affected by commerce." 645 The Panel observed that the
term "commodity" in this definition is 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"646, and considered that this definition referred to a nything of value, whether tangible or intangible.
On this basis, the Panel concluded that the term "d istribution" can be understood as "the dispersal of
things of value"647, and that this can involve tangible or intangible products.
352. China argues that, in interpreting the ordinary meaning of "Sound recording distribution
services", the Panel failed to perform a holistic exercise under Article 31 of the Vienna Convention,
which requires reaching a definitive conclusion on the meaning of a treaty term only after an
examination of its context and the relevant object and purpose. 648 According to China, the Panel
prematurely concluded that "Sound recording distri bution services" extends to the distribution of
content in non-physical products 649, and, in so doing, disregarded relevant dictionary definitions
submitted by China. In particular, the Panel did not consider alternative dictionary definitions of the
terms "recording" ("something on which sound or visual images have been recorded" 650) and

641Shorter Oxford English Dictionary, 5th edn., W.R. Trumble, A. Stevenson (eds.) (Oxford University
Press, 2002), Vol. 2, p. 2493. See Panel Report, para. 7.1173.
642Panel Report, para. 7.1173.
643Panel Report, para. 7.1175.
644Panel Report, para. 7.1176.
645Shorter Oxford English Dictionary, 5th edn., W.R. Trumble, A. Stevenson (eds.) (Oxford University
Press, 2002), Vol. 1, p. 717. See Panel Report, para. 7.1178.
646Shorter Oxford English Dictionary, 5th edn., W.R. Trumble, A. Stevenson (eds.) (Oxford University
Press, 2002), Vol. 1, p. 461. See Panel Report, para. 7.1179.
647Panel Report, para. 7.1181.
650China's appellant's submission, paras. 102 (quoting The American Heritage Dictionary of the English
Language, 4th edn. (Houghton Mifflin Harcourt, 2000) (Panel Exhibit CN-71)), and 105.

"distribution" ("the process of marketing and supplying goods, especi ally to retailers" 651), which,
according to China, would limit the scope of the en try "Sound recording distribution services" to the
distribution of such recordings on physical carriers. China adds that the "only conclusion" that the
Panel could properly have reached at this stage of its analysis was that "dictionary definitions were
inconclusive".652
353. The United States responds that the Panel cons idered all the definitions submitted by the
parties and properly examined which meaning was to be attributed to the relevant terms in China's
GATS Schedule.653 The United States contends that the Panel correctly found that "sound recording"
means "recorded material" 654, and that "distribution" can be understood as referring to the dispersal
among consumers of anything of value, tangible or intangible.655
354. We observe that the dictionary definitions su bmitted by China to the Panel included a range
of meanings for the terms "recording" and "dis tribution". China itself referred to "recorded
material"656, which was the definition that the Panel considered "most relevant". 657 Although China
contends that the Panel disregar ded alternative definitions from The American Heritage Dictionary of
the English Language , in particular the definition of "recording" as "[s]omething on which sound or
visual images have been recorded", we note that this same dictionary also provides a definition of
"recording" as "[a] recorded sound or picture". 658 Whilst the Panel did not quote the latter two
definitions from the dictionary in question, it did assess whether the term "sound recording"
encompasses only the "particular medium on which the content is embedded or transferred", or also
"material that is recorded" and "content".
659 The Panel was not required in doing so to quote each
dictionary definition submitted by the parties expressing these meanings in similar form. We,
therefore, do not believe that the Panel failed to c onsider whether "sound recording" could be read as
"something on which sound or visual images have been recorded." Rather, the Panel explored
whether the entry at issue covered only distribution of sound recordings in physical form, or extended
to their distribution in electronic form. Ultimately, the Panel was not persuaded that the meaning of
the term "sound recording" excluded recorded content stored or distributed in electronic form.

651China's appellant's submission, para. 113 (quoting The American Heritage Dictionary of the English
Language, 4th edn. (Houghton Mifflin Harcourt, 2000) (Panel Exhibit CN-72)).
656Shorter Oxford English Dictionary, 5th edn., W.R. Trumble, A. Stevenson (eds.) (Oxford University
Press, 2002), Vol. 2, p. 2493. See China's appella nt's submission, para 100; and China's first written
657Panel Report, para. 7.1173.
658The American Heritage Dictionary of the English Language , 4th edn. (Houghton Mifflin
Harcourt, 2000) (Panel Exhibit CN-71).
659Panel Report, paras. 7.1175 and 7.1176.

355. Moreover, the definitions of "distribution"
660 submitted by China do not necessarily support
the meaning ascribed to this term by Chin a. While each of these dictionaries—the Shorter Oxford
English Dictionary and The American Heritage Dictionary of the English Language —offers a
definition of "distribution" that refers to "goods " or "commodities", both also refer to alternative
meanings for the term as encompassing the dispersal of tangible as well as intangible products, as the
Panel observed.661
356. In its analysis of dictionary definitions for purposes of discerning the ordinary meaning of the
term "Sound recording distribution services", the Panel identified some meanings as more relevant to
its analysis, but did not clearly explain why certain definitions were more relevant than others.
However, we do not believe that the absence of a cl ear explanation amounts to an error in the Panel's
analysis of dictionary definitions, because its anal ysis makes clear that it took into consideration the
meaning advocated by China, regardless of the di ctionary sources of the various definitions before
it.662

660See China's appellant's submission, para. 111. The Shorter Oxford English Dictionary defines
"distribution" as, inter alia:
1 The action of dealing out in portions or shares among a number of
recipients; apportionment, allotment; ECONOMICS the dispersal of
commodities among consumers effected by commerce. >b ECONOMICS.
The way in which individuals or classes share in the aggregate products of a
community.

2 The action of spreading or dispersing throughout a region: the state or
manner of being located in different places all over a region.

3 The division of a whole or collective body into parts, esp. with distinctive
characters or functions; division and arrangement; classification.

(Shorter Oxford English Dictionary , 5th edn., W.R. Trumble, A. Stevenson (eds.) (Oxford University Press,
2002), Vol. 1, p. 717)
The American Heritage Dictionary of the English Language defines "distribution" as, inter alia:
1. The act of distributing or the condition of being distributed;
apportionment. 2. Something distributed; an allotment. 3. The act of
dispersing or the condition of being dispersed; diffusion. … 5. Division
into categories; classification. 6. The process of marketing and supplying
goods, especially to retailers. …
(The American Heritage Dictionary of the English Language, 4th edn. (Houghton Mifflin Harcourt, 2000))
661Panel Report, para. 7.1180.
662The Appellate Body has noted that "information placed before a pane l is often voluminous in nature
and that the probative value of speci fic pieces of evidence varies considerably. A panel must examine and
consider all of the evidence placed be fore it, must identify the evidence upon which it has relied in reaching its
findings, and must not make findings that are unsupported by evidence. Yet, a panel is also afforded a
considerable margin of discretion in its appreciation of the evidence. This means, among other things, that a
panel is not required, in its report, to explain precisely how it dealt with each and every piece of evidence on the
panel record." (Appellate Body Report, Chile – Price Band System (Article 21.5 – Argentina), para. 240)

357. We recognize, as China argues, that certain language used by the Panel suggests that it may
have reached conclusions on the ordinary meani ng based on only certain dictionary definitions. 663
The Panel also did not quote in its reasoning the a lternative dictionary definitions submitted by China
and contained in The American Heritage Dictionary of the English Language .664 However, the Panel
did consider whether the meaning of the entry "Sou nd recording distribution services" was limited to
the distribution of physical goods or whether it extended to electronic distribution, and it continued to
do so in its subsequent analysis of relevant cont ext, and object and purpose, as explained below. We,
therefore, do not consider that, in its analysis of the ordinary meaning of "Sound recording
distribution services", the Panel disregarded the defi nitions put forward by China. Neither are we
persuaded that the Panel prematurely reached conclusions on the ordinary meaning of "Sound
recording distribution services" based only on dicti onary meanings before analyzing the relevant
context and the object and purpose of the GATS. In sum, based on our review of the Panel's
reasoning, we believe that the Panel did not err in its consideration of dictionary definitions of the
terms "sound recording" and "distribution".
2. Context

358. In its analysis of context, the Panel review ed relevant parts of China's GATS Schedule,
provisions of the GATS, and the GATS Schedules of other Members. In China's GATS Schedule, the
Panel assessed the contextual relevance of the sector heading "Audiovisual Services", the specific
commitments undertaken for "Sound recording distribution services", the other two subsectors
scheduled under "Audiovisual Services"—namely, "V ideos, including entertainment software and
(CPC 83202), distribution services" and "Cinema Theatre Services"—and the entries under sector 4,
"Distribution Services". The Panel found that, overa ll, the context provided by China's inscriptions in
the "Audiovisual Services" sector of its GATS Sche dule supported the interpretation that the entry
"Sound recording distribution services" extends to the distribution of content through electronic
means.
665 Based on the context given by the sector "Distribution Services" in China's GATS
Schedule, the Panel considered that it was "reasonabl e to presume that the coverage of the entries in
China's Schedule under 'Audiovisual Services' should extend to the distribution in non-physical form
of audiovisual products".666 The Panel found that relevant context in Article XXVIII:(b) of the GATS

663For instance, in paragraph 7.1177 of the Panel Report, the Panel appears to have used the notion of
"ordinary meaning" as a synonym for "dictionary meaning". In paragraph 7.1181, the Panel appears to have
drawn preliminary conclusions on the ordinary meaning, based only on dictionary meanings.
664The Panel, however, makes express reference to China's reliance on the definitions of "recording"
and "distribution" contained in The American Heritage Dictionary of the English Language when describing
China's arguments in paragraph 7.1162 of its Report.
665Panel Report, para. 7.1203.
666Panel Report, para. 7.1205. (original emphasis)

also supported an interpretation of "Sound reco rding distribution services" as encompassing the
electronic distribution of sound recordings.
667
359. China argues that the Panel's analysis of each element of context was "inconclusive" as to
whether "Sound recording distribution services" extends to electronic distribution and that the Panel
erred in concluding that its contextual analysis supported its initial understanding of the ordinary
meaning.
668 The United States responds that the Panel co rrectly concluded that the relevant context
supported the Panel's interpretati on of the ordinary meaning of "Sound recording distribution
services" as covering the distribution of sound r ecordings through both physical and non-physical
media. The United States further argues that, contra ry to China's assertions, the Panel did not rely on
any single element of the context as "conclusive", but conducted a comprehensive examination of
relevant contextual and other elements under Article 31 of the Vienna Convention.669
360. In its examination, the Panel came to the conc lusion that some of the contextual elements
supported the view that "Sound recording distributio n services" extended to the electronic distribution
of non-physical products. The Panel also found that other contextual elements were consistent with or
did not contradict such an interpretation of "S ound recording distribution services". The Panel,
however, did not consider that any of the elements of context it reviewed supported an interpretation
of the entry in China's GATS Schedule as being limited to the distribution of physical sound
recordings. With this in mind, we review belo w elements of context relevant to discerning the
ordinary meaning of the entry "Sound recording distribution services" in China's GATS Schedule,
bearing in mind China's assertion that the Pane l's analysis of each element of context was
inconclusive.
(a) China's GATS Schedule
361. We start by reviewing the contextual relevance of the heading to sector 2.D, "Audiovisual
Services", under which the "Sound recording distribution services" entry is inscribed, followed by the
actual commitments scheduled for this entry and th e other subsectors scheduled under "Audiovisual
Services".

667Panel Report, para. 7.1209.
668China's appellant's submission, paras. 129 and 162.
669United States' appellee's submission, paras. 75 and 87.

362. The Panel considered the sector heading itsel f and found that the meaning of the term
"audiovisual" ("pertaining to both hearing and vision" 670) suggested that services scheduled under this
heading (such as "Sound recording distribution services" ), unless otherwise specified, relate to the
production, distribution, projection, or broadcasting of content that is "sensed by the user through the
faculties of hearing or vision." 671 Such context does not, in itself, rule out the possibility that China
could have scheduled commitments concerning servi ces related only to physic al products under such
a heading.672
363. Regarding the commitments scheduled by China for its entry "Sound recording distribution
services", we observe that the market access and national treatment limitations listed for this subsector
in the four modes of supply also apply to "V ideos, including entertainment software and
(CPC 83202), distribution services".
673 In these two subsectors, Chin a has made full market access
and national treatment commitments in modes 1, 2, a nd 3, except for certain limitations to mode 3 in
the market access column. Specifically, China limits th e type of legal entity or joint venture through
which foreign service suppliers may engage in th e distribution of audiovisual products, by requiring
that they form contractual joint ventures with Chinese partners and subject to China's right to examine
the content of audio and video products. In add ition, motion pictures are explicitly referred to, and
excluded from, the scope of the commitments under "Audiovisual Services". Notwithstanding this
exclusion, China scheduled an additional commitm ent, allowing the annual importation of 20 motion
pictures for theatrical release on a revenue-sharing basis.
364. We observe that the reference to audiovisual "products" in the scheduled market access
limitation can encompass both physical and non-phy sical sound recordings, because, as the Panel
found, the term "product" is used to refer to both tangible and intangible goods, as well as services. 674
Thus, China's commitment on "Sound recording distribution services" does not specify whether it is
limited to the distribution of physical goods, bu t it does include a market access limitation on the
distribution of audiovisual "products" that refers to both tangibles and intangibles. Such commitment
might have expressly indicated that it relates only to the distribution of tapes, videocassettes, CDs,
digital video discs ("DVDs"), and/or other physical media, but it does not.

670Panel Report, para. 7.1186.
671Panel Report, para. 7.1186.
673Separate market access and national treatment li mitations have been sc heduled for the other
subsector included under "Audiovisual Services", that is, "Cinema Theatre Services".
674The Panel noted that the CPC, on the basis of wh ich the WTO Services Sect oral Classification List
was prepared, "is about 'products' that include both goods and services." (Panel Report, para. 7.1188)

365. Regarding the reference to "motion pictures", we ob serve that it is not disputed that this term
refers to non-physical content that can be embedded in physical products.
675 China's mode 3 market
access commitment covers "audiovisual products", ex cluding "motion pictures", thus implying that
motion pictures would otherwise be included within the category of audiovisual products. Moreover,
China undertakes an additional commitment on the importation of motion pictures for theatrical
release under the heading "Audiovisual Services". Th erefore, we consider that the reference to
motion pictures under "Audiovisual Services" in China's GATS Schedule supports the view that the
term "audiovisual products" is used to refer to both tangible and intangible products and that the term
"Sound recording distribution services" also refers to both tangible and intangible products. This also
supports the view that this entry covers the electronic distribution of sound recordings.
366. The Panel also considered the other two s ubsectors scheduled by China under "Audiovisual
Services", that is, "Videos, including entertainment software and (CPC 83202) distribution services"
and "Cinema Theatre Services".
367. China argues that the Panel erred in finding th at the term "videos" refers primarily to
intangible content 676 and that it failed to give meaning to the fact that the entry in China's GATS
Schedule refers to "videos" in the plural form. Th e use of the plural form, in China's view, suggests
that the noun "videos" must refer to something c ountable, such as the "physical copies of content
recorded on video tape". 677 In our view, the plural word "v ideos" in China's Schedule does not
suggest a limitation to something tangible, becau se non-physical products are no less countable than
physical ones. Videos contained in electronic fil es are just as countable as those that are embedded in
video tapes, CDs, and DVDs. Accordingly, we do not see how the use of the plural term by itself
excludes videos in electronic form.
368. We note that the entry "Videos, including entertainment software and (CPC 83202)
distribution services" 678 is scheduled under "Audiovisual Se rvices" adjacent to "Sound recording
distribution services". The Panel observed that the entry "Videos, (...) distribution services" extended
to the distribution of both physical and non-physical products 679 and reasoned that "the concept of

675In replying to a question posed by the Panel, China indicated that the distribution of motion pictures
is not considered to be the distribution of physical goods. (See China's response to Panel Question 86)
676Panel Report, para. 7.1333.
678The reference to the CPC in this entry is a refe rence to a specific category of leasing and rental
services concerning video tapes, which is reproduced in paragraph 7.1331 of the Panel Report.
679Panel Report, paras. 7.1320-7.1349.

'distribution services' in China's entries relating to videos and to sound reco rding must have similar
meaning"680, that is, they both include physical and non-physical products.
369. We agree with this reasoning of the Panel. The fact that the entry "Videos, (...) distribution
services" applies to intangible products681 represents relevant context suggesting that the entry "Sound
recording distribution services", which is subject to the same market access and national treatment
limitations in the four modes of supply, should also be interpreted as applyi ng to intangible products.
We note that the entry "Videos, (...) distribution ser vices" includes "entertainment software", which is
also a reference to content that can be incorporated into physical products or transmitted
electronically. In our view, this provides further contextual support for interpreting "Sound recording
distribution services" as referring to content in bo th physical and non-physical form, and thus
extending to the electronic distribution of sound recordings.
370. The other entry scheduled under the heading "Audiovisual Services" is "Cinema Theatre
Services", which is limited to the construction and re novation of cinema theatres. We do not consider
that the inclusion of an entry on the constr uction and renovation of cinema theatres under
"Audiovisual Services" provides contextual guida nce for the interpretation of "Sound recording
distribution services". As we see it, the Panel attached little contextual significance to China's
commitment covering the construction and renovation of cinema theatres, stating only that the context
of this entry "is consistent with the view" 682 that "Sound recording distribution services" refers to the
distribution of sound recordings as content.683
371. We next turn to the Panel's interpretation of the context represented by China's commitments
under sector 4 (Distribution Services) of its GATS Sc hedule. Like the Panel, we note that China's
commitments on "Distribution Services" cover all physical products, except certain products
explicitly excluded in the sector column of the Schedule. 684 Absent the commitment on "Sound
recording distribution services" under sector 2.D (Audiovisual Services), the physical distribution of

680Panel Report, para. 7.1194.
681China also claims that the Panel should have relied only on dictionary meanings of the term "videos"
that were contemporaneous with China's accession to th e WTO, which define "video" as referring to physical
items only. We are not persuaded that, in examining the ordinary meaning of the term "videos", the Panel
should have relied upon dictionaries that were published at the time of the conclusion of China's accession to the
WTO. In any event, we observe that it is not clear that the meaning of the term "videos" is different today than
it was in 2001. We consider below, in paragraphs 395 to 397, similar arguments made by China in respect of
the terms "sound recording" and "distribution".
682Panel Report, para. 7.1202.
683We recall that the Panel did not rely on this element alone to support its finding on ordinary
meaning, but on the entire context provided by China's entr ies in the "Audiovisual Services" sector of its GATS
Schedule, as indicated in paragraph 7.1203 of the Panel Report.
684The following products are exempted from China' s commitments on distribution services: salt and
tobacco for commission agents and wholesale services, and tobacco only for retailing services. (Panel Report,
para. 7.1204)

sound recording embedded in physical media would, in principle, have been covered by China's
commitments on "Distribution Services".
685
372. We therefore agree with the Panel's observati on that, had China's relevant entry "Sound
recording distribution services" under "Audiovisual Se rvices" been intended to cover exclusively the
distribution of audiovisual products in physical form, "there would have been no need to insert [this
entry and the entry "Video (...) distribution servi ces"] under a sector other than Distribution Services,
where the distribution of physical goods are generally covered in China's Schedule."
686 This alone
does not demonstrate that this entry also covers the electronic distribution of sound recordings.
However, we recognize the contextual relevance of the fact that the entry "Sound recording
distribution services" has been inscribed under the sector concerned with audiovisual content,
"Audiovisual Services", as opposed to the sector "Distribution Services", which covers the
distribution of physical goods in China's GATS Schedule. 687 This, in our view, provides contextual
support for an interpretation of the entry "Sound recording distribution services" as extending also to
the distribution of non-physical products.
(b) Provisions of the GATS
373. We examine next whether relevant context for the interpretation of the phrase "Sound
recording distribution services" can be found in the provisions of the GATS. We start by considering
the rules in the GATS itself that govern the sch eduling of specific commitments and Articles I
and XXVIII(b) of the GATS. We then turn to th e Panel's analysis of the meaning imparted by
Article XXVIII(b) of the GATS to the notion of "distribution" in China's GATS Schedule.
374. We observe that the meaning of terms used in specific commitments inscribed in Members'
Schedules is also informed by the rules in th e GATS itself that govern the scheduling of such
commitments. Thus, in US – Gambling , the Appellate Body examined "the context provided by the

685We recall that, in US – Gambling, the Appellate Body found that:
... because a Member's obligations regarding a particular service depend on
the specific commitments that it has made with respect 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.
(Appellate Body Report, US – Gambling, para. 180)
Before the Panel, both China and the United States agreed that the physical distribution of sound
recordings embedded in physical media is covered by the more specific entry "S ound recording distribution
services" under the "Audiovisual Serv ices" sector and not by the commitmen t on "Distribution Services". (See
China's and the United States' responses to Panel Question 119)
686Panel Report, para. 7.1205.
687We further note that the CPC describes "Distrib utive Trade Services" as consisting of "selling
merchandise". The CPC classifies wholesale trade servi ces and retail trade services according to the goods that
are distributed.

structure of the GATS itself" in interpreting the relevant entry in the United States' GATS Schedule
under Article 31 of the Vienna Convention.688
375. As we have explained, the entry "Sound r ecording distribution services" in China's GATS
Schedule is not further qualified except for a mode 3 market access limitation regarding contractual
joint ventures to distribute audiovisual products (e xcluding motion pictures) and without prejudice to
China's right to examine the content of audiovisual products. China does not limit the subsectoral
scope of this commitment to specific segments of sound recordings (for example, songs, instrumental
works, ring tones, speeches), but commits to s ound recording distribution generally. Moreover,
China's GATS Schedule does not expressly exclude or include any particular form of delivery, for
example, by indicating that the commitment is limite d to the physical distribution of sound recordings
embedded in physical media, or that it also covers electronic distribution. It merely specifies that
supply of the relevant services through mode 3 (commercial presence) is permitted only for
contractual joint ventures with Chinese partners (except for motion pictures) and restates China's right
to examine audiovisual content.
376. The provisions of the GATS itself, insofar as they concern the scheduling of specific
commitments, also provide relevant context for th e interpretation of specific commitments. Article I
defines "trade in services" as the supply of a service through the four modes of supply. 689 The GATS
distinguishes four modes of supply, but does not pr ovide for further distinctions between forms of
delivery. Article XXVIII(b) of the GATS defi nes the "supply of a service" as including "the
production, distribution, marketing, sale and deliver y of a service". Article XX of the GATS requires
each Member to set out in a Schedule the specific commitments it undertakes and to specify by sector
any limitations, conditions, or qualifications on market access and national treatment, and any
additional commitments. 690 Members undertake specific commitmen ts in sectors or subsectors and
according to the four modes of supply. The GATS al so allows Members to circumscribe the scope of

689Article I of the GATS defines trade in services as the supply of a service:
(a) from the territory of one Member into the territory of any other
Member;
(b) in the territory of one Member to the service consumer of any other
Member;
(c) by a service supplier of one Me mber, through commercial presence in
the territory of any other Member;
(d) by a service supplier of one Me mber, through presence of natural
persons of a Member in the territory of any other Member.
690Pursuant to Article XX:1 of the GATS, each Member shall set out in a Schedule the specific
commitments it undertakes under Part III of the Ag reement on market access, national treatment, and any
additional commitments. With respect to sectors wher e such commitments are undertaken, each Schedule shall
specify terms, limitations, and conditions on market access, conditions and qu alifications on national treatment,
and undertakings relating to additional commitments.

their commitments by qualifying the scope of sector s or subsectors inscribed in the Schedule, by
including or excluding modes of supply, and by listing limitations, qualifications, or conditions on
market access and national treatment.
377. We observe that, unless a sector is included in a Schedule, it is not subject to specific
commitments. However, having included a sector or subsector and having specified commitments for
one or more modes of supply in its Schedule, a Member undertakes to lib eralize "the production,
distribution, marketing, sale and delivery" of the service(s) falling within that sector or subsector and
mode(s) of supply, unless it has specified ot herwise by inserting conditions, limitations, or
qualifications in the Schedule. This implies that, in the absence of specific limitations, conditions, or
qualifications, the meaning of "Sound recording dist ribution services" is not limited to the physical
delivery of sound recordings. Rather, this entry would encompass distribution in electronic form.
378. In interpreting the term "distribution" as it appears in China's commitment on "Sound
recording distribution services", the Panel also considered the contextual relevance of the definition of
"supply of a service" in Article XXVIII(b), which includes "the production, distribution, marketing,
sale and delivery of a service".
691 China contends that, even if the term "distribution" could, in the
abstract, relate to the distribution of both physi cal and intangible products, this does not resolve the
question of whether the specific en try in China's GATS Schedule covers distribution of audiovisual
products only on physical carriers or extends also to such products stored in intangible form.692
379. The definition of "supply of a service" in Ar ticle XXVIII(b) of the GATS would not in itself
exclude the possibility of drafting a Schedule entry in a way that covers only the distribution of
physical goods. However, the interpretative question in this dispute is whether China's entry has been
formulated in such a way. It is clear that the te rm "distribution" as used in Article XXVIII(b) of the
GATS refers to the distribution of something intangibl e—services. We agree with the Panel that this
is relevant context in interpreting the meaning of the term "distribution" in China's entry "Sound
recording distribution services" in its GATS Schedule, and that Article XXVIII(b) of the GATS lends
support to an interpretation of the term "distributi on" in the relevant entry in China's Schedule as
covering the distribution of both tangible and intangible products.

691Emphasis added.

380. In sum, the context provided by the entry under the releva nt heading in China's GATS
Schedule, taking into account relevant qualifications or conditions, and read in the light of the GATS
definitions of "trade in services" and "supply of a service" and of the provisions relevant for
scheduling commitments and inscribing limitations , qualifications, and conditions, does not support
an interpretation of the entry "Sound recording distri bution services" as limited to the distribution of
sound recordings in physical form.
(c) GATS Schedules of Other Members
381. The Panel also reviewed the GATS Schedules of several other Members—in particular, their
commitments on audiovisual and distribution services—as relevant context for its interpretation of the
entry "Sound recording distribution services" in China's GATS Schedule. The Panel found that the
context provided by these other GATS Schedules did not point to an interpretation in any way
different from that suggested by the other contextual elements it had examined, that is, that China's
entry "Sound recording distribution services" extends to sound recordings distributed in non-physical
form.
693
382. We recall that, according to the Appellate Body in US – Gambling, the fact that "Members'
Schedules constitute relevant context for the interp retation of subsector 10.D of the United States'
Schedule" was "the logical consequence of Article XX:3 of the GATS, which provides that Members'
Schedules are 'an integral part' of the GATS." 694 The Appellate Body, however, cautioned that the
"use of other Members' Schedules as context must be tempered by the recognition that 'each Schedule
has its own intrinsic logic'"695, which will be different from the Schedule being interpreted.
383. The Panel considered the GATS Schedules of othe r Members together with other elements of
context. Yet, in so doing, the Panel expressly stated that it was mindful of the fact that, although the
GATS Schedules of Members are treaty text reflec ting the common intentions of all WTO Members,
each Schedule has "its own logic" 696 and thereby acknowledged that recourse to other Members'
Schedules may be of limited utility in elucidating the meaning of the entry to be interpreted.

693Panel Report, para. 7.1218.
695Appellate Body Report, US – Gambling , para. 182 (quoting Panel Report, US – Gambling ,
para. 6.98).
696Panel Report, para. 7.1210 (referring to Appellate Body Report, US – Gambling , para. 182; and

384. Moreover, the examination of the Schedules of other Members was not a central element of
the Panel's contextual analysis. The Panel did not find that the GATS commitments of other
Members confirmed its interpretation of the inscr iption "Sound recording distribution services" in
China's GATS Schedule, but simply stated 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 [it] examined".
697 In other words, whilst the Panel viewed the Schedules of other
Members to be of limited contextual relevance to th e interpretation of the particular entry in China's
Schedule, it concluded that the Schedules of ot her Members did not suggest that electronic
distribution should be excluded.
385. Therefore, we do not see merit in China's argu ment that the Panel could not derive any
inferences from the GATS Schedules of other Memb ers for the interpretation of "Sound recording
distribution services" in China's GATS Schedule. 698 As we consider below, the Panel did not rely on
any particular element of context as conclusive, but found instead that its overall analysis of context
supported an interpretation that Ch ina's entry "Sound recording distribution services" extends also to
electronic distribution. Under these circumstances, we do not consider that the Panel erred in its
consideration of the GATS Schedules of other Members as context.
(d) Summary
386. China argues that the Panel's analysis of each element of context was "inconclusive" as to
whether "Sound recording distribution services" extends to electronic distribution and that the Panel
erred in concluding that its contextual analysis supported its original unders tanding of the ordinary
meaning of this entry.
699
387. As we have considered above, while certain el ements of context clearly support the Panel's
interpretation of "Sound recording distribution services" as extending to the electronic distribution of
sound recordings, other elements considered by the Panel are consistent with or do not contradict such
an interpretation of the scope of this commitment. On balance, we are persuaded that the analysis of a
number of contextual elements supports the interpretation of China's commitment on "Sound
recording distribution services" as including the electronic distribution of sound recordings.
388. We further note that the Panel did not regard any of the specific elements it reviewed under
Article 31 of the Vienna Convention as in and of itself "conclusive" as to the question of whether
"Sound recording distribution services" should be inte rpreted as encompassing electronic distribution.

697Panel Report, para. 7.1218.
699China's appellant's submission, paras. 129 and 162.

Rather, the Panel was careful to distinguish among: elements that support such an interpretation;
elements that are consistent with the interpretation; and elements that offer no guidance. In this
regard, we consider that China's claim, that each of the interpretative elements reviewed by the Panel
is "inconclusive" with respect to the interpre tation of "Sound recording distribution services",
overlooks the nature of the interpretative exer cise to be undertaken under Article 31 of the Vienna
Convention.
3. Object and Purpose
389. We now turn to the object and purpose of the treaty. The Panel reviewed the object and
purpose of the GATS, as formulated in the GATS preamble, and found that its interpretation of
China's commitment on "Sound recording distribution services" is consistent with this object and
purpose.700
390. On appeal, China argues that the Panel's in terpretation of "Sound recording distribution
services" is inconsistent with the object and purpose of the GATS and, in particular, with the principle
of progressive liberalization. China claims that the Panel interpreted th e entry "Sound recording
distribution services" according to the contemporary meaning of the words it contains, but that the
principle of progressive liberalization does not allow for the expansion of the scope of the
commitments of a WTO Member by interpreting the terms used in the Schedule based on the meaning
of those terms at the time of interpretation.
701
391. The United States responds that compliance with current commitments is essential to the
credibility and success of "progressive liberalization" in the future. The Un ited States disagrees that
the principle of progressive liberalization required the Panel to base its analysis of the relevant terms
in China's GATS Schedule on their meaning at the time of China's accession to the WTO. According
to the United States, construing the objective of pr ogressive liberalization in this way would place a
limitation on China's commitments that does not exis t in its Schedule, and would not conform to the
requirements of the Vienna Convention.702
392. We observe that the GATS preamble lists vari ous objectives, including the "establish[ment]
of a multilateral framework of principles and rules for trade in services with a view to the expansion
of such trade under conditions of transparency and progressive liberalization", and the "early
achievement of progressively higher levels of lib eralization of trade in services through successive

700Panel Report, para. 7.1219.
702United States' appellee's submission, paras. 104 and 106.

rounds of multilateral negotiations".
703 The Panel found that its in terpretation of "Sound recording
distribution services" is consistent with the objectives listed in the GATS preamble.704
393. We do not disagree with the Panel that nothing in the GATS preamble appears to contradict
an interpretation of "Sound recording distribution services" as extending to electronic distribution of
sound recordings. At the same time, we observe that none of the objectives listed in the GATS
preamble provides specific guidance as to the correct interpretation to be given to China's GATS
Schedule entry "Sound recording distribution services".
394. The principle of progressive liberalization is re flected in the structure of the GATS, which
contemplates that WTO Members undertake speci fic commitments through successive rounds of
multilateral negotiations with a view to liberalizing their services markets incrementally, rather than
immediately and completely at the time of the accep tance of the GATS. The scheduling of specific
commitments by service sectors and modes of supply represents another manifestation of progressive
liberalization. In making specific commitments, Members are not required to liberalize fully the
chosen sector, but may limit the coverage to par ticular subsectors and mode s of supply and maintain
limitations, conditions, or qualifica tions on market access and national treatment, provided that they
are inscribed in their Schedules. We do not cons ider, however, that the principle of progressive
liberalization lends support to an interpretation th at would constrain the scope and coverage of
specific commitments that have already been undertaken by Members and by which they are bound.
395. Neither are we persuaded that, if the Panel had based its analysis on the meanings of the terms
"sound recording" and "distribution" at the time of China's accession to the WTO—that is, 2001—it
would have reached a different conclusion on th e interpretation of the entry "Sound recording
distribution services" in China's GATS Schedule. The term "sound recording" can be used to refer to
"recorded content", irrespective of how it is distribu ted. We have already considered above that the
GATS, which entered into force in 1995, contem plates in Article XXVIII(b) the distribution of

703The second and third recital of the preamble of the GATS read:
Members,

 Wishing to establish a multilateral framework of principles and rules
for trade in services with a view to the expansion of such trade under
conditions of transparency and progressive liberalization and as a means of
promoting the economic growth of all trading partners and the development
of developing countries; (underlining added)
 Desiring the early achievement of progressively higher levels of
liberalization of trade in services through successive rounds of multilateral
negotiations aimed at promoting the interests of all participants on a mutually
advantageous basis and at securing an overall balance of rights and
obligations, while giving due respect to national policy objectives;
(underlining added)
704Panel Report, para. 7.1219.

services—that is, of intangibles. This lends support to interpreting the meaning of "distribution" as
applying to both tangible and intangible products, a nd would equally have done so in 2001, and at the
time the Panel interpreted the entry "Sound record ing distribution services" in China's GATS
Schedule.
396. More generally, we consider that the te rms used in China's GATS Schedule ("sound
recording" and "distribution") are sufficiently generic that what they apply to may change over time.
In this respect, we note that GATS Schedules, like the GATS itself and all WTO agreements,
constitute multilateral treaties with continuing oblig ations that WTO Members entered into for an
indefinite period of time, regardless of whether they were original Members or acceded after 1995.705
397. We further note that interpreting the term s of GATS specific commitments based on the
notion that the ordinary meaning to be attributed to those terms can only be the meaning that they had
at the time the Schedule was concluded would mean that very similar or identically worded
commitments could be given different meanings, conten t, and coverage depending on the date of their
adoption or the date of a Member's accession to th e treaty. Such interpretation would undermine the
predictability, security, and clarity of GATS spec ific commitments, which are undertaken through
successive rounds of negotiations 706, and which must be interpreted in accordance with customary
rules of interpretation of public international law.707

 705We consider such reading of the terms in China's GATS Schedule to be consistent with the approach
taken in US – Shrimp , where the Appellate Body interpreted the term "exhaustible natural resources" in
Article XX(g) of the GATT 1994. (Appellate Body Report, US – Shrimp, paras. 129 and 130)
 We observe that the International Court of Justice, in Costa Rica v. Nicaragua , found that the term
"comercio" ("commerce"), contained in an 1858 "Treaty of Limits" between Costa Ri ca and Nicaragua, should
be interpreted as referring to both trade in goods and trade in services, even if, at the time of the conclusion of
the treaty, such term was used to refer only to trade in goods. (International Court of Justice, Judgment, Case
concerning the Dispute regarding Navigational and Related Rights (Costa Rica v. Nicaragua), 13 July 2009)
706The GATS Uruguay Round specific commitments entered into force on 1 January 1995. The
specific commitments on the movement of natural persons, attached to the Third Protocol to the GATS, entered
into force on 30 January 1996; the specific commitments on financial services, attached to the Second Protocol
to the GATS, entered into force on 1 September 1996; the specific commitments on basic telecommunications
services, attached to the Fourth Prot ocol to the GATS, entered into for ce on 5 February 1998; the specific
commitments on financial services, attached to the Fifth Protocol to the GATS, entered into force
on 1 March 1999. The specific commitm ents of individual acceding countries en tered into force at the time of
each accession.
707We further observe that the fact that parts of a service sector included in a GATS Schedule can be
described by terms other than those used to inscribe the commitment in a Schedule, does not change the
meaning of the treaty terms used in the Schedule, which must be interpreted in accordance with the rules of the
Vienna Convention. Thus, even if a certain type of electronic distribution of sound recordings can be referred to
as "network music services", the terms of the entry "S ound recording distribution services" as embodied in the
Schedule would still have to be interpreted in accordance with the rules of the Vienna Convention. In our view,
this is so even if the distinction between physical and electronic distribution is reflected in international
classification but has not been used in the scheduling of the commitments at issue.

4. Summary under Article 31 of the Vienna Convention

398. Having examined the ordinary meaning of th e entry "Sound recording distribution services"
in China's GATS Schedule, in its context and in th e light of the object and purpose of the GATS, we
reach the conclusion that China's commitment c overs both physical distribution as well as the
electronic distribution of sound recordings. We, ther efore, do not consider that the Panel erred under
Article 31 of the Vienna Convention in reaching "the preliminary conclusion that this commitment
extends to sound recordings distributed in non-physical form, through technologies such as the
Internet".
708
399. We are also persuaded that the application of the interpretative rule set out in Article 31 of the
Vienna Convention to the entry "Sound recording distribution services" does not result in
"inconclusiveness" or ambiguity as to the ordinary meaning of China's commitment. In this respect,
we note that the purpose of the interpretative exercise is to narrow the range of possible meanings of
the treaty term to be interpreted, not to generate multiple meanings or to confirm the ambiguity and
inconclusiveness of treaty obligations. Rather, a tr eaty interpreter is required to have recourse to
context and object and purpose to elucidate the releva nt meaning of the word or term. This logical
progression provides a framework for proper interpre tative analysis, bearing in mind that treaty
interpretation is an integrated operation, where in terpretative rules and principles must be understood
and applied as connected and mutually reinforcing components of a holistic exercise.709
400. Having reached a conclusion on the interp retation of China's commitment on "Sound
recording distribution services" under Article 31 of the Vienna Convention, we observe that we would
not need to proceed to an examination of supplementary means of interpretation pursuant to Article 32
of the Vienna Convention to decide this appeal. The Panel, however, considered that recourse to
supplementary means of interpretation was useful to confirm its preliminary conclusion based on the
application of Article 31 and proceeded to exam ine the preparatory work of the treaty and the
circumstances of the conclusion of the GATS pursuant to Article 32 of the Vienna Convention. China
has appealed the Panel's application of Article 32. We therefore address the issues raised by China in
respect of the Panel's analysis of supplementary m eans of interpretation pursuant to Article 32 of the
Vienna Convention.

708Panel Report, para. 7.1220.

C. Article 32 of the Vienna Convention
401. China claims that the Panel's approach to Article 32 of the Vienna Convention 710 was
"fundamentally flawed from the outset".711 In China's view, because the Panel should have found that
its analysis pursuant to Article 31 was inconclusi ve, the Panel should have applied Article 32 to
"determine"712 the meaning of the terms in China's Schedule and not merely to "confirm" the
erroneous preliminary conclusion that it had reached under Article 31. China contends that the
Panel's analysis of the preparatory work, that is, the Services Sectoral Classification List and the 1993
Scheduling Guidelines, was largely based on the same premises as its analysis of the sector 2.D,
"Audiovisual Services", in China's GATS Schedule, as context, and, for the same reasons advanced
by China with respect to that elem ent of context, should have been found by the Panel to be equally
inconclusive.
713 China also argues that the Panel failed to consider whether the circumstances of the
conclusion of the treaty revealed China's inten tion not to undertake specific commitments on the
electronic distribution of sound recordings.714
402. The United States responds that the Panel did not err in resorting to supplementary means of
interpretation under Article 32 of the Vienna Convention only for the purpose of confirming the
conclusions it had reached under Article 31 of the Vienna Convention . According to the United
States, the Panel's analysis of the supplementa ry means of interpretation was correct, and the
circumstances of the conclusion of China's accession to the WTO supported the finding that China
undertook a GATS specific commitment with respect to the electronic distribution of sound
recordings.
715
403. Although the Panel's application of Article 31 of the Vienna Convention to "Sound recording
distribution services" led it to a "preliminary conclusion" as to the meaning of that entry, the Panel
nonetheless decided to have recourse to s upplementary means of interpretation to confirm that
meaning. We note, in this regard, that China's argument on appeal appears to assume that the Panel's
analysis under Article 32 of the Vienna Convention would necessarily have been different if the Panel
had found that the application of Article 31 le ft the meaning of "Sound recording distribution

710Article 32 of the Vienna Convention states:
Recourse may be had to supplementary means of interpretation, including the
preparatory work of the treaty and th e 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:
(a) leaves the meaning ambiguous or obscure; or
(b) leads to a result which is manifestly absurd or unreasonable.
715United States' appellee's submission, paras. 108 and 114.

services" ambiguous or obscure, and if the Panel had, therefore, resorted to Article 32 to determine,
rather than to confirm, the meaning of that term. We do not share this view. The elements to be
examined under Article 32 are distinct from those to be analyzed under Article 31, but it is the same
elements that are examined under Article 32 irrespec tive of the outcome of the Article 31 analysis.
Instead, what may differ, depending on the results of the application of Article 31, is the weight that
will be attributed to the elements analyzed under Article 32.
404. In the present case, we do not consider that, under Article 32 of the Vienna Convention, the
Panel was required, as China seems to argue, to establish whether the preparatory work and the
circumstances of the treaty's conclusion were conclusive as to whether or not China's commitment on
"Sound recording distribution services" was limited to the distribution of sound recordings in physical
form. The Panel had come to the "preliminary conclusion" under Article 31 of the Vienna Convention
that the ordinary meaning of "Sound recording distribution services" extended to the distribution of
both physical and non-physical sound recordings. We do not think that the Panel committed any error
by seeking confirmation of this finding under Article 32 of the Vienna Convention.
405. We further note that the purpose of treaty interpretation under Articles 31 and 32 of the
Vienna Convention is to ascertain the "common intention" of the parties, not China's intention alone.
We recall that, in this respect, in US – Gambling , the Appellate Body found that "the task of
ascertaining the meaning of a concession in a Schedu le, like the task of interpreting any other treaty
text, involves identifying the common intention of Members".
716 The circumstances of the conclusion
of the treaty may thus be relevant to this "common intention".
406. Regarding the preparatory work, China has not persuaded us that the Panel erred. China
simply argues that the Panel's analysis of the Services Sectoral Classification List and the 1993
Scheduling Guidelines was largely based on the same flawed premises as its analysis of the sector
heading "Audiovisual Services", and that the Pane l should have found the preparatory work to be
equally inconclusive. China does not identify a sp ecific legal error committed by the Panel in its
consideration of the preparatory work. Moreover, we recall that, in our review of the Panel's analysis
of context, we agreed with the Panel's findings th at China's sector heading and scheduled entries in
sector 2.D (Audiovisual Services) suggest that th e entry "Sound recording distribution services"
includes the electronic distribution of such recordings.

716Appellate Body Report, US – Gambling , para. 159. (original emphasis) See also Appellate Body

407. Regarding the circumstances of the conclusion of the treaty, we observe that China appears to
be asking us to draw inferences from the facts that the Panel did not draw. The Panel found that "the
electronic distribution of [sound recordings] had become a technical possibility and commercial
reality ... before the entry into force of China's GATS Schedule." 717 The Panel also seems to have
accepted that, at the time of China's accession to th e WTO, there was not yet an international or a
domestic legal framework in place for the electr onic distribution of sound recordings, although both
were under discussion.718 Based on these findings, the Panel rej ected China's argument that the entry
"Sound recording distribution services" could not ha ve included the electronic distribution of sound
recordings because such business, or any legal fra mework for such business, emerged only after
China's accession to the WTO.719
408. We are not persuaded that the Panel relied on th e fact that it found the electronic distribution
of sound recordings to be technically feasible a nd a commercial reality when China acceded to the
WTO.720 We do not see that the Panel erred in its assessment that the absence of a regulatory
framework within China and intern ationally at the time of China's WTO accession would not have
prevented China from making a commitment on the elect ronic distribution of sound recordings in its
GATS Schedule. 721 More importantly, it is not clear to us that the Panel found, as China's appeal
suggests, that the circumstances of the conclusion of the treaty supported the Panel's interpretation
under Article 31 of the Vienna Convention. To the contrary, various statements by the Panel indicate
that the Panel simply found that this element did not establish that China could not have undertaken a
commitment on the electronic distribution of sound recordings in 2001. 722 The Panel rejected China's
argument about the factual situation and about the significance of the circumstances of the conclusion
of the treaty, but it did not itself draw interpretative conclusions on the basis of the evidence of such
circumstances.
409. Thus, in its analysis under Article 32 of the Vienna Convention, the Panel simply concluded
that certain circumstances of the conclusion of th e treaty did not exclude the possibility that China's
GATS commitment also extends to the electronic dist ribution of sound recordings, and that this was

717Panel Report, para. 7.1242.
718Panel Report, paras. 7.1243-7.1246.
719Panel Report, paras. 7.1235 and 7.1245-7.1247.
720Panel Report, para. 7.1242. In so finding, the Pane l was merely rejecting China's argument that this
business was neither technically feasible nor commercially viable at the time of the conclusion of the treaty.
721Panel Report, paras. 7.1243 and 7.1245.
722In paragraph 7.1245 of the Panel Report, the Panel stated that the alleged lack of a domestic legal
framework "would not in itself have prevented China from making a valid commitment on these services in its
Schedule". Moreover, in paragraph 7.1247, the Panel stated that it was not persuaded 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 Ch ina's GATS Schedule and, more broadly, WTO Members,
had at the time no conception of the technical or commercial viability of this form of distribution."

consistent with its earlier analysis under Article 31 of the Vienna Convention. We see no error in such
reasoning.
410. Finally, China claims that the Panel should have found that the application of both Articles 31
and 32 of the Vienna Convention left the issue of whether China's GATS commitment on "Sound
recording distribution services" included the distri bution of sound recordings by electronic means
largely "inconclusive".
723 In China's view, when confronted w ith such a high level of ambiguity, the
Panel should have applied the in dubio mitius principle and refrained from adopting the interpretation
that was the least favourable to China. The United States responds that there was no basis for
applying the in dubio mitius principle in this dispute because th e Panel correctly interpreted China's
GATS specific commitment based on Articles 31 and 32 of the Vienna Convention.724
411. We have found above that the Panel did not err in its interpretation of "Sound recording
distribution services" in accordance with Article 31 of the Vienna Convention. We have expressed the
view that the Panel's recourse to Article 32 of the Vienna Convention was not in error, but that it was
also not necessary, given that the application of Article 31 yielded a conclusion on the proper
interpretation of this entry in Ch ina's GATS Schedule. We have also observed that we see no error in
the Panel's analysis under Article 32. We ther efore do not accept China's contention that the Panel
should have found that the meaning of the entry "Sound recording distribution services" remains
inconclusive or ambiguous after its analysis under Articles 31 and 32 of the Vienna Convention .
Consequently, even if the principle of in dubio mitius were relevant in WTO dispute settlement, there
is no scope for its application in this dispute.
D. Conclusions
412. We therefore find that the Panel did not err, in paragraph 7.1265 of the Panel Report, in
finding that the entry "Sound recording distribution services" under the heading "Audiovisual
Services" (sector 2.D) in China's GATS Schedule ex tends to the distribution of sound recordings in
non-physical form, notably through electronic means.
413. In the light of the above, we uphold the Panel's conclusion, in paragraph 8.2.3(b)(i) of the
Panel Report, that, as regards the electronic distribution of sound recordings, "[t]he 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 [List] of Pr ohibited 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."725
VIII. Findings and Conclusions
414. For the reasons set forth in section V of this Report, with respect to China's measures
pertaining to films for theatrical release and unfinished audiovisual products, the Appellate Body:
(a) finds that the Panel did not err, in paragra phs 7.560 and 7.584 of the Panel Report, in
finding that Article 30 of the Film Regulation and Article 16 of the Film Enterprise
Rule are subject to China's trading rights co mmitments in paragraphs 1.2 and 5.1 of
China's Accession Protocol and paragraphs 83(d) and 84(a) and (b) of China's
Accession Working Party Report; and therefore
(b) upholds the Panel's conclusions, in paragraph 8. 1.2(c)(ii), (iii), (vi), and (vii) of the
Panel Report 726, that Article 30 of the Film Regulation and Article 16 of the Film
Enterprise Rule are inconsistent with China's trading rights commitments in
paragraphs 1.2 and 5.1 of China's Accession Protocol and paragraphs 83(d) and 84(a)
and (b) of China's Accession Working Party Report;
(c) finds that the Panel did not err, in paragra phs 7.652 and 7.674 of the Panel Report, in
finding that Article 5 of the 2001 Audiovisual Products Regulation and Article 7 of
the Audiovisual Products Importation Rule are subject to China's obligation, in
paragraph 1.2 of China's Accession Prot ocol and paragraph 84(b) of China's
Accession Working Party Report, to grant in a non-discretionary manner the right to
trade; and therefore
(d) upholds
 the Panel's conclusions, in paragra ph 8.1.2(d)(i) and (v) of the Panel
Report727, that Article 5 of the 2001 Audiovisual Products Regulation and Article 7 of
the Audiovisual Products Importation Rule are inconsistent with China's obligation,
in paragraph 1.2 of China's Accession Pr otocol and paragraph 84(b) of China's
Accession Working Party Report, to grant in a non-discretionary manner the right to
trade.

725See also Panel Report, para. 7.1311.
726See also Panel Report, paras. 7.571, 7.576, 7.594, 7.598, and 7.599.
727See also Panel Report, paras. 7.657 and 7.680.

415. For the reasons set forth in section VI of this Report, the Appellate Body:
(a) finds
 that, by virtue of the introductory clause of paragraph 5.1 of China's Accession
Protocol, China may, in this dispute, invoke Article XX(a) of the GATT 1994 to
justify provisions found to be inconsiste nt with China's trading rights commitments
under its Accession Protocol and Working Party Report;
(b) with respect to the Panel's analysis of the contribution made by the relevant
provisions of China's measures 728 to the protection of public morals within the
meaning of Article XX(a):
(i) finds that the Panel did not err, in para graphs 7.860 and 7.863 of the Panel
Report, in its finding regarding the cont ribution made by the State-ownership
requirement in Article 42 of the Publications Regulation;
(ii) finds that the Panel did not err, in para graphs 7.865 and 7.868 of the Panel
Report, in its finding regarding the contribution made by the provisions
excluding foreign-invested enterprises from engaging in the importation of
the relevant products
729; and
(iii) finds that the Panel erred, in paragraph 7.836 of the Panel Report, in finding
that the State plan requirement in Article 42 of the Publications Regulation is
apt to make a material contribution to the protection of public morals and
that, in the absence of a reasonably available alternative, it can be
characterized as "necessary" to protect public morals in China;
(c) finds that the Panel did not err in taking into account the restrictive effect that the
relevant provisions and requirements ha ve on those wishing to engage in
importing730;

728Articles X:2 and X:3 of the List of Prohibited Foreign Investment Industries in the Catalogue, in
conjunction with Articles 3 and 4 of the Foreign Investment Regulation ; Article 4 of the Several Opinions ;
Article 41, and Article 42 in conjunction with Article 41, of the Publications Regulation; Article 27 of the 2001
Audiovisual Products Regulation ; Article 8 of the Audiovisual Products Importation Rule ; and Article 21 of
the Audiovisual (Sub-)Distribution Rule.
729Such exclusion is set out in the following provisions : Articles X:2 and X:3 of the List of Prohibited
Foreign Investment Industries in 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.
730See Panel Report, paras. 7.788, 7.827, 7.835, 7.847, 7.862, and 7.867.

(d) finds that the Panel did not err in finding, in paragraph 7.908 of the Panel Report, that
at least one of the alternative measures proposed by the United States is an alternative
"reasonably available" to China; and, therefore
(e) upholds the Panel's conclusion, in paragr aph 8.2.(a)(i) of the Panel Report 731, that
China has not demonstrated that the relevant provisions are "necessary" to protect
public morals, within the meaning of Artic le XX(a) of the GATT 1994 and that, as a
result, China has not established that these provisions are justified under
Article XX(a).
416. For the reasons set forth in section VII of this Report, the Appellate Body:
(a) finds
 that the Panel did not err, in paragra ph 7.1265 of the Panel Report, in finding
that the entry "Sound recording distribution services" in sector 2.D of China's GATS
Schedule extends to the distribution of sound recordings in non-physical form,
notably through electronic means; and, therefore
(b) upholds the Panel's conclusion, in paragr aph 8.2.3(b)(i) of the Panel Report 732, that
the provisions of China's measures 733 prohibiting foreign-invested entities from
engaging in the distribution of sound recordi ngs in electronic form are inconsistent
with Article XVII of the GATS.
417. The Appellate Body recommends that the DSB request China to bring its measures, found in
this Report and in the Panel Report as modified by this Report, to be inco nsistent with China's
Accession Protocol, China's Accession Working Party Report, the GATS, and the GATT 1994 into
conformity with China's obligations thereunder.

731See also, Panel Report, para. 7.913.
732See also, Panel Report, para. 7.1311.
733Article II of the Circular on Internet Culture; Article 8 of the Network Music Opinions; Article 4 of
the Several Opinions; and Article X:7 of the List of Prohibited Foreign Investment Industries in the Catalogue,
in conjunction with Articles 3 and 4 of the Foreign Investment Regulation.

Signed in the original in Geneva this 6th day of December 2009 by:

Jennifer Hillman
Presiding Member

 _________________________ _________________________
 Shotaro Oshima Ricardo Ramírez-Hernández
 Member Member

ANNEX I

23 September 2009

 (09-4455)
 Original: English

Notification of an Appeal by China

under Article 16.4 and Article 17 of the Understanding on Rules
and Procedures Governing the Settlement of Disputes (DSU),
and under Rule 20(1) of the Working Procedures for Appellate Review

 The following notification, dated 22 Septembe r 2009, from the Delegation of the People's
Republic of China, is being circulated to Members.

 Pursuant to Article 16.4 and Article 17 of the Understanding on Rules and Procedures
Governing the Settlement of Disputes ("DSU") and Rule 20 of the Working Procedures for Appellate
Review, China hereby notifies its decision to appeal to the Appellate Body certain issues of law
covered in the Panel Report in (WT/DS363/R, as amended by
WT/DS363/R/Corr.1), and certain legal interpretations developed by the Panel in this Report.
1

1. China seeks review by the Appellate Body of the Panel's legal c onclusions set out in
paragraphs 7.913 and 8.2(a)(i) and (ii)
2 of the Panel Report that China's measures 3 are not justified
under Article XX(a) of the General Agreement on Tariffs and Trade 1994 ("GATT 1994"). The Panel
committed errors of law and legal interpretation in concluding that none of the relevant measures are
"necessary" to protect public morals, within th e meaning of Article XX(a) of the GATT 1994. In
particular:

1For ease of reference, China hereafter refers to this Report as the "Panel Report".
2China makes reference to sub-section (a) under paragraph 8.2 on page 466 of the Panel Report.
3The Catalogue and the Foreign Investment Regulation (Articles X.2 and X.3 as well as Articles 3
and 4); the Several Opinions (Article 4); the Publications Regulation (Article 42 in conjunction with Article 41,
and Article 41); the 2001 Audiovisual Products Regulation (Article 27); the Audiovisual Products Importation
Rule (Article 8); and the Audiovisual (Sub-)Distribution Rule (Article 21).

1) The Panel erred in law and failed to make an objective assessment of the
matter before it, in violation of Article 11 of the DSU, in considering that the
state-ownership requirement in Article 42 of the Publications Regulation
makes no material contribution to the protection of public morals in China.
4
2) To the extent that it based its findings on its reasoning concerning Article 42
of the Publications Regulation, the Panel also erred in law in considering that
the exclusions relating to foreign-invested enterprises in Articles X.2 and X.3
of the Catalogue, Articles 3 and 4 of the Foreign Investment Regulation ,
Article 4 of the Several Opinions and Article 21 of the Audiovisual
(Sub-)Distribution Rule make no material contribution to the protection of
public morals in China.5
3) The Panel erred in interpreting Artic le XX(a) of the GATT 1994 as requiring
the Panel to also weigh the restrictive impact that the measures at issue may
have on those wishing to engage in impor ting, in particular on their right to
trade.6
4) The Panel committed errors of law and legal interpretation, and failed to
make an objective assessment of the fact s, in violation of Article 11 of the
DSU, in considering that at least one of the alternative measures referred to
by the United States was an alternative "reasonably available" to China.7
Should the Appellate Body reverse the Panel's findi ngs that China's measures are not "necessary" to
protect public morals, within the meaning of Article XX(a) of the GATT 1994, China requests that the
Appellate Body complete the Panel's analysis and fi nd that China's measures are fully justified under
Article XX(a) of the GATT 1994.
2. China seeks review by the Appellate Body of the Panel's legal conclusions set out in sub-
section 3.(b)(i) of section VIII of the Panel Report 8 that the Circular on Internet Culture (Article II),
the Network Music Opinions (Article 8), the Several Opinions (Article 4) and Article X:7 of the
Catalogue, in conjunction with Articles 3 and 4 of the Foreign Investment Regulation , are
inconsistent with Article XVII of the GATS. The Pa nel's legal conclusions ar e based on errors of law
and legal interpretation in applying the customary rul es of interpretation of public international law as
codified in Articles 31 and 32 of the Vienna Convention on the Law of Treaties ("the Vienna
Convention"), to China's GATS schedule. Such errors led, inter alia , to the erroneous finding that
China's schedule to the GATS includes specific co mmitments on the electronic distribution of sound
recordings in non-physical form under Sector 2.D "sound recording distribution services", contrary to
Articles 3.2 and 19.2 of the DSU.9 In particular:
1) The Panel erred in its analysis of the ordinary meaning to be given to the
terms "sound recording distribution services", taken in their context and in
light of the object and purpose of the Treaty.10

4See, e.g., Panel Report, paras. 7.850, 7.852–7.863.
5See, e.g., Panel Report, paras. 7.851, 7.864–7.868.
6See, e.g., Panel Report, paras. 7.787–7.788, 7.847–7.849, 7.862–7.863, 7.867–7.868.
7See, e.g., Panel Report, paras. 7.886–7.909.
8Panel Report, page 467.
10See, e.g., Panel Report, paras. 7.1173–7.1220.

2) The Panel erred in concluding that an analysis of China's GATS schedule
based on supplementary means of in terpretation under Article 32 of the
Vienna Convention confirmed its ear lier analysis, under Article 31 of the
Vienna Convention, of China's commitment on sound recording distribution
services.11
3) Consequently, the Panel erred in la w in finding that China's measures 12 are
inconsistent with China's national tr eatment commitments under Article XVII
of the GATS.
3. China seeks review by the Appellate Body of the Panel's legal conclusions, set out in
paragraphs 7.576, 7.598, 7.599, 7.7 06 and sub-section 2.(c)(ii), (iii), (vi) and (vii) of Section VIII of
the Panel Report, 13 that Article 30 of the Film Regulation and Article 16 of the Film Enterprise Rule
are inconsistent with China's trading rights commitments under China's Accession Protocol. The
Panel's conclusions are based on errors of law and le gal interpretation, and on a failure to make an
objective assessment of the facts before it, contrary to Article 11 of the DSU. Such errors led, inter
alia, to the erroneous finding that the challenged meas ures are inconsistent with certain provisions of
China's Accession Protocol, contrary to Articles 3.2 and 19.2 of the DSU. In particular, the Panel
erred in concluding that China's trading rights commi tments are applicable to the Chinese measures at
issue, despite the fact that these measures do not re gulate hard-copy cinematographic film, which is
the subject of the US claim.14
4. China seeks review by the Appellate Body of the Panel's legal c onclusions set out in
paragraphs 7.706 and sub-section 2.(d)(i), (ii), (v), (v i) and (x) of section VIII of the Panel Report that
Article 5 of the Audiovisual Products Regulation and Article 7 of the Audiovisual Products
Importation Rule are inconsistent with China's trading rights commitments under China's Accession
Protocol. The Panel's findings concerning these m easures are based on the same reasoning as the one
on which the Panel based its findings concerning Article 30 of the Film Regulation and Article 16 of
the Film Enterprise Rule.15

11See, e.g., Panel Report, paras. 7.1221–7.1247.
12The Circular on Internet Culture (Article II); the Network Music Opinions (Article 8); the Several
Opinions (Article 4); and the Catalogue (Article X:7, in conjunction with Articles 3 and 4 of the Foreign
Investment Regulation).
13Panel Report, pages 464–465.
14See, e.g., Panel Report, paras. 7.528–7.560, 7.584.
15See, e.g., Panel Report, paras. 7.649–7.651, 7.674.

ANNEX II

6 October 2009

 (09-4781)
 Original: English

Notification of an Other Appeal by the United States

under Article 16.4 and Article 17 of the Understanding on Rules
and Procedures Governing the Settlement of Disputes (DSU),
and under Rule 23(1) of the Working Procedures for Appellate Review

 The following notification, dated 5 October 2009 , from the Delegation of the United States, is
being circulated to Members.

Pursuant to Rule 23 of the Working Procedures for Appellate Review , the United States
hereby notifies its decision to appeal to the Appellate Body certain issues of law covered in the Report
of the Panel in China – Measures Affecting Trading Right s and Distribution Services for Certain
Publications and Audiovisual Entertainment Products (WT/DS363/R & Corr.1) ("Panel Report") and
certain legal interpretations developed by the Panel.

 The United States seeks review by the Appellate Body of the Panel's legal conclusion that the
State plan requirement in Article 42 of the Publications Regulation can be characterized as
"necessary" to protect public morals in China within the meaning of Article XX(a) of the General
Agreement on Tariffs and Trade 1994.
1 This conclusion is in error and is based on erroneous findings
on issues of law and legal interpretations, and on the Panel's failure to carry out its obligations under
Article 11 of the Understanding on Rules and Procedures Governing the Settlement of Disputes to
make an objective assessment of the matter before it.

1See, e.g., Panel Report, paras. 7.829-7.836.

ANNEX III

RELEVANT EXCERPTS FROM
CHINA'S ACCESSION PROTOCOL AND WORKING PARTY REPORT,
CHINA'S GATS SCHEDULE, AND
THE CHINESE MEASURES AT ISSUE IN THIS APPEAL

China's Trading Rights Commitments Relevant to This Appeal

China's Accession
Protocol Panel Exhibits US-1 and CN-1
Paragraph 1.2 The WTO Agreement to which China acce des 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 accession. 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.
Paragraphs 5.1
and 5.2
5.1 Without prejudice to China's right to regulate trade in a manner consistent with the
WTO Agreement, China shall progressively 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 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 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.
5.2 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.

China's Accession
Working Party
Report
Panel Exhibit US-2
Paragraphs 83(d)
and 84(a) and (b)
83. 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 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.
84. (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 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) 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 trading rights to foreign enterprises and individuals,
including sole proprietorships of other WTO members, the representative of China
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.
Paragraph 342 The Working Party took note of the explanations and statements of China concerning its
foreign trade regime, as reflected in this Report. The Working Party took note of the
commitments given by China in relation to certain specific matters which are reproduced
in paragraphs ... 83 [and] 84 ... of this Report and noted that these commitments are
incorporated in paragraph 1.2 of the Draft Protocol.
Sector 2.D of China's GATS Schedule*

Modes of supply: (1) Cross-border supply (2) Consumption abroad (3) Commercial presence (4) Presence of natural persons
Sector or sub-sector Limitations on market access Limitation on nationa l treatment Additional commitments
2. COMMUNICATION SERVICES
D. Audiovisual Services

- Videos, including entertainment
software and
(CPC 83202), distribution services
- Sound recording distribution
services

(1) None
(2) None
(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).
(4) Unbound, except as indicated in
horizontal commitments.

(1) None
(2) None
(3) None

(4) Unbound, except as indicated in
horizontal commitments.

Without prejudice to compliance
with China's regulations on the
administration of films, upon
accession, 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.
- Cinema Theatre Services (1) None
(2) None
(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.
(4) Unbound, except as indicated in
horizontal commitments.
(1) None
(2) None
(3) None

(4) Unbound, except as indicated in
horizontal commitments.

[Footnote 1 to section I. HORIZONTAL COMMI TMENTS under "Limitations on market access", mode 3.] The terms of the contract, con cluded in accordance with
China's laws, regulations and other measures, establishing a "contractual joint venture" govern matters such as the manner of o peration 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.

*The cover note to China's GATS Schedule, GATS/SC/135, states that the Schedule is authentic in English only.

Provisions of the Chinese Measures Relevant to This Appeal**

 United States' Translation China's Translation
Foreign Investment
Regulation Panel Exhibit US-9 None provided
Article 3 The Catalogue of Industries for Guiding
Foreign Investment and the Catalog of
Priority Industries Available for Foreign
Investment in the Mid-West Region, drawn
up by the National Development and
Reform Commission, the State Economic
and Trade Commission, and the Ministry
of Foreign Trade and Economic
Cooperation in conjunction with relevant
departments of the State Council, have
been promulgated after approval by the
State Council. When partial adjustments
are necessary in regard to the two
Catalogs, the State Economic and Trade
Commission, the National Development
and Reform Commission, and the Ministry
of Foreign Trade and Economic
Cooperation, in conjunction with relevant
departments of the State Council, shall
make timely revisions and promulgate
them.
The Catalogue of Industries for Guiding
Foreign Investment and the Catalog of
Priority Industries Available for Foreign
Investment in the Mid-West Region are the
basis for the examination and approval of
foreign-invested projects and FIE
applicable policies.
None provided
Article 4 Foreign-invested projects are divided into
four categories: Those encouraged,
permitted, restricted, and prohibited.
The encouraged, restricted and prohibited
categories of foreign-invested projects are
listed in the Catalog of Industries for
Guiding Foreign Investment. Those not
included in the encouraged, restricted, and
prohibited categories fall into the permitted
category of foreign-invested projects. The
permitted category is not listed in the
Catalogue of Industries for Guiding
Foreign Investment.
None provided

**The Panel explained that it would, when referring to a provision of a Chinese measure, use the translation
provided by the United States, unless the parties agreed to use the translation provided by China, or if based on
the advice of the independent translat or the Panel found that the translation provided by the United States was
inappropriate. (Panel Report, footnote 84 to para. 7.34) It appears that, for the following listed provisions, the
Panel used the translation provided by the United States, except that, for Article 8 of the Audiovisual Products
Importation Rule, Article II of the Circular on Internet Culture , and Article 8 of the Network Music Opinions ,
the Panel used the translation provided by China.

 United States' Translation China's Translation
Catalogue Panel Exhibit US-5 Panel Exhibit CN-41
Articles X:2,
X:3, and X:7
in the List of
Prohibited Foreign
Investment
Industries
2. Publication, master distribution, and
import operations of books, newspapers
and periodicals
3. Publication, production, and import
operations of audiovisual products and
electronic publications

7. News websites, network audio-visual
program services, internet on-line service
operation site, and internet culture
operation
2. Publishing, Zong Fa Xing and
importation of books, newspapers and
periodicals
3. Publishing, producing and importation
of audiovisual products and electronic
publications

7. News websites, service of network
audio-visual programs, business sites of
internet access services, internet culture
operating
Several Opinions Panel Exhibit US-6 None provided
Article 4 Foreign investors are prohibited from
setting up and operating news agencies,
radio broadcasting stations, television
stations, radio-TV transmission networks,
companies producing and broadcasting
radio and television programs, companies
making motion pictures, business dealing
in internet culture and sites for Internet
services (Hong Kong and Macao are
exceptions), cultural and art performance
groups, motion picture import and
distribution companies, and video
projection companies. Foreign investors
are prohibited from engaging in the
publication, master distribution and import
of books, newspapers and periodicals, and
publishing, production, master distribution,
and import of audiovisual products and
electronic publications, as well as using the
information network to provide
audiovisual program services, news
websites, and internet publication
businesses. Foreign investors may not
covertly enter into sectors of propaganda
such as channels, frequencies, layouts,
editing, and publishing through such
business operations as sub-distribution,
printing, advertising, and reconstruction of
cultural facilities.
None provided

 United States' Translation China's Translation
Publications
Regulation Panel Exhibit US-7 Panel Exhibit CN-14
Article 41 The business of importing publications
shall be operated by publication import
entities established in compliance with
these Regulations, among which those that
engage in the business of importing
newspapers or periodicals shall be
designated by the publication
administration under the State Council.
No entity or individual shall engage in the
business of importing publications without
approval; and no entity or individual shall
engage in the business of importing
newspapers or periodicals without being
designated.
The business of importing publications
shall be operated by the publication
importation entities established in
accordance with these Regulations. Among
others, those publication importation
entities engaged in importing newspapers
or periodicals shall be designated by the
administrative department of publishings
under the State Council.
No entity or individual may be engaged in
importing publications without approval;
and, without being designated, no entity or
individual may be engaged in importing
newspapers or periodicals.
Article 42 In order to establish a publication import
entity, the applicant shall meet the
following conditions:
(1) have a name and articles of association
for the publication import entity;
(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;
(3) have a well-defined scope of business;
(4) have an organization suited to the
needs of its business of importing
publications and specialized personnel who
meet the qualification requirements
determined by the State;
(5) have funding suited to its business of
importing publications;
(6) have a fixed work site; and
(7) other conditions stipulated in laws and
administrative regulations or by the State.
Approval 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.
The following conditions shall be met for
the establishment of a publication
importation entity:
(1) having name and articles of
association of the publication importation
entity;
(2) being a wholly state-owned enterprise
and having a sponsoring entity and the
supervising entity which are recognized by
the administrative department of
publishing under the State Council;
(3) having a defined scope of business;
(4) having an organizational structure
adapted to the needs of its business of
importing publications and professionals
who meet the qualification requirements
prescribed by the State;
(5) having funds adequate for its business
of importing publications;
(6) having fixed business premises;
(7) other conditions provided for in laws
and administrative regulations or by the
State.
In addition to the conditions prescribed in
the preceding paragraph, the approval of
the establishment of a publication
importation entity shall also be consistent
with the plans of the State on the total
number, structure and layout of the
publication importation entities.

 United States' Translation China's Translation
2001 Audiovisual
Products
Regulation
Panel Exhibit US-16 Panel Exhibit CN-2
Article 5 The state institutes a system of licensing in
regard to the publishing, production,
reproduction, import, wholesale, retail and
rental of audiovisual products. No entity
or individual may engage in the
publishing, production, reproduction,
import, wholesale, retail and rental of
audiovisual products without necessary
permit.
Permits and approval documents issued in
compliance with these Regulations may
not be rented out or lent out, sold or
assigned in any other form.
The State shall apply a licensing system in
respect of the publication, production,
reproduction, importation, wholesale, retail
and leasing of audiovisual products. No
entity or individual shall, without the
license, be engaged in the publication,
production, reproduction, importation,
wholesale, retail and leasing, etc. of
audiovisual products.
The certificates of license or approval
documents issued in accordance with the
Regulations shall not be leased, lent, sold
or transferred in any way.
Article 27 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 have not been designated
may not engage in the import of finished
audiovisual products.
The importation of finished audiovisual
products shall be operated by the
importation entity of finished audiovisual
products designated by the administrative
department of cultural affairs under the
State Council; no entity or individual may
operate the importation of finished
audiovisual products without being
designated.
Audiovisual
Products
Importation Rule
Panel Exhibit US-17 Panel Exhibit CN-15
Article 7 The State shall implement a system of
licensing in regard to the import of
audiovisual products.
The State shall apply a license system to
the importation of audiovisual products.
Article 8 The business of importing finished
audiovisual products shall be entrusted to
audiovisual units designated by the
Ministry of Culture. Without the
designation of the Ministry of Culture, no
unit or individual may engage in the
importing of finished audiovisual products.
The import business of audiovisual
finished products shall be operated by the
audiovisual product operating entities
designated by the Ministry of Culture; no
entity or individual shall be engaged in the
importation of finished audiovisual
products without the designation of the
Ministry of Culture.
Audiovisual
(Sub-)Distribution
Rule
Panel Exhibit US-18 Panel Exhibit CN-54
Article 21 A Chinese-foreign contractual joint
venture for sub-distribution of audiovisual
products may not engage in the import of
audiovisual products.
No Sino-foreign distribution contractual
joint venture of audiovisual products may
engage in the importation of audiovisual
products.

 United States' Translation China's Translation
Film Regulation Panel Exhibit US-20 Panel Exhibit CN-11
Article 30 The business of importing films shall be
conducted by film importing entities
designated by the radio, film, and
television administration under the State
Council; without being designated, no
entity or individual shall engage in the
business of importing films.
The business of importing films shall be
operated by the film importation entities
designated by the administrative
department of radio, films and television
under the State Council. No entity or
individual shall conduct the business of
importing films without being designated.
Film Enterprise
Rule Panel Exhibit US-22 Panel Exhibit CN-13
Article 16 The business of importing films shall be
exclusively conducted by film import
enterprises that are approved by SARFT.
The distribution 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.
Importation of films shall be exclusively
operated by film importation enterprises
approved by the SARFT. Nationwide
distribution of imported films shall be
conducted by those distribution companies
which are approved by SARFT to have
rights to distribute imported films in
China.
Circular on Internet
Culture Panel Exhibit US-33 Panel Exhibit CN-67
Article II To apply for the establishment of an
Internet cultural unit, the applicant shall
meet the application requirements listed in
the Rules and the plans for the total
number, structure, and deployment for
Internet cultural units, and shall also have
sources for Internet cultural products or the
ability to produce Internet cultural
products. To apply to be established as a
commercial Internet cultural unit, the
applicant shall have ¥1 million RMB or
more in registered capital, eight or more
professional technical staff such as
network administrators and editors, and
apply as an enterprise. An applicant to set
up a non-commercial Internet cultural unit
is not required to go through relevant
procedures in the form of an enterprise.
Presently, all areas shall not accept
applications to engage in Internet cultural
activities from Internet information service
providers with foreign investment.
Whoever applies to establish an Internet
cultural entity shall comply with relevant
conditions in the Provisions, and plan of
the total number, structure and layout of
Internet cultural entities, and have lawful
supply channel of Internet cultural works
or capacity of producing internet cultural
works; whoever applies to establish a
commercial Internet cultural entity shall
have a registered capital of more than
RMB 1 million and at least eight
professional technological personnel, such
as internet management personnel or
editors, and apply and process relevant
formalities in the form of an enterprise.
Whoever applies to establish a non-
commercial internet cultural entity shall
not go through the relevant formalities in
the form of enterprise. Provisionally,
application submitted by internet
information service providers with foreign
investment for engaging in internet cultural
activities shall not be accepted.

 United States' Translation China's Translation
Network Music
Opinions Panel Exhibit US-34 Panel Exhibit CN-68
Article 8 Establishing strict market entry rules and
strengthening regulation over content.
Internet culture business units which apply
to set up network music operations should
comply with the "Rules." To engage in
network music product operations, a unit
must get a Network Cultural Business
License issued by the Ministry of Culture.
Foreign-invested network cultural business
units are prohibited.
To regulate market access, and to enhance
supervision over contents; the application
for establishing an Internet cultural entity
to engage in network music business shall
meet the requirements of the Provisions;
whoever engages in the network music
works operation shall obtain the
"Certificate of License for Network
Cultural Operation" issued by the Ministry
of Culture. It is prohibited to establish
network cultural entities with foreign
investment.